Real estate investing glossary
Plain definitions of the terms investors use, with a calculator or guide where one helps.
- 1% rule
- A quick screen: does monthly rent reach 1% of the purchase price? Few areas reach it today, and passing it doesn't mean a deal cash flows. The 1% rule
- 1031 exchange
- Selling an investment property and buying another under IRS rules, which can put off the tax on the gain. It has strict deadlines and needs a qualified intermediary. 1031 exchange calculator
- 70% rule
- A flipper's rule of thumb: pay no more than 70% of the after-repair value, minus repairs. The 70% rule
- Adjusted basis
- What you paid for a property, plus improvements, minus depreciation. Your taxable gain on a sale is measured from this number. Sell vs keep calculator
- After-repair value (ARV)
- What a property should sell for once the planned work is finished, based on recent sales of similar homes. Fix-and-flip calculator
- Amortization
- Paying a loan down over time with regular payments. Early payments are mostly interest, and later ones are mostly principal. Mortgage calculator
- Appreciation
- A property's value rising over time, whether from the market or from improvements you make. Market finder
- Assignment fee
- What a wholesaler earns for passing a purchase contract to another buyer. Wholesale calculator
- Balloon payment
- A large lump sum due at the end of a loan whose regular payments didn't pay it off in full. Balloon payment calculator
- Bridge loan
- A short-term loan that covers the gap until longer-term financing or a sale comes through. It usually costs more than a regular mortgage. Bridge loan calculator
- BRRRR
- Buy, rehab, rent, refinance, repeat: a strategy for pulling your cash back out of a rental by refinancing after renovating it. BRRRR calculator
- Capital expenditures (CapEx)
- Big, infrequent costs like a roof or HVAC system. Many investors set aside a share of rent for them every month. Rental cash flow calculator
- Capitalization rate (cap rate)
- A property's yearly net operating income divided by its price: the return you'd earn buying it with all cash. Cap rate calculator
- Cash flow
- The money left each month after every expense and the loan payment. Rental cash flow calculator
- Cash-on-cash return
- A year's cash flow divided by the cash you put in. Unlike cap rate, it reflects your financing. Cash-on-cash return
- Comparable sales (comps)
- Recent sales or rentals of similar nearby properties, used to estimate what yours is worth or could rent for.
- Contingency
- Extra money budgeted for surprises in a renovation, often 10–20% of the cost. Rehab estimator
- Contract for deed
- A purchase where the seller keeps legal title until the buyer finishes paying over time. Also called a land contract. Contract for deed calculator
- Debt service coverage ratio (DSCR)
- Net operating income divided by the loan payments. Lenders use it to judge whether a property's income can carry its loan. DSCR loan calculator
- Depreciation
- A yearly tax deduction for the wear on a rental building, spread over 27.5 years for residential property and 39 for commercial. Depreciation calculator
- Depreciation recapture
- Tax owed on a sale for the depreciation you claimed or could have claimed, usually at up to 25% federally. Sell vs keep calculator
- Effective gross income
- Rent and other income after subtracting what you lose to vacancy.
- Fair Market Rent (FMR)
- HUD's yearly estimate of the 40th percentile rent for recent movers, including utilities. It's the basis for Section 8 voucher limits. How rent estimates work
- Gross rent
- In government data, rent plus tenant-paid utilities. HUD and Census rent figures are reported this way.
- Gross rent multiplier (GRM)
- Price divided by yearly rent. Lower means more rent per dollar of price, but it ignores expenses. Gross rent multiplier
- Hard money loan
- A short-term, higher-cost loan based mainly on the property's value, often used for flips.
- House hacking
- Living in one unit or room of a property and renting out the rest to reduce your housing cost. House hacking calculator
- Loan-to-value (LTV)
- The loan amount as a percent of the property's value. Lower means less risk for the lender. Loan sizing calculator
- Maximum allowable offer (MAO)
- The most you can offer a seller and still leave room for repairs, costs and profit. Wholesale calculator
- Net operating income (NOI)
- Income minus operating expenses, before the loan payment and improvements. Net operating income
- PITI
- Principal, interest, taxes and insurance: the main parts of a monthly mortgage payment. Mortgage calculator
- Private mortgage insurance (PMI)
- Insurance that protects the lender, usually required with less than 20% down on a conventional loan.
- Prorated rent
- Rent charged for only part of a month, when a tenant moves in or out mid-month. Prorated rent calculator
- Rent-to-own
- A lease with an option to buy later, often with part of the rent counting toward the price. Rent-to-own calculator
- Rent-to-price ratio
- Monthly rent as a percent of the home's value, used to compare markets. Higher means more rent per dollar of price. Market finder
- Schedule E
- The US tax form where landlords report rental income and expenses. Your tax professional can tell you what goes where. Rental dashboard
- Section 8
- The federal Housing Choice Voucher program, which pays part of a tenant's rent directly to the landlord. Local housing authorities run it and set the limits. Rent estimator
- Seller financing
- The seller acts as the bank, and the buyer makes payments to them instead of a lender. Seller financing calculator
- Short-term rental (STR)
- A property rented for short stays, usually through a platform like Airbnb. Income can be higher, but so are costs and local rules. Short-term rental calculator
- Subject-to
- Buying a property while the seller's existing mortgage stays in place. The loan's due-on-sale clause is a real risk. Subject-to calculator
- Triple-net lease (NNN)
- A commercial lease where the tenant pays rent plus property tax, insurance and maintenance. NNN lease calculator
- Vacancy rate
- The share of time, or of homes, sitting empty. Investors often budget 5–8% of rent for it. Rental cash flow calculator
- Wholesaling
- Putting a property under contract and selling that contract to another buyer for a fee. Some states regulate it. Wholesale calculator