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Real Estate Financial Modeling Accelerator (Updated April 2024)

Prior to launching the Accelerator program, Michael and I fielded email after email requesting a more structured real estate financial modeling training program on the site. Over the years, we've covered hundreds of real estate modeling…

Present Value Factor

Also called the Present Value of One or PV Factor, the Present Value Factor is a formula used to calculate the Present Value of 1 unit n number of periods into the future. The PV Factor is equal to 1 ÷ (1 +i)^n where i is the rate (e.g. interest…

Present Value

The lump-sum value today of a string of future cash flows discounted back to today at a specified discount rate. In real estate, the Present Value of a real estate investment is the price that an investor would be willing to pay today for a…

Hangout and Hangout Risk

The hangout is the expected outstanding loan balance owed the lender by the borrower at the end of the lease term of a key tenant, while the hangout risk is the risk to the lender associated with the borrower's ability or inability to repay…

Discounted Cash Flow

An investment analysis tool used regularly by real estate professionals to make buy, sell, hold, and development investment decisions. The discounted cash flow (DCF) is a process by which the real estate professional forecasts the future cash…

Capital Expenditure

In real estate, an expenditure with a useful life greater than a year. Referred to colloquially as CapEx, Capital Expenditures are depreciated over their useful life (e.g. 100,000 expenditure with 10 year useful life = 10,000 depreciation each…

Buildup Rate

An alternative method for arriving at a capitalization rate for a real estate investment. The buildup rate is the sum of all risks of an investment (denoted in percentage) plus the risk-free interest rate. For example: Risk-Free Rate (e.g.…

Breakeven Occupancy

The occupancy at which the effective gross income is equal to the sum of the operating expenses plus debt service. Breakeven occupancy is an important metric for lenders, developers, and operators as it is the point at which the property shifts…

Average Rate of Return

A measure of the profitability of a real estate investment or a type of return metric. The average rate of return is calculated as the total net profit of an investment (total cash inflows minus total cash outflows), divided by the length of…

Expense Stop

A mechanism in a Full Service Gross Lease, the Expense Stop is a fixed amount of operating expense above which the tenant is responsible to pay. Thus, the landlord is responsible to pay for all operating expenses below the Expense Stop, while…

Net Lease

A commercial lease where the tenant pays base rent plus pays for its pro rata share of some or all operating expenses related to the tenant's occupancy of the space. Types of net leases include single net, double net, triple net, and absolute…

Full Service Gross Lease

A commercial lease where the tenant pays a base rent and the landlord pays for all operating expenses related to the tenant's occupancy of the space such as common area maintenance, utilities, property insurance, and property taxes. Full Service…

Forward Sale

A binding contract between two parties to enter into a purchase and sale agreement at a fixed future date, the terms and conditions of which are agreed upon today.

Transfer Tax

A charge levied by the state or local government when property is sold from one individual/entity to another.

Title Insurance

A form of indemnity insurance that safeguards real estate owners and lenders from potential losses stemming from defects in the title of a property. Such defects might include undisclosed liens, encumbrances, or legal discrepancies that existed…

Loan Workout

A resolution agreed upon between the lender and the borrower to restructure the terms of the loan before foreclosure of the property. Workouts typically involve negotiations regarding the minimum monthly payment and/or the amortization period.…