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.
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.
The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income of individuals, estates, and trusts whose income exceeds statutory thresholds, primarily impacting passive investors.
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.
Net Operating Income (NOI) is a key real estate metric representing a property's annual income after deducting all operating expenses, but before accounting for debt service, income taxes, and capital expenditures.
Net Operating Income Margin is a profitability ratio that expresses Net Operating Income (NOI) as a percentage of Effective Gross Income (EGI), indicating how efficiently a property generates profit from its operations before debt service and taxes.
Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows, used to evaluate the profitability of a potential investment by accounting for the time value of money.
Net worth is a measure of your financial health, calculated by subtracting your total liabilities (what you owe) from your total assets (what you own). It provides a snapshot of your financial standing at a specific point in time.
Nominal return is the unadjusted percentage gain or loss on an investment, reflecting the raw monetary change before accounting for inflation, taxes, or fees.
Non-cash expenses are accounting entries that reduce a property's taxable income without involving an actual outflow of cash, primarily benefiting real estate investors through tax deductions.
Non-recurring expenses are one-time or infrequent costs associated with a real estate investment, distinct from regular operating expenses. These often include acquisition, renovation, or disposition costs.
The occupancy rate is a key real estate metric representing the percentage of a property's available units or space that is currently leased or occupied by tenants, indicating demand and income stability.
An office building is a commercial property designed for businesses to conduct administrative, professional, or commercial operations, offering spaces for work and meetings.
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