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Intermediate terms

Essential Budgeting & Cash Flow Terms

This curated collection includes key terms that might be helpful when exploring budgeting and cash flow management for real estate investments. It covers essential skills for tracking and controlling income and expenses, forming the bedrock of any investment plan. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Reserve Account

A reserve account is a dedicated fund set aside by property owners or associations to cover future major repairs, replacements, and unexpected capital expenditures, ensuring the long-term stability of an investment property.

Beginner2-3 min
2

Balance Sheet

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.

Intermediate4-5 min
3

Statement of Cash Flows

The Statement of Cash Flows (SCF) is a financial report detailing the cash generated and used by a business or investment property over a period, categorized into operating, investing, and financing activities. It provides crucial insights into liquidity and solvency for real estate investors.

Intermediate6 min
4

Effective Gross Income

Effective Gross Income (EGI) is a realistic measure of a property's total potential revenue, calculated by subtracting estimated vacancy and credit losses from its Potential Gross Income (PGI). It provides a more accurate picture of a property's income-generating capability for financial analysis.

Intermediate12-13 min
5

Operating Budget

An operating budget is a detailed financial plan forecasting all expected income and expenses for an investment property over a specific period, typically one year, to monitor financial performance and ensure profitability.

Intermediate5 min
6

Cash-on-Cash Return

Cash-on-Cash Return (CoC) is a real estate investment metric that calculates the annual pre-tax cash flow generated by a property as a percentage of the total cash an investor has invested.

Intermediate15-18 min
7

Break-Even Occupancy

The minimum occupancy rate an income-producing property must achieve for its rental income to cover all operating expenses and annual debt service, resulting in zero cash flow.

Intermediate5 min
8

Capital Expenditures

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.

Intermediate14-15 min
9

Rent Roll

A rent roll is a comprehensive document detailing a property's rental income, occupancy, and lease terms for each unit, essential for financial analysis and property management.

Intermediate15-18 min
10

Pro Forma

A pro forma in real estate is a projected financial statement that estimates future income and expenses for a property or investment, used to evaluate its potential profitability and viability.

Intermediate14-15 min
11

Profit and Loss Statement

A financial report summarizing a property's revenues, costs, and expenses over a specific period, typically a quarter or a year, to determine its net profit or loss.

Intermediate5 min
12

Debt Service

Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.

Beginner11-12 min
13

Net Operating Income

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.

Intermediate11-12 min
14

Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.

Advanced15-18 min
15

Budget Variance

Budget variance is the quantitative difference between a budgeted financial amount and the actual amount incurred or received. It's a key metric for real estate investors to evaluate performance against financial plans and identify areas for improvement.

Intermediate3 min
16

Vacancy Rate

The vacancy rate is the percentage of all available rental units in a property or market that are currently unoccupied or not generating income, serving as a key indicator of a property's financial health and market demand.

Beginner13-14 min
17

Operating Expenses

Operating expenses are the ongoing costs of running and maintaining a real estate investment property, excluding mortgage principal and interest payments, and capital expenditures.

Beginner13-14 min
18

Financial Statement

A financial statement is a formal record detailing the financial activities and position of a business or property, providing critical insights into its performance, cash flow, and overall financial health for informed investment decisions.

Intermediate5 min
19

Operating Expense Ratio

The Operating Expense Ratio (OER) is a financial metric that measures a property's operational efficiency by comparing its total operating expenses to its gross operating income.

Intermediate13-14 min
20

Return on Investment

Return on Investment (ROI) is a financial metric that measures the profitability of an investment by comparing the net profit to the initial cost, expressed as a percentage.

Beginner13-14 min