The Average Rate of Return (ARR) is a metric used to evaluate the profitability of an investment, calculated by dividing the total net earnings by the number of years the investment was held, and then dividing by the initial acquisition cost.
Basic Rate, often used in the context of capitalization rates, represents the foundational return rate required by investors for a particular investment, before additional considerations are factored in.
Financial leverage refers to the use of borrowed funds to increase an investment's potential return. While it can amplify returns, it simultaneously increases the risk of loss.
An interest rate is the percentage of a loan amount charged by the lender to the borrower for the use of the borrowed funds. It can also represent the rate of return on an investment. Understanding interest rates is crucial for real estate transactions as they significantly affect mortgage payments and the overall cost of borrowing.
The Overall Capitalization Rate (Cap Rate) is a metric used to evaluate the return on investment of a real estate property, usually expressed as a percentage. It helps investors determine the potential profitability of a property by comparing the annual net operating income (NOI) to the property's current market value or acquisition cost.
Positive leverage refers to the use of borrowed funds that enhances the return on investment. It indicates that the cost of borrowing is lower than the return generated by the investment.
Return on Investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested. ROI is often expressed as a percentage and is commonly used to evaluate the efficiency or profitability of an investment.
Return on Investment (ROI) measures the financial return on an investment as a percentage of the investment's cost, providing an indicator of profitability.
The risk premium is the difference between the required interest rate on an investment and the rate on risk-free investments such as U.S. Treasury securities. It compensates investors for taking on higher risk compared to risk-free assets.
The yield rate, also known as the return on investment, is a key metric used to evaluate the annual return generated from an investment property expressed as a percentage of its cost or market value.
With over 3,000 definitions (and 30,000 Quizes!), our Lexicon of Real Estate Terms equips buyers, sellers, and professionals with the knowledge needed to thrive in the real estate market. Empower your journey today!