Real Estate Glossary
30 real estate investing terms — cap rate, NOI, cash-on-cash, IRR, DSCR, the gross-potential-rent to effective-gross-income waterfall, depreciation and 1031 exchanges. Each with the formula and a worked example.
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Metrics & Returns
(10 terms)AppreciationThe increase in a property's market value over time.→Break-Even RatioThe percentage of gross rental income needed to cover all operating expenses and debt service.→Cap RateA property's annual net operating income as a percentage of its purchase price.→Cash FlowThe net cash a rental property generates after all expenses including mortgage payments.→Cash-on-Cash ReturnThe annual cash flow earned on the actual cash invested in a property.→Gross Rent Multiplier (GRM)The ratio of property price to annual gross rental income.→Internal Rate of Return (IRR)The annualized return rate that accounts for all cash flows over a property's holding period.→Net Operating Income (NOI)Annual rental income minus operating expenses, before mortgage payments.→Operating Expense RatioThe percentage of gross rental income consumed by operating expenses.→Rental YieldThe annual rental income from a property expressed as a percentage of its value.→
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Valuation
(8 terms)Absorption RateThe pace at which available rental units or properties are leased or sold in a market.→After Repair Value (ARV)The estimated market value of a property after planned renovations and repairs are completed.→Capitalization RateAnother name for cap rate — a property's annual NOI as a percentage of its value.→Comparable Sales (Comps)Recent sales of similar properties used to estimate a target property's market value.→Cost Per UnitThe total cost of acquiring a multi-family property divided by the number of rental units.→Days on Market (DOM)The number of days a property is listed for sale or rent before being sold or leased.→Price-to-Rent RatioThe ratio of a property's purchase price to its annual rental income.→Property ValuationThe process of determining a property's market value using one or more standardized methods.→
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Financing & Debt
(4 terms)AmortizationThe process of paying off a loan through regular payments that gradually reduce the principal.→Debt Service Coverage Ratio (DSCR)The ratio of net operating income to annual debt payments.→Equity BuildupThe growth in your ownership stake in a property as you pay down the mortgage.→Loan-to-Value Ratio (LTV)The ratio of a property's loan amount to its appraised value or purchase price.→
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Operations
(5 terms)Capital Expenditures (CapEx)Major one-time expenses that improve or extend the useful life of a property.→Rent RollA document listing all current tenants, their rent amounts, lease terms, and payment status.→Triple Net Lease (NNN)A commercial lease structure where the tenant pays property taxes, insurance, and maintenance on top of rent.→Turnover CostThe expenses incurred when a tenant moves out and a new tenant must be found and placed.→Vacancy RateThe percentage of time a rental property sits empty without a tenant generating income.→
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Tax
(3 terms)1031 ExchangeA US tax provision allowing investors to defer capital gains taxes by reinvesting sale proceeds into a like-kind…→DepreciationA tax deduction that lets real estate investors write off the wear and tear of an income-producing property over…→Negative GearingA strategy where an investor accepts short-term losses on a rental property in exchange for tax benefits and…→
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