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.
A liquidity strategy in real estate investing is a proactive plan to ensure an investor has sufficient accessible cash or assets that can be quickly converted to cash to meet financial obligations and capitalize on opportunities.
Loan covenants are legally binding conditions within a loan agreement that borrowers must adhere to, designed to protect the lender's interests by ensuring financial health and responsible asset management throughout the loan term.
A loan origination fee is an upfront charge from a lender for processing a new loan, typically a percentage of the loan amount, covering administrative costs like underwriting and processing.
Loan proceeds represent the net amount of funds a borrower receives from a lender after all associated fees, charges, and deductions have been subtracted from the gross loan amount. These funds are typically used to finance a real estate purchase, refinance an existing property, or fund construction projects.
The loan term is the duration over which a borrower agrees to repay a loan, typically expressed in years, and significantly impacts monthly payments, total interest paid, and overall financial strategy.
Loan-to-Cost (LTC) is a financial ratio used in real estate development and construction financing, comparing the loan amount to the total cost of a project, including acquisition, construction, and soft costs. It helps lenders assess risk and determine the maximum loan amount.
The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.
Long-term capital refers to funds committed to an investment for an extended period, typically several years or more, essential for real estate projects requiring significant upfront investment and delayed returns.
A real estate investment strategy focused on acquiring and holding properties for an extended period, typically five years or more, to generate wealth through rental income, property appreciation, and tax benefits.
Loss aversion is a cognitive bias where the psychological impact of a loss is felt more intensely than the pleasure of an equivalent gain, often leading to irrational investment decisions.
The Loss Factor in commercial real estate measures the proportion of a tenant's rentable space that is allocated to common areas and not directly usable. It's calculated as the ratio of rentable square footage to usable square footage, impacting effective rent and property efficiency.
A loss on sale occurs when an asset, such as a real estate property, is sold for less than its adjusted cost basis, resulting in a negative return for the seller.
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