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.
Investment goal derailment occurs when an investor's real estate objectives are not met or are significantly delayed due to unexpected events or poor planning, leading to underperformance or losses.
An Investment Manager is a professional or firm responsible for managing a portfolio of real estate assets or funds on behalf of clients, aiming to achieve specific investment objectives and maximize returns.
The total monetary inflows an investor receives from their real estate assets, including rental income, loan repayments, or distributions from partnerships, before deducting any expenses.
An Investment Policy Statement (IPS) is a written document outlining an investor's investment objectives, risk tolerance, asset allocation strategy, and guidelines for managing their real estate portfolio.
Investment risk in real estate refers to the potential for an investment's actual returns to differ from the expected returns, often resulting in financial loss. It encompasses various factors that can negatively impact property value, cash flow, or an investor's capital.
An investment thesis is a detailed, data-driven argument explaining the fundamental reasons for a specific real estate investment, including market rationale, strategy, financial projections, and risk management.
A junior lien is a claim on a property that is subordinate in priority to another existing claim, typically a first mortgage. In a foreclosure, junior lienholders are paid only after all senior lienholders have been fully satisfied, exposing them to higher risk.
Just compensation refers to the fair market value paid to a property owner when their private property is taken for public use by the government through eminent domain, as mandated by the Fifth Amendment.
Land improvements are depreciable additions to land that enhance its utility and value but are separate from the land itself. These assets, such as fences, driveways, and utility systems, have a limited useful life and are subject to specific accounting and tax treatments.
Land value refers to the inherent worth of a piece of land, separate from any buildings or improvements on it, driven by its location, potential use, and market demand.
Lease-up refers to the critical period following the completion of a new or renovated income-producing property, during which the property is actively marketed and leased to achieve stabilized occupancy and rental income.
The lease-up period is the time frame during which a newly constructed or significantly renovated rental property attracts and secures its initial tenants, moving from vacant to stabilized occupancy.
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