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Intermediate terms

Essential Core Wealth Principles

This curated collection includes key terms that might be helpful when exploring the core principles of real estate wealth creation. It covers the four main ways investors generate income and build equity. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Appreciation

Appreciation in real estate is the increase in a property's market value over time, leading to a profit for the owner when sold or refinanced. It is driven by market forces, economic growth, and property improvements.

Beginner12-13 min
2

Return on Equity

Return on Equity (ROE) is a financial metric that measures the profitability of a real estate investment in relation to the equity invested, indicating how efficiently an investor is using their capital to generate profits.

Intermediate15-18 min
3

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
4

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
5

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min
6

Real Estate Syndication

Real estate syndication is a private equity strategy where multiple investors pool capital to acquire and manage large-scale real estate assets, typically led by a sponsor (General Partner) for passive Limited Partners.

Advanced14-15 min
7

Forced Appreciation

Forced appreciation is the increase in a property's value resulting from an investor's deliberate actions, such as renovations, operational improvements, or strategic repositioning, rather than general market fluctuations.

Intermediate13-14 min
8

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min
9

Leverage

Leverage in real estate is the use of borrowed capital, typically through mortgages, to finance property purchases and amplify potential investment returns.

Intermediate15-18 min
10

Principal Payment

A principal payment is the portion of a loan payment that directly reduces the outstanding balance of the original amount borrowed, contributing to equity growth in real estate.

Beginner11-12 min
11

Capitalization Rate

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.

Intermediate14-15 min
12

BRRRR Method

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.

Advanced14-15 min
13

Equity

Equity in real estate is the portion of a property's value that an owner truly owns, free and clear of any outstanding debts or liens. It is calculated as the property's current market value minus the total amount owed on any mortgages or loans.

Beginner12-13 min
14

Internal Rate of Return

The Internal Rate of Return (IRR) is a sophisticated financial metric used in capital budgeting to estimate the profitability of potential investments, representing the discount rate at which the net present value (NPV) of all cash flows from a particular project equals zero.

Advanced15-18 min
15

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
16

Amortization

Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.

Intermediate12-13 min
17

Value-Add Strategy

A real estate investment strategy focused on acquiring underperforming properties and increasing their value through renovations, operational improvements, or repositioning to boost Net Operating Income (NOI).

Intermediate15-18 min