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Real Estate Investing Glossary
117+ terms defined - everything from DSCR and LTV to BRRRR and 1031 exchanges.
1
A
Absorption Rate
The rate at which available properties are sold or rented in a market over a given period.
Active Income
Income earned through active work, such as wages, salaries, or business income from material participation.
After Repair Value (ARV)
The estimated market value of a property after planned renovations and improvements are completed.
Amortization
The process of paying off a loan through scheduled payments that cover both principal and interest over time.
Appraisal
A professional assessment of a property's market value, required by lenders before funding a loan.
Appreciation
The increase in a property's value over time due to market conditions, improvements, or both.
APR (Annual Percentage Rate)
The annualized cost of a loan including interest and fees, expressed as a percentage.
ARM (Adjustable Rate Mortgage)
A mortgage with an interest rate that adjusts periodically based on a market index after an initial fixed period.
Asset Protection
Legal strategies to shield personal assets from lawsuits, creditors, and liabilities arising from investment properties.
B
Bonus Depreciation
A tax provision allowing immediate deduction of a large percentage of qualifying asset costs in the first year.
Break-Even Ratio
The percentage of gross income needed to cover operating expenses and debt service.
Bridge Loan
Short-term financing used to bridge the gap between purchasing a new property and securing permanent financing.
BRRRR Strategy
Buy, Rehab, Rent, Refinance, Repeat - a strategy for recycling capital to build a rental portfolio.
Build-to-Rent (BTR)
New construction homes or communities built specifically to be rented rather than sold to homeowners.
Buy and Hold
Purchasing rental properties and holding them long-term for cash flow, appreciation, and tax benefits.
C
Cap Rate
The ratio of a property's net operating income to its market value, used to estimate return potential.
Capital Expenditures (CapEx)
Major, infrequent expenses for replacing or upgrading property components like roofs, HVAC, and appliances.
Capital Gains
The profit realized from selling a property for more than its original purchase price.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
Cash-on-Cash Return
The annual pre-tax cash flow divided by the total cash invested, measuring the return on actual dollars deployed.
Cash-Out Refinance
Replacing an existing mortgage with a larger one and taking the difference in cash.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction beyond the purchase price.
CLTV
Combined Loan-to-Value - the total of all loans on a property divided by its appraised value.
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used to determine a property's market value.
Condotel
A condominium unit within a hotel that can be rented out as a short-term accommodation.
Conforming Loan
A mortgage that meets Fannie Mae or Freddie Mac guidelines for purchase on the secondary market.
Cost Segregation
A tax strategy that accelerates depreciation by reclassifying building components into shorter-lived asset categories.
Creative Financing
Non-traditional methods of financing a real estate purchase, such as seller financing or subject-to deals.
D
Days on Market
The number of days a property listing has been active before going under contract.
Debt Yield
Net operating income divided by the loan amount, measuring the lender's return if they foreclose.
Debt-to-Income Ratio (DTI)
The percentage of gross monthly income used to pay debt obligations, a key metric in conventional lending.
Depreciation
A tax deduction that accounts for the wear and tear of a property over its useful life.
Depreciation Recapture
The IRS requirement to pay taxes on accumulated depreciation deductions when a property is sold.
DSCR (Debt Service Coverage Ratio)
A ratio that measures whether a property's rental income covers its debt payments.
Due Diligence
The investigation and analysis an investor conducts before purchasing a property to verify all material facts.
Duplex
A residential building with two separate living units, either side-by-side or stacked.
E
Entity Vesting
Taking title to a property in the name of a business entity like an LLC or trust instead of a personal name.
Equity
The difference between a property's market value and the outstanding mortgage balance.
Escrow
An account held by a third party to collect funds for taxes, insurance, or closing costs.
F
Fair Market Value
The price a property would sell for on the open market between a willing buyer and seller.
Fix and Flip
Buying a property below market value, renovating it, and selling it for a profit.
Fixed Rate Mortgage
A mortgage where the interest rate remains the same for the entire loan term.
Forced Appreciation
Increasing a property's value through deliberate improvements rather than waiting for market growth.
Fourplex
A residential building with four separate living units - the largest property still classified as residential.
H
Hard Money Loan
A short-term, asset-based loan from a private lender, typically used for fix-and-flip or bridge financing.
HOA
A Homeowners Association that manages common areas and enforces rules, funded by mandatory member dues.
House Hacking
Living in one unit of a multifamily property while renting out the other units to cover the mortgage.
I
Interest Rate
The percentage charged by a lender for borrowing money, applied to the outstanding loan balance.
Interest-Only
A loan payment structure where you pay only interest for an initial period, with no principal reduction.
Investor (Lender)
The entity that funds or purchases your mortgage loan, distinct from the originator or servicer.
IRR (Internal Rate of Return)
The annualized return that accounts for the timing and magnitude of all cash flows over the investment period.
L
Landlord-Friendly State
A state with laws that favor property owners, including faster eviction timelines and fewer rent restrictions.
Lease Option
A lease agreement that gives the tenant the right to purchase the property at a predetermined price.
Liability
Legal responsibility for debts, damages, or obligations that may arise from owning or managing property.
Lien
A legal claim against a property that must be satisfied before the property can be sold or refinanced.
LLC
A Limited Liability Company - a business structure that separates personal assets from investment property liability.
Loan Estimate
A standardized document provided by lenders within three days of application, detailing loan terms and estimated costs.
Loan Servicer
The company that collects your mortgage payments and manages the day-to-day administration of your loan.
Loan-to-Cost
The ratio of the loan amount to the total project cost including acquisition and renovation.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
M
Market Rent
The rental rate a property would command in the open market based on comparable rental properties.
Midterm Rental
A furnished property rented for 1-6 months, often to traveling professionals or relocating tenants.
Mixed-Use
A property combining residential and commercial uses, such as retail on the ground floor with apartments above.
Mortgage Interest Deduction
A tax deduction for interest paid on mortgage debt secured by real property.
Multifamily
Residential properties with multiple units, ranging from duplexes to large apartment complexes.
N
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and taxes.
Non-QM (Non-Qualified Mortgage)
A mortgage that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards.
Non-Warrantable Condo
A condominium that doesn't meet conventional lending guidelines due to its HOA, ownership concentration, or other factors.
NPV (Net Present Value)
The difference between the present value of future cash flows and the initial investment cost.
O
Occupancy Fraud
Falsely claiming a property will be owner-occupied to obtain better financing terms meant for primary residences.
Operating Agreement
A legal document that defines the ownership structure, roles, and rules of an LLC.
Operating Expenses
The ongoing costs of running a rental property, excluding mortgage payments and capital improvements.
Origination Fee
A fee charged by a lender or broker for processing and underwriting a new loan.
P
Passive Activity Rules
IRS rules that limit the ability to deduct losses from passive activities against non-passive income.
Passive Income
Income from rental properties or businesses in which the taxpayer does not materially participate.
PITIA
The total monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues.
Points (Discount Points)
Upfront fees paid to the lender to reduce the interest rate, where one point equals 1% of the loan amount.
Prepayment Penalty
A fee charged if you pay off or refinance a loan before a specified period.
Private Mortgage Insurance (PMI)
Insurance required when the down payment is less than 20%, protecting the lender against borrower default.
Pro Forma
A projected financial statement showing expected income and expenses for a property, often based on assumptions.
Property Tax
An annual tax assessed by local governments based on a property's assessed value.
R
Rate and Term Refinance
Replacing an existing mortgage with a new one to get a better rate or different term, without taking cash out.
Rate Lock
A lender's guarantee that a specific interest rate and pricing will be held for a set period.
Real Estate Professional Status
An IRS designation allowing real estate losses to offset active income by meeting specific hour requirements.
Rent Roll
A document listing all rental units, their tenants, lease terms, and current rents.
Rent-to-Price Ratio
Monthly rent divided by the property price, used to quickly evaluate cash flow potential.
Reserves
Liquid funds required by the lender to be available after closing, typically measured in months of PITIA.
ROI (Return on Investment)
The total return earned on an investment expressed as a percentage of the amount invested.
S
S-Corp
A corporation that passes income to shareholders' personal tax returns, avoiding double taxation.
Seasoning
The length of time a borrower has owned a property or held funds, required by lenders before certain transactions.
Self-Employment Tax
The Social Security and Medicare tax that self-employed individuals pay on their business income.
Seller Financing
When the property seller acts as the lender, allowing the buyer to make payments directly to them.
Series LLC
A special LLC structure where each asset is held in a separate "series" with individual liability protection.
Short-Term Rental (STR)
A property rented for short stays (typically under 30 days), often listed on platforms like Airbnb and VRBO.
Single Family Residence (SFR)
A standalone residential property designed for one household, the most common investment property type.
Stabilized Property
A property that has reached a consistent occupancy level and is generating predictable income.
Subject To
Acquiring a property by taking over the existing mortgage payments without formally assuming the loan.
Subordinate Financing
A second or lower-priority loan taken in addition to the primary mortgage.
Syndication
Pooling capital from multiple investors to purchase a large property, managed by a sponsor or general partner.
T
Tenant-Friendly State
A state with strong tenant protections, including longer eviction processes and potential rent control laws.
Title Insurance
Insurance that protects the buyer and lender against claims on a property's ownership history.
Triplex
A residential building with three separate living units.
Trust
A legal arrangement where a trustee holds property on behalf of beneficiaries, used for estate planning and privacy.
Turnkey Property
A fully renovated, tenant-occupied property sold ready to generate immediate rental income.
U
V
Vacancy Rate
The percentage of time a rental property is unoccupied and not generating income.
Value-Add
An investment strategy focused on improving a property to increase its income or value.
Value-Add Property
A property with below-market performance that can be improved through renovations, better management, or rent increases.
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