Intermediate terms

REI Financial Safety Net: Key Terms Reference

Explore key terms that might be helpful when building your real estate investment financial safety net. This curated collection provides clear explanations of commonly referenced concepts, supporting your understanding of cash reserves, contingency planning, and risk mitigation strategies. Use it as a quick reference to navigate the terminology you may encounter.

Learning Path

Lease Agreement

A legally binding contract between a landlord and a tenant that outlines the terms and conditions of renting a property, including rent, duration, and responsibilities.

Beginner18-20 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

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

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

Liquidity

Liquidity in real estate refers to the ease and speed with which a property can be converted into cash at its fair market value. Real estate is typically considered an illiquid asset due to the time and costs involved in selling.

Intermediate5-6 min

Contingency Fund

A contingency fund in real estate is a dedicated reserve of money set aside to cover unforeseen property-related expenses, major repairs, or periods of income loss, safeguarding an investment from unexpected financial shocks.

Intermediate12-13 min

Loss of Income

Loss of income in real estate refers to a situation where an investor's expected rental revenue from a property is reduced or eliminated, often due to vacancies, tenant issues, or property damage.

Beginner3 min

Tenant Default

Tenant default occurs when a tenant fails to uphold the terms of their lease agreement, such as non-payment of rent, property damage, or other lease violations, requiring landlords to follow specific legal procedures to resolve the breach.

Intermediate12-13 min

Risk Management

Risk management in real estate is the systematic process of identifying, assessing, and controlling potential threats to an investor's capital and returns, ensuring long-term asset protection and profitability.

Intermediate12-13 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

Emergency Fund

A readily accessible pool of money set aside to cover unexpected financial challenges, crucial for both personal and real estate investment stability.

Beginner2-3 min

Cash Reserves

Cash reserves are readily available funds held by a real estate investor to cover unexpected property expenses, operational shortfalls, or periods of vacancy, ensuring financial stability and risk mitigation.

Intermediate2-3 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