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.
Modified Adjusted Gross Income (MAGI) is a crucial metric derived from Adjusted Gross Income (AGI) by adding back certain deductions and exclusions, primarily used to determine eligibility for various tax credits, deductions, and investment-related tax rules.
Months of Supply (MOS) is a key real estate metric that indicates how long it would take for all current homes on the market to sell, given the current sales pace, assuming no new homes are added. It's a crucial indicator of market balance.
Mortgage debt is the total outstanding amount of money a borrower owes to a lender for a loan secured by real estate. It typically includes the remaining principal balance and any accrued interest, paid over a set period.
Mortgage interest is the cost charged by a lender for borrowing money to purchase a property, calculated as a percentage of the outstanding loan principal. It's a critical component of monthly mortgage payments and a significant factor in real estate investment profitability.
A regular, typically monthly, payment made by a borrower to a lender to repay a home loan, usually comprising principal, interest, property taxes, and homeowners insurance (PITI).
Mortgage REITs (mREITs) are companies that invest in mortgages and mortgage-backed securities (MBS), generating income primarily from the interest earned on these investments and the spread between borrowing and lending rates.
Multi-family investing involves acquiring properties with multiple residential units to generate rental income, benefit from economies of scale, and achieve long-term appreciation. It's a strategy for diversifying income and scaling a real estate portfolio.
Negative equity occurs when the outstanding balance of a loan secured by a property exceeds the property's current market value, often referred to as being "underwater" or "upside down."
Net Asset Value (NAV) represents the total value of an entity's assets minus its liabilities, providing a per-share or per-unit value for investors in funds or syndications.
Net Earnings from Self-Employment (NESE) represents the profit or loss derived from a trade or business operated by an individual, partnership, or LLC, which is used to calculate the self-employment tax for Social Security and Medicare contributions.
Net Income from Discontinued Operations represents the profit or loss from a segment of a business that has been disposed of or is classified as held for sale, reported separately on the income statement after tax.
A net lease is a commercial real estate lease structure where the tenant is responsible for paying a portion or all of the property's operating expenses in addition to base rent.
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