Real estate development and investment is capital intensive and cash flow dependent. The sources of capital needed for a project may vary based on size, complexity, location, and type. The sources of capital can be categorized into two components – Debt and Equity.
Most real estate projects rely on debt for financing due to lower interest rates. The debt is granted with expected repayment of the original sum borrowed (principal) plus fee paid as a form of compensation (interest). The interest is paid to the lender as compensation for the risk of principal loss (credit risk) and the opportunity to invest the money in other projects or assets (opportunity cost).
This reading provides terminology, calculations, and information to prepare a loan amortization schedule.