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.
A financing strategy is a comprehensive plan detailing how a real estate investor will fund property acquisitions, manage capital, and structure deals to achieve investment objectives while controlling risk.
Fit-out costs refer to the expenses incurred to make a commercial property space suitable for a tenant's specific needs, transforming a bare shell or basic interior into a functional workspace.
Fix-and-flip is a real estate investment strategy where an investor buys an undervalued property, renovates it to increase its value, and then sells it quickly for a profit.
The Fixed Asset Turnover Ratio measures how efficiently a company uses its fixed assets, such as property, plant, and equipment, to generate sales revenue. It indicates the revenue generated for every dollar invested in fixed assets.
Fixed assets are long-term tangible assets, such as land, buildings, and equipment, that a real estate investor owns and uses for more than one year to generate income, rather than for immediate sale.
A real estate investment characterized by a predictable, stable return over a defined period, often involving fixed-income streams or assets with limited volatility, providing stability rather than high growth.
Fixed overhead refers to business expenses that do not change regardless of the level of activity or production, such as rent, insurance premiums, and salaries of administrative staff, making them predictable costs for real estate investors.
Forced appreciation is the increase in a property's value resulting from an investor's deliberate actions, such as renovations, operational improvements, or strategic repositioning, rather than general market fluctuations.
A forensic audit in real estate is a detailed examination of financial records and operational procedures to uncover discrepancies, fraud, or mismanagement, often used in legal proceedings or dispute resolution.
IRS Form 4562 is used by businesses and real estate investors to claim deductions for depreciation and amortization of assets, including Section 179 expense deductions and special depreciation allowances, reducing taxable income.
A fourplex is a single residential building containing four separate living units, offering investors diversified rental income and accessible financing options, often used for 'house hacking' strategies.
Free Cash Flow (FCF) represents the cash a company or property generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the cash available to debt and equity holders.
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