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.
Home price appreciation refers to the increase in a property's market value over a period, driven by various economic, demographic, and local market factors, leading to capital gains for investors.
Hospitality real estate refers to properties designed for short-term lodging and guest services, including hotels, motels, resorts, and short-term rental properties. These investments are highly sensitive to economic cycles and require specialized management.
The Housing Expense Ratio is a financial metric used by lenders to assess a borrower's ability to afford housing costs, representing the percentage of gross monthly income allocated to housing-related expenses.
The If-Converted Method is an accounting technique used to calculate the dilutive impact of convertible securities on a company's earnings per share (EPS), assuming all such securities are converted into common stock at the beginning of the reporting period.
Illiquidity refers to the difficulty of converting an asset into cash quickly without significantly impacting its market price. Real estate is inherently illiquid due to high transaction costs, lengthy sales processes, and market dependencies.
The illiquidity premium is the additional return investors require for holding assets that cannot be easily converted to cash without significant loss in value, common in real estate due to its slow transaction process and high costs.
An impairment loss occurs when an asset's carrying value on the balance sheet exceeds its recoverable amount, indicating a decline in its future economic benefits or fair value.
In-place leases are the active rental agreements on a property at the time of acquisition or valuation, directly determining its current income stream and influencing its market value.
The Income Approach is a real estate valuation method that estimates a property's value based on the income it is expected to generate, making it essential for evaluating investment properties.
The Income Capitalization Approach is a real estate valuation method that estimates a property's value by converting its expected future income (Net Operating Income) into a present value using a capitalization rate.
Income documentation refers to the financial records and statements required by lenders to verify a borrower's ability to repay a loan, crucial for securing real estate financing.
Income stability refers to the consistency and predictability of rental revenue generated by an investment property, minimizing fluctuations and ensuring reliable cash flow for investors.
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