Real Estate Glossary

A tax-deferred exchange that allows investors to sell a property and reinvest the proceeds in a like-kind property without paying capital gains taxes immediately.

A guideline for fix-and-flip investors: MAO = (ARV × 70%) - Repair Costs. Ensures adequate profit margin after accounting for holding and selling costs.

The process of paying off a loan through regular payments over time. Each payment includes both principal and interest, with early payments being mostly interest.

A professional assessment of a property's market value, typically required by lenders to ensure the loan amount is appropriate for the property's worth.

The increase in a property's value over time due to market conditions, improvements, or inflation. Can be forced (through improvements) or natural (market-driven).

The estimated market value of a property after all renovations and improvements are completed. Critical for fix-and-flip and BRRRR strategies.

A large, lump-sum payment due at the end of a loan term. Common in commercial and investment property loans with shorter amortization schedules.

A short-term financing option used to bridge the gap between purchasing a new property and selling an existing one, or to fund renovations before permanent financing.

Buy, Rehab, Rent, Refinance, Repeat. A strategy where investors purchase distressed properties, renovate them, rent them out, refinance to pull out equity, and repeat.

A long-term investment strategy focused on acquiring properties for rental income and appreciation over time, rather than quick resale.

A metric used to evaluate the potential return on an investment property. Calculated by dividing the NOI by the property's purchase price or current market value.

Major expenses for improvements or replacements that extend the useful life of a property, such as a new roof, HVAC system, or major renovations.

The net amount of cash moving in and out of an investment. Positive cash flow means income exceeds expenses; negative means expenses exceed income.

The annual pre-tax cash flow divided by the total cash invested. Measures the return on actual cash invested, not the total property value.

Fees and expenses paid at the closing of a real estate transaction, including title insurance, appraisal, attorney fees, and lender fees.

Recently sold properties similar to the subject property in location, size, and features. Used to determine market value through comparative analysis.

The total amount of principal and interest payments required on a loan over a specific period, typically expressed annually.

A tax deduction that allows property owners to recover the cost of income-producing property over time. Residential rental property is depreciated over 27.5 years.

A ratio that measures a property's ability to cover its debt obligations. Calculated by dividing the Net Operating Income (NOI) by the total debt service. A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage payment.

The investigation and analysis period before purchasing a property. Includes inspections, title search, financial review, and market analysis.

Any claim, lien, or liability attached to a property that may affect its value or transferability, such as easements, mortgages, or restrictions.

The difference between a property's market value and the outstanding mortgage balance. Represents the owner's financial interest in the property.

The total cash distributions received from an investment divided by the total equity invested. An equity multiple of 2x means you doubled your money.

A neutral third party that holds funds and documents during a real estate transaction until all conditions are met and the deal closes.

Purchasing a distressed property, renovating it, and selling it quickly for profit. Success depends on accurate ARV estimates and controlling rehab costs.

A quick valuation metric calculated by dividing the property price by the annual gross rental income. Lower GRM generally indicates better value.

A short-term loan from private investors or companies, secured by real estate. Features higher interest rates but faster approval and more flexible qualification criteria.

Living in one unit of a multi-family property while renting out the others, or renting rooms in a single-family home to offset housing costs.

A loan where the borrower pays only interest for a specified period (typically 1-10 years), with principal payments beginning afterward or at maturity.

The discount rate that makes the net present value of all cash flows equal to zero. A comprehensive measure of investment performance over time.

A legal claim against a property as security for a debt. Must be satisfied before the property can be sold with clear title.

The ratio of a loan amount to the appraised value of the property, expressed as a percentage. An 80% LTV means the loan is 80% of the property's value, with 20% as down payment.

The highest price an investor should pay for a property to achieve their target profit margin. Often calculated using the 70% rule for flips.

The annual income generated by a property after deducting all operating expenses but before mortgage payments and taxes. NOI = Gross Income - Operating Expenses.

Fees paid to the lender at closing, typically expressed as a percentage of the loan amount. One point equals 1% of the loan. Points can be used to buy down the interest rate or as origination fees.

A fee charged by lenders if you pay off your loan early, typically within the first 3-5 years. Common in investment property loans to protect lender yield.

A financial projection or estimate of a property's expected income and expenses. Used to evaluate potential investments before purchase.

A measure of the profitability of an investment, calculated as the gain from investment minus the cost, divided by the cost. Expressed as a percentage.

Pooling capital from multiple investors to purchase larger properties. Typically structured with a general partner (sponsor) and limited partners (passive investors).

Insurance that protects the buyer and lender against losses from defects in the property's title, such as liens, encumbrances, or ownership disputes.

A fully renovated, tenant-occupied rental property ready for immediate cash flow. Often sold by companies specializing in out-of-state investors.

The percentage of time a rental property is unoccupied. Calculated as vacant units divided by total units, or vacant days divided by total days.

An investment strategy focused on properties that can be improved through renovations, better management, or repositioning to increase value and income.

Finding distressed properties under contract and assigning that contract to another buyer for a fee, without actually purchasing the property.