Real estate investor glossary

Plain-English definitions for the terms you'll actually encounter analyzing rentals, flips, syndications, and tax-deferred exchanges.

• 1% rule — Monthly rent ≥ 1% of purchase price
• 1031 exchange — IRS §1031 — defer capital gains tax by exchanging one investment property for another like-kind property
• 50% rule — Operating expenses ≈ 50% of gross rent
• 70% rule — Max purchase ≤ 0
• ADR (Average Daily Rate) — The average rental income per occupied night for a short-term rental
• Amortization — The schedule by which a mortgage's principal and interest get paid down over the loan term
• Appraisal — Licensed third-party opinion of a property's market value
• ARV (after-repair value) — Estimated market value of a property after the planned rehab is complete
• Assumable mortgage — A loan that a buyer can take over from the seller, inheriting the existing rate and balance
• Bonus depreciation — Lets you deduct a percentage of certain property's basis in the year placed in service
• Boot — Cash or debt relief received in a 1031 exchange
• Bridge loan — A short-term loan (6-24 months) used to acquire or rehab property before refinancing to long-term debt
• BRRRR (Buy, Rehab, Rent, Refinance, Repeat) — Investing strategy of forcing appreciation then refinancing to recycle capital
• Cap rate — Net operating income divided by purchase price
• CapEx (capital expenditures) — Big-ticket replacements: roof, HVAC, water heater, flooring
• Carried interest (carry) — Industry term for the sponsor's promote share
• Cash-on-cash return — Annual pre-tax cash flow divided by total cash invested
• Catch-up — Waterfall tier where the GP receives a higher share until they've 'caught up' to the promote split
• CC&Rs (Covenants, Conditions & Restrictions) — The legal document that defines what owners can and can't do with their property in an HOA community
• Closing costs — Fees paid at the close of a real estate transaction — typically 2-5% of the purchase price
• Comp (comparable sale) — A recently sold property similar to the one being analyzed, used to estimate value
• Conventional loan — A mortgage not insured by FHA/VA/USDA, conforming to Fannie Mae or Freddie Mac guidelines
• Cost segregation — Engineering study that reclassifies portions of a property's basis into shorter depreciable lives
• Debt yield — Annual NOI divided by loan amount
• Depreciation — IRS-allowed annual deduction for the wear-and-tear of an income-producing building
• Depreciation recapture — Tax owed when you sell — the IRS 'recaptures' depreciation you've taken at up to 25%
• DSCR (debt service coverage ratio) — NOI divided by annual debt service
• DSCR loan — Investment-property loan sized by the property's DSCR, not the borrower's income
• Due diligence (DD) — Contractual period where the buyer inspects the property and can back out
• Earnest money deposit (EMD) — Buyer's good-faith deposit held in escrow during contract
• Easement — A legal right for someone other than the property owner to use part of the land for a specific purpose
• Effective gross income (EGI) — Gross potential income minus vacancy and concessions
• Equity multiple — Total cash distributed to investors divided by total cash contributed
• Escrow — A neutral third-party account that holds funds or documents until specific conditions are met
• Eviction — The legal process of removing a tenant from a rental property for non-payment or lease violation
• FHA loan — A government-insured mortgage with low down payment (3
• Fix-and-flip — Buy distressed, rehab, sell at the new market value
• Forced appreciation — Increasing property value through operations or capital improvements rather than market movement
• Foreclosure — The legal process by which a lender takes possession of a property when the borrower defaults on the mortgage
• General partner (GP) / sponsor — The operator who finds, finances, and runs a syndication deal
• GRM (gross rent multiplier) — Purchase price divided by annual gross rent
• Hard money loan — Short-term, high-rate loan from a private lender, secured by the property
• HOA (Homeowners Association) — A governing body that collects dues from owners in a development and enforces shared rules
• Hold period — How long the investor plans to own the property before selling or refinancing out
• House hacking — Live in part of a property (one unit of a duplex; a room in a SFR) while renting the rest
• IRR (internal rate of return) — The discount rate that makes the net present value of all cash flows equal to zero
• Letter of intent (LOI) — Non-binding document outlining the proposed terms of a deal
• Lien — A legal claim against a property securing a debt or obligation
• Limited partner (LP) — Passive investor in a syndication
• LLC for rental property — A limited liability company is the standard pass-through vehicle for holding rental real estate
• LTV (loan-to-value) — Loan amount divided by property value (or purchase price, whichever is lower)
• Maintenance reserve — Money set aside for routine repairs (plumbing fixes, appliance issues, paint)
• MLS (Multiple Listing Service) — The licensed agent database where most for-sale residential property is listed
• Net Investment Income Tax (NIIT) — An additional 3
• Net operating income (NOI) — Effective gross income minus operating expenses
• NOI multiple — Inverse of cap rate
• NPV (net present value) — Sum of all future cash flows discounted back to today at a chosen rate
• Opportunity Zone — Federally designated census tracts where investing capital gains can defer and reduce capital gains tax
• Owner-occupant loan — Mortgage product designed for the borrower's primary residence — better terms than investment loans
• Passive loss — Loss from a rental activity
• PITI — Principal, Interest, Taxes, Insurance — the four components of a typical mortgage payment
• PMI (Private Mortgage Insurance) — Insurance the borrower pays to protect the lender when the down payment is less than 20%
• Preferred return (pref) — An annual return rate the LP receives first, before any GP promote
• Pro forma — A projected income statement showing what a property could earn under stated assumptions
• Promote — The GP's share of profits above the preferred return
• Qualified intermediary (QI) — Third party that holds 1031 sale proceeds between properties
• Real estate professional status (REPS) — IRS designation that lets you deduct passive rental losses against ordinary income
• Refinance (refi) — Replacing an existing mortgage with a new one, usually at better terms or to extract equity
• Rent roll — Document listing every unit, current tenant, rent, lease terms, and arrears
• REO (Real Estate Owned) — A property owned by a bank or lender after a foreclosure auction failed to sell it
• RevPAR (Revenue Per Available Room) — ADR multiplied by occupancy rate
• Schedule E — IRS form for reporting rental real estate income, expenses, and depreciation
• Section 8 (Housing Choice Voucher) — A federal program where HUD pays a portion of tenant rent directly to the landlord
• Short sale — A sale where the lender agrees to accept less than the remaining mortgage balance to release the lien
• Syndication — A group of passive investors (LPs) pool capital with an active sponsor (GP) to acquire a larger property
• Title insurance — Policy that protects against losses from defects in title (liens, ownership disputes, errors in records)
• Triple net (NNN) — Commercial lease where the tenant pays property tax, insurance, and maintenance
• Underwriting (a deal) — The process of analyzing a property's financials to decide whether it's worth buying and at what price
• VA loan — A zero-down mortgage backed by the Department of Veterans Affairs, available to qualified military borrowers
• Vacancy rate — Percentage of unrented time across the year
• Waterfall — Tiered structure for distributing cash flow between LPs and GPs
• Wholesaling — Contract a property under contract and assign the contract to an investor for a fee