Definition of "Cost of capital"
Rate of return that is necessary to maintain market value of a real estate project. The cost of capital is used for project evaluation purposes. Under the net present value method, the cost of capital is used as the discount rate to calculate the present value of future cash inflows derived from the real estate project. Under the internal rate or return method, it is used to make an accept-or-reject decision by comparing the cost of capital with the internal rate of return on a given project. A project is accepted when the internal rate exceeds the cost of capital. see also hurdle rate; cutoff rate; minimum required rate of return.
Need help as a:
I am a buyer
I am a realtor
I'm interested to:
Buy
Sell
Rent
I work in:
Residential
Commercial
Rental
Have a question or comment?
We're here to help.
Popular Real Estate Terms
Among other things. Inter alia is an ancient method of referring to statutes without reciting all of their provisions. ...
Arrears is a legal and financial term used to describe payments in regards to their due dates. While the term is more often used to refer to a contractual obligation or liability that was ...
It is an exterior decorative brick surface. The brick is not rendered. Painted, or plastered and is made various brick materials, including clay, to give a desired effect. ...
Rental in which the lessee obtains major property rights. Although not legally a purchase of property, theoretical substance governs over legal form and requires that the leased property be ...
(1) Civil: Individual against whom a court action is brought by a plaintiff for restitution of property or satisfaction of a complaint. (2) Criminal: Individual accused of a crime such ...
Structure not directly belonging to a property but considered a part of it through the use of an easem*nt of common consent. ...
A situation where a real estate company spends more money than it receives within a stated period of time. This is an unfavorable situation that may result in financial difficulties. A ...
Method of selling and obtains possession, but the seller retains the title. ...
Passageway existing from property. An agree may lead to a roadway or some other form of exit. ...
Popular Real Estate Questions
Search local real estate agents
I've got a solid grip on real estate concepts and practices. The "Cost of capital" is a crucial factor in real estate project evaluation, maintaining a project's market value and viability. This rate of return is fundamental in both the net present value (NPV) method and internal rate of return (IRR) method. Under NPV, it's the discount rate used to ascertain the present value of future cash inflows from the project. In contrast, with IRR, it helps decide whether to accept or reject a project by comparing it against the internal rate. A project gets a green light if its IRR exceeds the cost of capital.
Now, let's delve into the real estate terms:
- Inter Alia: A legal term referring to statutes without listing all their provisions. It's an ancient method of referencing.
- Arrears: It denotes payments made past their due dates, commonly seen in contractual obligations.
- Face Brick: An exterior decorative brick surface that remains exposed without rendering or plastering, made from various materials like clay for specific aesthetic effects.
- Capital Lease: A rental where the lessee gains substantial property rights, even though legally it's not a purchase. Substance over form dictates the treatment of leased property.
- Defendant: In civil law, it refers to an individual against whom a court action is brought by a plaintiff. In criminal law, it denotes the accused.
- Appurtenant Structures: These are structures not owned directly but considered part of a property due to easem*nts or common consent.
- Negative Cash Flow: When a real estate company spends more than it receives in a defined period, leading to financial challenges.
- Contract For Deed: A method of selling where the buyer gains possession but the seller retains the title.
- Egress: A pathway leading out of a property, possibly towards a roadway or exit.
These terms cover various legal, financial, and practical aspects in the real estate realm, showcasing the multifaceted nature of this field. Whether it's understanding legal jargon or grasping financial implications, each concept plays a crucial role in navigating the complexities of real estate transactions and evaluations.
