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Intermediate1.5 hours18 terms

Real Estate FCF Yield: Key Terms Collection

This curated collection offers key terms that might be helpful when exploring Free Cash Flow Yield in real estate investment. It's designed as a quick reference for commonly referenced concepts, not a comprehensive guide, to support your learning journey.

Term Collection

1

Gross Potential Rent

Gross Potential Rent (GPR) is the maximum total income a rental property could generate if all units were occupied and all rent was collected at market rates, before accounting for vacancies or expenses.

Beginner2-3 min
2

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
3

Reserves for Replacements

Reserves for Replacements are funds set aside by property owners or managers to cover the future costs of major capital expenditures and periodic replacements of building components, ensuring the long-term viability and value of an investment property.

Intermediate3 min
4

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
5

Tenant Improvement

Tenant Improvement (TI) refers to modifications made to a commercial space to customize it for a tenant's specific needs, often funded in part by a Tenant Improvement Allowance (TIA) from the landlord.

Intermediate15-18 min
6

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
7

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
8

Free Cash Flow Yield

Free Cash Flow Yield (FCFY) is a financial solvency ratio that compares the free cash flow per share a company or property generates to its market value per share or enterprise value, indicating the cash return on investment.

Advanced5-6 min
9

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
10

Discounted Cash Flow

Discounted Cash Flow (DCF) is a valuation method that estimates the intrinsic value of an investment by projecting its future cash flows and discounting them back to their present value.

Intermediate14-15 min
11

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
12

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
13

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
14

Free Cash Flow

Free Cash Flow (FCF) represents the cash a company or property generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the cash available to debt and equity holders.

Advanced9-10 min
15

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
16

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
17

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
18

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

Common Questions