REIPRIME Logo
Intermediate terms

Essential Deal Analysis & Professional Metrics Terms

This curated collection includes key terms that might be helpful when exploring advanced deal analysis and professional real estate metrics. It covers sophisticated calculations used by professional investors and lenders to assess a property's financial viability, from performance ratios to financial modeling concepts. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

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
2

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
3

Equity Multiple

The Equity Multiple is a performance metric that measures the total cash distributions received from an investment relative to the total equity invested, indicating how many times an investor's initial capital has been returned.

Intermediate13-16 min
4

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
5

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
6

Interest Rates

The cost of borrowing money or the return on invested capital, expressed as a percentage of the principal over a specific period, significantly impacting real estate investment profitability and financing decisions.

Intermediate11-12 min
7

Reversion Value

Reversion value is the estimated future sale price or residual value of an investment property at the end of a specified holding period, a critical component in discounted cash flow (DCF) analysis for real estate valuation.

Advanced14-15 min
8

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
9

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
10

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows, used to evaluate the profitability of a potential investment by accounting for the time value of money.

Intermediate15-18 min
11

Terminal Cap Rate

The Terminal Cap Rate is the estimated capitalization rate used to project a property's sale price (reversionary value) at the end of a future holding period, a critical input in Discounted Cash Flow (DCF) valuation.

Advanced12-15 min
12

Trailing 12 Months (T-12)

Trailing 12 Months (T-12) is a financial report that aggregates a property's income and expenses over the most recent 12-month period, providing a current and accurate snapshot of its operational history for investment analysis.

Intermediate13 min
13

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
14

Breakeven Ratio

The Breakeven Ratio is a financial metric that calculates the percentage of a property's Gross Potential Income required to cover all operating expenses and debt service, indicating its financial resilience.

Intermediate10-15 min
15

Discounted Cash Flow (DCF)

Discounted Cash Flow (DCF) is an advanced valuation method that estimates an investment's value by projecting its future cash flows and discounting them back to their present value using a specific rate, accounting for the time value of money.

Advanced14-18 min
16

Cash Flow Projections

Cash flow projections are detailed financial forecasts that estimate the future income and expenses of a real estate investment over a specific period, crucial for assessing profitability, liquidity, and investment viability.

Intermediate13-16 min
17

Pro Forma Financial Statement

A pro forma financial statement is a projected financial report for a real estate investment, forecasting future income, expenses, and cash flow based on a set of assumptions. It is a critical tool for evaluating investment viability, securing financing, and strategic planning.

Intermediate15 min
18

Real Estate Financial Model

A real estate financial model is a spreadsheet-based tool used to project the financial performance of an investment property, forecasting cash flows, expenses, and returns over a specific holding period to aid in investment analysis and decision-making.

Intermediate13-16 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

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
21

Stress Testing

Stress testing is an advanced financial analysis technique used to evaluate the resilience of a real estate investment or portfolio by simulating the impact of severe, adverse economic and market scenarios on key financial metrics.

Advanced13-14 min
22

Assumptions in Real Estate Investing

Assumptions in real estate investing are educated guesses about future variables, such as rent growth, expenses, and market appreciation, used to build financial models and project investment performance.

Intermediate13 min
23

Underwriting

Underwriting is the process by which lenders assess the risk of lending money for a real estate transaction, evaluating the borrower's creditworthiness and capacity to repay, as well as the property's value and marketability.

Intermediate15-18 min
24

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
25

Holding Period

The holding period is the length of time an investor owns a real estate asset, directly influencing capital gains taxation, investment strategy, and overall financial returns.

Intermediate12-15 min
26

Debt Yield

Debt Yield is a commercial real estate lending metric calculated as a property's Net Operating Income (NOI) divided by the total loan amount, used to assess a loan's risk by measuring the property's income-generating capacity relative to the debt, independent of interest rates.

Advanced12-15 min
27

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