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 delinquency rate is the percentage of loans or payments that are past due, indicating the financial health of a loan portfolio or the broader real estate market. It's a key metric for assessing credit risk and market stability.
Demand elasticity measures the responsiveness of the quantity demanded of a good or service to a change in its price or other influencing factors, crucial for real estate market analysis and investment strategy.
The depreciable basis is the portion of an investment property's cost, excluding land value, that can be legally deducted over time through depreciation for tax purposes.
Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.
The Depreciation Cliff describes the abrupt reduction in depreciation tax deductions for real estate investors, typically after accelerated or bonus depreciation periods conclude, leading to a sudden increase in taxable income.
Depreciation recapture is an IRS rule that taxes the gain from the sale of depreciated property at ordinary income tax rates, up to the amount of depreciation previously claimed, ensuring tax benefits are accounted for upon sale.
A depreciation schedule is a detailed accounting document outlining how a real estate asset's value will be expensed over its useful life for tax purposes, allowing investors to reduce taxable income.
A derivative is a financial contract whose value is derived from an underlying asset, index, or interest rate, used by real estate investors for hedging risk, speculation, or leveraging market movements without direct asset ownership.
A derogatory mark is a negative entry on a credit report that indicates a borrower has failed to meet their financial obligations, signaling higher risk to lenders and impacting loan eligibility and interest rates.
A development budget is a detailed financial plan outlining all anticipated costs for a real estate project, from land acquisition and construction to financing and project completion, serving as a critical tool for feasibility, funding, and cost control.
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.
Direct costs are expenses directly tied to a specific real estate project or property, such as materials, labor, and permits, making them easy to assign and track.
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