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.
Income Statement Presentation for real estate investments involves the structured reporting of a property's revenues, operating expenses, and non-operating items over a specific period, providing a clear view of its financial performance and profitability.
Incremental progress is a strategy in real estate investing that involves achieving large goals by breaking them into small, consistent, and manageable steps, leading to significant long-term results.
Inflation is the rate at which the general level of prices for goods and services is rising, leading to a decrease in the purchasing power of currency over time.
An inflation hedge is an investment, such as real estate, that is expected to retain or increase its value and purchasing power during periods of rising inflation, protecting wealth from currency devaluation.
Inflation hedging is an investment strategy designed to protect the purchasing power of capital from the eroding effects of rising inflation. It involves allocating assets that are expected to increase in value or generate higher income during inflationary periods.
The inflation rate measures the percentage increase in the general price level of goods and services over time, indicating the rate at which purchasing power declines.
An Initial Public Offering (IPO) is the process by which a private company first offers its shares to the public, allowing individual and institutional investors to purchase ownership stakes. This transition from private to public ownership enables companies to raise significant capital for growth and expansion.
Intangible assets are non-physical assets that hold significant value for a real estate investment or business, contributing to its competitive advantage and long-term profitability, though they lack physical form.
Interest is the cost of borrowing money, typically expressed as a percentage of the principal, or the return earned on invested capital. It is a critical factor in real estate financing, directly influencing loan payments, cash flow, and investment profitability.
Interest Expense Tracing Rules, codified under Treasury Regulation § 1.163-8T, are IRS guidelines that dictate how taxpayers must allocate interest expense based on the use of the debt proceeds, thereby determining its deductibility for tax purposes.
Interest income is the money earned by lending funds or investing in debt instruments, representing the cost a borrower pays for using the lender's money. For real estate investors, it often comes from private loans or seller financing.
An interest rate swap is a derivative contract where two parties agree to exchange future interest payments based on a specified notional principal amount, typically exchanging a fixed-rate payment for a floating-rate payment.
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