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.
A capital call is a formal request by a fund manager for investors to contribute a portion of their previously committed capital to an investment fund or syndication, typically to fund new acquisitions or project expenses.
A Capital Expenditure Budget is a financial plan outlining anticipated costs for major property repairs, renovations, and improvements that extend asset life or enhance value over a specific period.
Capital Expenditures (CapEx) are significant funds spent by a real estate investor to acquire, upgrade, or extend the useful life of a property, rather than for routine maintenance or operating expenses. These investments enhance the property's value and are typically depreciated over time for tax purposes.
A capital improvement is a permanent addition or alteration to a property that enhances its value, increases its useful life, or adapts it to new uses, rather than merely maintaining its current condition.
Capital intensity measures the amount of capital required to produce a unit of output or generate revenue, indicating how asset-heavy an investment or business is.
Capital preservation is an investment objective focused on safeguarding the initial investment principal from loss, prioritizing risk minimization and stability over aggressive growth. It's a strategy to protect wealth, especially in volatile markets or for risk-averse investors.
The capital stack is the hierarchical structure of all debt and equity financing used to fund a real estate investment, defining the priority of payment, risk, and return for each capital source.
Capital stacking is an advanced real estate financing strategy involving the layering of multiple debt and equity instruments to fund a property acquisition or development, optimizing the capital structure for specific risk-return profiles.
Capital velocity measures how quickly capital is deployed, generates returns, and is redeployed within an investment portfolio or business cycle, indicating the efficiency and growth potential of an investment strategy.
The Capitalization Rate (Cap Rate) is a real estate valuation metric used to estimate the potential rate of return on an investment property, calculated by dividing its Net Operating Income (NOI) by its current market value.
A capitalization table, or cap table, is a detailed record of a company's or real estate project's equity ownership, including who owns what, the type of equity, and their respective ownership percentages.
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.
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