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.
Gross Potential Rent (GPR) is the maximum total income a rental property could generate if all units were occupied and all rent was collected at market rates, before accounting for vacancies or expenses.
Gross profit represents the revenue remaining after deducting the direct costs associated with producing or acquiring the goods sold or services rendered, before accounting for operating expenses, interest, and taxes. It is a key indicator of a property's or business's operational efficiency.
The Gross Rent Multiplier (GRM) is a real estate valuation metric that compares a property's purchase price to its gross annual rental income, used for quick initial screening of residential income properties.
An HVAC system is a mechanical system responsible for heating, ventilating, and air conditioning a building, crucial for maintaining indoor comfort and air quality in real estate.
Hard costs are the direct, tangible expenses associated with the physical construction or renovation of a real estate property, encompassing materials, labor, and equipment.
Hedge effectiveness measures the degree to which a hedging instrument offsets changes in the fair value or cash flows of a hedged item, crucial for managing financial risks in real estate portfolios.
Hedging in real estate is a risk management strategy involving the use of financial instruments or offsetting positions to mitigate potential losses from adverse market movements, such as interest rate fluctuations or property value declines.
Held for Sale Classification is an accounting designation for non-current assets or disposal groups whose carrying amount will be recovered primarily through a sale transaction rather than through continuing use, requiring specific criteria to be met under GAAP and IFRS.
Highest and Best Use refers to the reasonably probable and legal use of a property that is physically possible, financially feasible, and results in the highest value, guiding optimal property utilization and investment decisions.
Historical price levels refer to the past selling prices or values of real estate properties over a period, providing insights into market trends and potential future performance.
Holding costs are the recurring expenses associated with owning a real estate property, such as property taxes, insurance, utilities, and mortgage interest, incurred from acquisition until sale or consistent income generation.
The holding period is the length of time an investor owns a real estate asset, directly influencing capital gains taxation, investment strategy, and overall financial returns.
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