Intermediate1.5 hours15 terms

Real Estate Earnout Terminology Guide

This curated collection highlights key terms that might be helpful when exploring earnout structures in real estate investment. It's designed as a quick reference to understand commonly referenced concepts and terminology you may encounter in complex deal negotiations.

Term Collection

Escrow

A legal arrangement where a neutral third party holds funds and documents until specific conditions of a contract are met, ensuring a secure and fair transaction, especially in real estate.

Intermediate15-18 min

Seller Financing

Seller financing is an arrangement where the seller of a property provides a loan to the buyer, who then makes payments directly to the seller instead of obtaining a traditional mortgage.

Intermediate13-14 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

Alignment of Interests

Alignment of interests in real estate investing refers to the congruence of goals, incentives, and expectations among all parties involved in a transaction or partnership, ensuring everyone works towards a common, mutually beneficial outcome.

Intermediate5 min

Earnout

An earnout is a contractual provision in a real estate transaction where a portion of the purchase price is contingent upon the future performance or achievement of specific milestones by the acquired asset or business post-acquisition.

Advanced12-15 min

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

Transaction Structure

Transaction structure refers to the legal and financial framework through which a real estate deal is organized, defining how assets are acquired, financed, and owned.

Intermediate5-6 min

Performance-Based Payment

A compensation structure where a portion or all of a payment is contingent upon achieving specific, pre-defined performance metrics or outcomes, commonly used in real estate development, property management, and investment syndications to align interests.

Intermediate5-6 min

Acquisition Agreement

An Acquisition Agreement is a legally binding contract outlining the terms and conditions between a buyer and seller for the purchase and sale of a real estate asset, crucial for defining the transaction's scope and protecting all parties.

Intermediate8-9 min

Contingent Consideration

Contingent consideration refers to a portion of a real estate transaction's purchase price that is dependent on the occurrence of future events or the achievement of specific performance targets.

Intermediate5 min

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

Deferred Payment

A deferred payment is an arrangement where a borrower is allowed to postpone making a payment, or a portion of a payment, until a later agreed-upon date. This can apply to various financial obligations, including loans, mortgages, or even purchase agreements.

Beginner2-3 min