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.
Free Cash Flow Yield (FCFY) is a financial solvency ratio that compares the free cash flow per share a company or property generates to its market value per share or enterprise value, indicating the cash return on investment.
Fully diluted shares represent the total number of common shares that would be outstanding if all convertible securities and other dilutive instruments were exercised or converted into common stock.
Functional obsolescence refers to the loss in property value due to an outdated design, inadequate utility, or undesirable features that no longer meet current market standards or buyer preferences. It can be curable or incurable, significantly impacting a property's marketability and investment potential.
Fundamental Economic Value (FEV) represents the intrinsic worth of a real estate asset, derived from its ability to generate future income and its underlying economic utility, independent of short-term market fluctuations.
Funds From Operations (FFO) is a key financial metric used primarily by Real Estate Investment Trusts (REITs) to define the cash flow from their operations, providing a more accurate picture of their profitability than traditional net income.
The Future Value Factor (FVF) is a multiplier used to calculate the future value of a single lump sum investment, assuming a specific interest rate and compounding period.
The profit realized when an asset, such as real estate, is sold for more than its adjusted cost basis. It's a key metric for investors to understand their profitability and tax obligations.
Gain or loss calculation determines the profit or deficit from a real estate investment by comparing the net selling price to the adjusted cost basis, crucial for tax reporting and investment analysis.
The going-in cap rate is a real estate investment metric that measures the initial unleveraged rate of return an investor can expect from a property based on its first year's projected Net Operating Income (NOI) relative to its purchase price.
Gross income in real estate is the total revenue a property generates from all sources before any expenses, taxes, or deductions are subtracted. It represents the initial, unfiltered earnings.
Gross Monthly Rent is the total amount of rent collected or scheduled to be collected from a property in a single month, before any operating expenses or mortgage payments are deducted.
Gross Potential Income (GPI) is the maximum possible revenue a rental property could generate if all units were fully occupied at market rent, including all other income sources, before accounting for expenses.
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