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Real estate investing glossary

Plain-English definitions of the metrics that decide a deal. Where a term has a calculator, run the numbers in one tap.

Returns & ratios

Cap rate: Net operating income divided by purchase price — the unlevered return on an income property, before financing. Calculate →
Cash-on-cash return: Annual pre-tax cash flow divided by the actual cash you invested (down payment, closing, and rehab). Calculate →
Net operating income (NOI): Effective gross income minus operating expenses, before the mortgage, capex, and taxes. Calculate →
Gross rent multiplier (GRM): Price divided by annual gross rent — a fast screen that ignores expenses and financing. Calculate →
Rental yield: Annual rent as a percent of price (gross) or net income over total invested (net). Calculate →
Debt-service coverage ratio (DSCR): Rental income divided by the full loan payment — how comfortably the property covers its debt. Calculate →
Internal rate of return (IRR): The annualized return that accounts for the timing of every cash flow over a hold, including the sale.
Return on investment (ROI): Total gain over the capital invested; a broad measure that can include appreciation and paydown.

Deal analysis

After-repair value (ARV): What a property will be worth fully renovated, based on comparable sales of similar finished homes.
Max allowable offer (MAO): The highest price you can pay and still hit your margin — ARV times a rule percentage, minus rehab. Calculate →
70% rule: A flipping screen: pay no more than 70% of ARV minus rehab, leaving roughly a 30% cushion. Calculate →
BRRRR: Buy, rehab, rent, refinance, repeat — a strategy to recycle capital out of a stabilized rental. Calculate →
Wholesaling / assignment: Putting a property under contract and assigning that contract to an end buyer for a fee. Calculate →
Comparable sales (comps): Recent sales of similar nearby properties used to estimate value or ARV.
Vacancy rate: The share of potential rental income lost to empty units; subtracted to get effective gross income.
Operating expenses: Recurring costs to run a property — taxes, insurance, maintenance, management, utilities.

Financing

Loan-to-value (LTV): Loan amount divided by appraised value; lenders cap it by program (often 75–80% on rentals). Calculate →
PITI / PITIA: Principal, interest, taxes, insurance — plus association dues (PITIA); the lender’s full payment figure. Calculate →
Amortization: How a loan’s balance is paid down over time, with each payment split between interest and principal. Calculate →
Points: An upfront fee equal to a percent of the loan amount, common on hard money and to buy down a rate. Calculate →
Hard money loan: Short-term, asset-based financing — usually interest-only with points and a balloon at payoff. Calculate →
DSCR loan: A loan qualified by the property’s rental income rather than your personal income or tax returns. Calculate →
Seller financing: The seller acts as the bank, carrying a note so the buyer pays them over time. Calculate →
Subject-to: Buying a property while leaving the seller’s existing mortgage in place, taking over the payments. Calculate →
Closing costs: Fees and prepaids due at closing — origination, title, recording, appraisal, and escrows. Calculate →
Cash to close: The total you bring to closing: down payment plus closing costs, less any credits. Calculate →

Taxes & ownership

Depreciation: A non-cash deduction that spreads the building’s value over 27.5 years (residential), sheltering income. Calculate →
Depreciation recapture: Tax of up to 25% on the depreciation you took, owed when you sell — deferrable via a 1031 exchange. Calculate →
1031 exchange: A like-kind exchange that defers capital gains and recapture by reinvesting into another property. Calculate →
Cost basis: Your investment in a property for tax purposes — purchase price plus improvements, less depreciation.
Net proceeds: What a seller walks away with after the loan payoff and all selling costs. Calculate →
Cash flow: What’s left each period after operating expenses and the mortgage payment.

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