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.
Behavioral finance is an advanced field that combines psychology and economics to explain how cognitive biases, heuristics, and emotional factors lead to seemingly irrational decisions in financial markets, including real estate. It helps investors understand and mitigate the psychological influences that impact property valuations, market cycles, and investment strategies, moving beyond purely quantitative analysis.
A benchmark rate is a standard interest rate used by financial institutions as a reference for setting other interest rates, particularly for loans, mortgages, and financial products, reflecting the cost of borrowing in the market.
Benchmarking in real estate investing is the process of comparing a property's or portfolio's performance metrics against industry standards, similar properties, or a competitor's performance to identify areas for improvement and assess relative success. It helps investors understand how their assets stack up against the market.
The Benefit-Cost Ratio (BCR) is a financial metric used in real estate investment analysis to compare the present value of a project's benefits to the present value of its costs. It helps investors determine if a project's expected benefits outweigh its costs.
A Bermuda Mortgage Prepayment Option grants the borrower the right, but not the obligation, to prepay their mortgage principal on specific, predetermined dates throughout the loan's term, offering flexibility beyond a standard European option but less than an American option.
Bermuda option exercise dates refer to the specific, discrete intervals or predetermined points in time when the holder of a Bermuda option is permitted to exercise their right to buy or sell the underlying asset, falling between the continuous exercise of American options and the single exercise of European options.
Big Data in Real Estate refers to the collection and analysis of massive, diverse datasets—including market trends, demographics, and property records—to uncover patterns and insights that inform strategic investment decisions and optimize property management.
A financial black box refers to an opaque system or model where inputs and outputs are known, but the internal processes, algorithms, or logic are hidden or too complex to understand, often due to proprietary nature or extreme complexity.
Book Value represents the net asset value of a company or property as recorded on its financial statements, calculated as total assets minus total liabilities.
A borrowing base is a dynamic calculation used in asset-based lending (ABL) to determine the maximum amount a borrower can draw from a credit facility, based on the value of eligible collateral assets, primarily real estate in investment contexts.
Borrowing costs are the expenses incurred when taking out a loan or using credit, primarily consisting of interest payments and various fees charged by lenders.
Borrowing power refers to an individual's or entity's capacity to secure financing from lenders, representing the maximum loan amount they can obtain based on financial health and creditworthiness.
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