Key financial calculations, ratios, and valuation methods used to analyze real estate investments and performance.
Master financial analysis & metrics with our progressive approach
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.
The advance rate is the percentage of a collateral's value that a lender is willing to finance, commonly used in asset-based lending or lines of credit, determining the maximum loan amount available against specific assets.
Affordability in real estate refers to a buyer's ability to comfortably manage the costs associated with purchasing and owning a property, considering their income, debts, and current market conditions.
A critical financial assessment for real estate investors to determine if a property's costs, including mortgage, taxes, insurance, and operating expenses, are sustainable relative to their income and other financial obligations, ensuring positive cash flow and mitigating risk.
The Affordability Index measures whether a typical family earns enough income to qualify for a mortgage loan on a median-priced home. An index value of 100 means the median family income is exactly enough to qualify, while values above 100 indicate greater affordability.
After Repair Value (ARV) is the estimated market value of a property after all planned renovations and improvements have been completed, crucial for assessing investment profitability.
After-Tax Cash Flow (ATCF) is the net income generated by an investment property after accounting for all operating expenses, debt service payments, and income taxes, providing a true measure of an investor's take-home profit.
Alpha measures the excess return of an investment or portfolio relative to the return of a benchmark index, adjusted for risk, indicating the value added by active management.
Alternative investments are financial assets outside of traditional stocks, bonds, and cash, including real estate, private equity, and commodities, often used for diversification and higher return potential.
Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.
Analysis paralysis is the state where a real estate investor over-analyzes a potential deal, leading to inaction and missed opportunities due to excessive research and fear of making a mistake.
An anchor tenant is a prominent, well-known commercial business that attracts significant customer traffic to a property, enhancing its value and stability for real estate investors.
Anchoring bias is a cognitive heuristic where an individual's decisions are overly influenced by an initial piece of information (the anchor), leading to skewed valuations, negotiations, and market analyses in real estate investment.
Explore complementary areas that build on financial analysis & metrics concepts
Personal budgeting, expense tracking, cash flow management, emergency funds, and savings strategies.
Credit scores, debt consolidation, loan management, credit repair, and debt payoff strategies.
Macroeconomic concepts, interest rates, inflation, Federal Reserve policy, and economic cycles.
Wills, trusts, estate taxes, succession planning, beneficiary planning, and wealth preservation.