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.
Segment reporting is a financial disclosure requirement that provides disaggregated financial information about an entity's operating segments, enabling investors to better understand the various business activities and geographical areas in which a company operates.
Severance damages are compensation awarded to a property owner when only a portion of their land is taken by eminent domain, and the remaining property suffers a reduction in value as a direct result of that partial taking.
Shares outstanding represent the total number of a company's shares currently held by all its shareholders, including institutional investors and the general public. This figure is crucial for calculating per-share metrics like earnings per share and dividends.
The Sharpe Ratio is a measure of risk-adjusted return, indicating the average return earned in excess of the risk-free rate per unit of total risk (volatility or standard deviation). It helps investors understand the return of an investment compared to its risk.
A sheriff's sale is a public auction of property, typically real estate, conducted by a sheriff's department to satisfy a court judgment, such as a mortgage foreclosure or unpaid taxes.
Short-term capital refers to funds or assets that are readily available for immediate use or are expected to be converted into cash within one year, crucial for covering operational expenses, bridging financing gaps, or seizing fleeting investment opportunities in real estate.
Short-term capital gains are profits from the sale of an asset, such as real estate, held for one year or less, and are taxed at an investor's ordinary income tax rate.
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.
Soft costs are indirect expenses in real estate projects that are not directly related to physical construction, including architectural fees, legal costs, permits, financing fees, and project management.
Solvency ratios measure an investor's ability to meet long-term financial obligations, indicating the overall financial health and stability of their real estate portfolio.
The Sortino Ratio is a risk-adjusted performance measure that differentiates harmful volatility from total volatility by focusing solely on downside deviation below a specified minimum acceptable return (MAR). It is particularly valuable for real estate investors assessing asymmetric risk profiles.
A special dividend is a non-recurring distribution of company earnings to shareholders, typically paid out from a significant one-time event like an asset sale or extraordinary profit.
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