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.
The Average Collection Period measures the average number of days it takes for a real estate investor to collect payments after a sale or service, typically rent or other receivables. It indicates the efficiency of a property's collection process.
Average Daily Rate (ADR) is a key performance indicator (KPI) that measures the average rental income generated per occupied room or unit per day, primarily used in the hospitality and short-term rental industries.
The Average Propensity to Consume (APC) is an economic metric that measures the proportion of total disposable income that households spend on consumption rather than saving. It indicates consumer spending habits and overall economic health.
The BRRRR Method is an advanced real estate investment strategy (Buy, Rehab, Rent, Refinance, Repeat) designed to build a scalable rental property portfolio by leveraging forced appreciation to recycle initial capital for subsequent investments.
A quick, informal estimation used by real estate investors to rapidly assess the potential profitability of an investment opportunity without detailed analysis. It helps determine if a deal is worth further investigation.
Back-of-the-Napkin Math involves quick, informal calculations to rapidly assess the initial financial viability of a real estate investment, helping investors efficiently screen properties before committing to detailed analysis.
Backflush costing is an accounting method that delays the recording of costs until the production or completion of a real estate development project, simplifying the accounting process by eliminating detailed tracking of work-in-process inventory.
Bad debt expense is the portion of accounts receivable, such as unpaid rent, that a real estate investor determines is uncollectible. It represents an estimated loss from revenues that will not be recovered, directly impacting a property's profitability.
A balance sheet is a financial statement that provides a snapshot of a company's or individual's financial health at a specific point in time, detailing assets, liabilities, and owner's equity.
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.
Basis allocation is the process of dividing the total acquisition cost of a real estate property among its various components, such as land, building, and personal property, for tax and accounting purposes. This allocation is crucial for calculating depreciation deductions and determining capital gains or losses upon sale.
Basis risk is the potential for financial loss due to imperfect correlation between a hedged asset and its hedging instrument, particularly significant in real estate where unique assets and illiquidity make perfect hedges rare.
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