Intermediate1 hour18 terms

Real Estate Cost Drivers: Key Terms

This collection offers a curated selection of key terms related to activity cost drivers in real estate investment. It's designed to provide quick clarity on concepts you might encounter when analyzing property expenses and operational efficiency. Use it as a helpful reference to better understand the factors influencing your investment costs.

Term Collection

Capital Improvement

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.

Intermediate2-3 min

Interest Rate

An interest rate is the percentage charged by a lender for the use of borrowed money, typically expressed as an annual percentage of the principal amount.

Beginner15-18 min

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

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

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

Acquisition Fee

An acquisition fee is an upfront charge in real estate syndications or funds, compensating the sponsor for identifying, evaluating, negotiating, and closing a property deal. It's typically a percentage of the purchase price or equity raised, impacting initial capital and overall investment returns.

Intermediate12-15 min

Maintenance Costs

Maintenance costs are the ongoing expenses required to keep a real estate property in good repair, functional, and habitable, directly impacting an investor's profitability and cash flow.

Beginner12-13 min

Due Diligence

Due diligence is the critical process of investigating and verifying all material facts about a property and its financials before a real estate acquisition, aiming to identify risks and ensure an informed investment decision.

Intermediate14-15 min

Property Management Fees

Property management fees are charges paid to a professional company for managing the daily operations of a rental property, covering services like tenant screening, rent collection, and maintenance, directly impacting an investor's profitability.

Intermediate13-14 min

Leasing Commissions

Leasing commissions are fees paid to a real estate agent or broker for finding a tenant and securing a lease for a rental property. They compensate for marketing, showing, and tenant screening services.

Beginner2-3 min

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

Property Insurance

Property insurance provides financial protection against physical damage to real estate assets and liability for injuries on the property, crucial for safeguarding real estate investments.

Beginner15-18 min

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

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

Tenant Turnover Costs

Tenant turnover costs are the total expenses incurred by a landlord or property owner when a tenant vacates a rental unit, encompassing direct costs like cleaning, repairs, and marketing, as well as indirect losses such as lost rental income during vacancy periods.

Intermediate5 min