Real Estate Finance Glossary

Debt Service Coverage Ratio — measures a property's income vs. its mortgage payments.

Loan-to-Value — loan amount as a percentage of the property's appraised value.

Principal + Interest + Taxes + Insurance + Association dues — total monthly housing cost.

A mortgage with an interest rate that resets periodically after an initial fixed period.

Short-term, asset-based financing used by investors for acquisitions or rehab — typically 6–24 months.

Short-term financing that bridges the gap between acquiring a property and arranging permanent financing.

Loan amount as a percentage of total project cost (acquisition + rehab), used in construction and fix-and-flip financing.

NOI divided by loan amount — a lender metric that bypasses cap rate and appraisal values.

The gradual repayment of a loan through scheduled payments of principal and interest.

Upfront fees paid to the lender to buy down the interest rate — 1 point = 1% of the loan amount.

Net Operating Income — a property's income after operating expenses, before mortgage.

Effective Gross Income — gross rental income adjusted for vacancy and other income.

Monthly or annual income remaining after all expenses and mortgage payments are paid.

Operating expenses as a percentage of gross income — a quick measure of property efficiency.

Annual gross rent as a percentage of purchase price — a quick cross-market comparison metric.

Capitalization Rate — annual return on a property if purchased all-cash.

Annual pre-tax cash flow divided by total cash invested.

Gross Rent Multiplier — purchase price divided by annual gross rents.

The annualized return rate that makes the net present value of all cash flows equal to zero.

Total cash returned divided by total cash invested — shows how many times you multiplied your money.

Annual cash flow divided by your current equity in the property — measures efficiency of deployed capital.

Buy, Rehab, Rent, Refinance, Repeat — a strategy to recycle capital into multiple properties.

After-Repair Value — estimated market value of a property after renovations are complete.

Buying a 2–4 unit property, living in one unit, and renting the others to offset your housing cost.

Buying a distressed property, renovating it, and selling it for a profit — typically within 6–12 months.

Acquiring rental properties to hold long-term for recurring cash flow, appreciation, and tax benefits.

Renting a property on platforms like Airbnb or Vrbo for nightly or weekly stays rather than long-term leases.

A pooled investment structure where a sponsor manages a deal and passive investors provide capital.

A strategy of acquiring underperforming properties and improving NOI through renovations, better management, or rent increases.

IRS tax deduction allowing investors to deduct the cost of a building over 27.5 years (residential) or 39 years (commercial).

Accelerated IRS deduction allowing investors to write off a large percentage of qualifying property components in year one.

IRS-approved engineering study that reclassifies building components to shorter depreciation lives, accelerating tax deductions.

IRS provision allowing investors to defer capital gains tax by reinvesting sale proceeds into a like-kind property.

Tax owed on previously claimed depreciation deductions when a rental property is sold.

Tax losses from rental properties that can only offset passive income — unless you qualify as a real estate professional.

IRS designation that allows unlimited rental loss deductions against ordinary income if you meet strict time requirements.

Percentage of time or units a property is unoccupied and not generating rent.

Percentage of time or units that are occupied and generating rent — the inverse of vacancy rate.

Purchase price divided by the property's rentable square footage — used to compare properties across a market.

Monthly rent divided by purchase price — the basis of the 1% Rule screening metric.

A quick screening heuristic: monthly rent should be at least 1% of the purchase price to support positive cash flow.

A quick estimating heuristic: assume 50% of gross rents go to operating expenses before mortgage payments.

The current market value of a property in its present condition, before any repairs or improvements.

The rate at which available properties in a market are sold or rented over a given period.

Limited Liability Company — a legal entity used to hold investment properties and limit personal liability.

The investigation process a buyer performs before closing — inspections, financials, leases, title, and legal review.

Insurance protecting the buyer and lender from financial loss due to defects in the property's title.

A neutral third-party account holding funds and documents during a real estate transaction until all conditions are met.

A partnership between two or more parties combining capital, expertise, or resources to complete a real estate deal.