The rate of return on an equity interest in real estate, taking into account financing costs and income tax implications of the investor.
An annuity is a series of equal, or nearly equal, periodic payments or receipts. These payments could be for loans, investments, or pensions, providing a predictable stream of income over a specified period.
An itemized list of expected income and expenses prepared weekly, monthly, or annually. A budget is crucial in managing finances efficiently and planning for future needs in real estate investments.
Capital Recovery refers to the process by which an investor recoups the initial investment in a real estate or business venture. This is typically achieved through revenue generation, cash flows, or sale of the asset. Understanding capital recovery is crucial for assessing the viability and profitability of investments.
Cash flow refers to the periodic amounts available to an equity investor after deducting all periodic cash payments from rental income, providing insight into the liquidity and operational viability of a real estate investment.
Cash throw-off, often referred to as cash flow, is a crucial metric in real estate investment that indicates the amount of cash generated by a property after all operating expenses and debt service have been paid. It is a measure of the income-producing ability of a property.
A measure of annual cash return on the amount of cash invested in a property, often used to evaluate the performance of income-generating real estate.
Discounting is the process of estimating the present value of an income stream by reducing expected cash flow to reflect the time value of money. It is the opposite of compounding, and mathematically, they are reciprocals.
Equity Dividend represents the portion of annual cash flow that an investor receives from their investment in real estate, calculated before taxes.
The equity yield rate is the rate of return on the equity portion of an investment, taking into account periodic cash flow and the proceeds from resale. It considers the timing and amounts of cash flow after annual debt service, but not income taxes.
Funds From Operations (FFO) is a key financial performance metric used by real estate investment trusts (REITs) to show the cash generated from their operations, which is then available for distributions to shareholders.
An income stream refers to a regular flow of money generated by a business or investment. It can come from various sources such as rentals, dividends, interest, or any other form of residual income.
Negative leverage, also known as reverse leverage, occurs when the cost of borrowing exceeds the income generated by an investment, resulting in a lower overall return.
Net Present Value (NPV) is a method of determining whether the expected performance of a proposed investment promises to be adequate by calculating the present value of expected future cash flows minus the initial investment cost.
Operating leverage refers to the automatic increases in net operating income (NOI) or cash flow of income-producing real estate when income and expenses increase at the same rate; this effect is further enhanced when expenses are fixed.
The Payback Period is the amount of time required for cumulative estimated future income from an investment to equal the amount initially invested. It is used to compare alternative investment opportunities.
Periodic cash flow refers to the regular intervals of revenue generation and expenses within a specific timeframe for a real estate investment, providing insights into the liquidity and profitability of the property.
Phantom taxable income occurs when reported taxable income exceeds actual cash flow, often due to tax-related factors such as depreciation deductions that have been fully utilized.
Positive cash flow in real estate indicates that rental income exceeds property-related expenses, ensuring profitability and sustainability.
Present Value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. PV calculations are fundamental in finance and real estate as they determine what a future amount of money is worth today.
A situation in real estate where financial benefits from ownership accrue at a lower rate than the mortgage interest rate, leading to negative financial implications for the property owner.
Tax-sheltered income refers to income received, particularly from rental property, that is not subject to taxation, creating a tax benefit for the property owner. It typically occurs when depreciation expense claimed for income tax purposes exceeds mortgage principal payments.
The Time Value of Money (TVM) is a financial concept that asserts money available at the present time is worth more than the same amount in the future due to its earning potential.
