Key financial calculations, ratios, and valuation methods used to analyze real estate investments and performance.
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Foundation terms you need to know first (92 terms)
Development costs are all the expenses incurred during the process of acquiring land, designing, constructing, and preparing a real estate project for use or sale, from start to finish.
Equity investment in real estate involves directly owning a portion or all of a property, providing the investor with an ownership stake and the potential to benefit from appreciation and rental income.
Accrual basis accounting records revenues when they are earned and expenses when they are incurred, regardless of when cash actually changes hands. This method provides a more accurate picture of a business's financial performance over time.
Base rent is the fixed, minimum rent amount paid by a tenant to a landlord for the use of a property, excluding additional charges like operating expenses, taxes, or utilities.
An office building is a commercial property designed for businesses to conduct administrative, professional, or commercial operations, offering spaces for work and meetings.
Complex strategies and professional concepts (131 terms)
Slow BRRRR is an advanced real estate investment strategy that extends the traditional BRRRR (Buy, Rehab, Rent, Refinance, Repeat) cycle over a longer period, often several years, to maximize equity appreciation and mitigate market risks.
An Equity-for-Property Swap is an advanced real estate investment strategy where an investor exchanges equity in one or more properties or entities for direct ownership of another property, often to achieve tax deferral, portfolio restructuring, or strategic asset acquisition.
The accounting process of recognizing the estimated cost of an Asset Retirement Obligation (ARO) as a liability and capitalizing a corresponding asset, which is then depreciated over its useful life, reflecting the future costs associated with retiring a long-lived asset.
A Personal Financial Stress Test is a systematic evaluation of an individual's or household's financial resilience against adverse economic scenarios, crucial for real estate investors to safeguard their portfolios.
Equity dilution occurs when a company or investment vehicle issues new shares, decreasing the ownership percentage of existing shareholders. In real estate, this often happens in syndications or partnerships when additional capital is raised.
The Debt Avalanche is a debt repayment strategy focused on paying off debts with the highest interest rates first, while making minimum payments on all other debts, to minimize total interest paid and accelerate debt elimination.
Debt capacity is the maximum amount of debt an individual or entity can prudently take on while maintaining financial stability and meeting repayment obligations. For real estate investors, it's a critical metric for assessing borrowing limits, managing risk, and planning portfolio expansion.
Debt financing in real estate involves borrowing money from a lender to acquire, develop, or refinance properties, using the property itself as collateral. It allows investors to leverage capital, amplify returns, and scale their portfolios.
Debt management in real estate investing involves strategically handling financial obligations to optimize cash flow, reduce risk, and maximize returns from investment properties. It encompasses various strategies for acquiring, servicing, and restructuring debt.
Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.
The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.
Debt Yield is a commercial real estate lending metric calculated as a property's Net Operating Income (NOI) divided by the total loan amount, used to assess a loan's risk by measuring the property's income-generating capacity relative to the debt, independent of interest rates.
The Debt-to-Equity (D/E) Ratio is a financial leverage metric that indicates the proportion of a company's or property's financing that comes from debt versus equity. It helps real estate investors assess the financial risk and solvency of an investment.
The Debt-to-Income (DTI) Ratio is a financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts, calculated by dividing total monthly debt payments by gross monthly income.
The Declining Balance Method is an accelerated depreciation technique that allows real estate investors to deduct larger portions of an asset's value in its early years, resulting in higher initial tax savings.
Decommissioning costs are expenses incurred at the end of a property's useful life to dismantle, remove, or restore the site to a specified condition, particularly relevant for industrial, energy, or specialized assets with environmental or structural obligations.
Delayed gratification in real estate investing is the strategic choice to forgo immediate profits for substantially larger returns achieved over an extended period, relying on patience, compounding, and long-term market growth.
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