CalculateRealEstateROI

Real Estate Terms

Investing Terms (A–Z)

Plain-English definitions, formulas, and worked examples for the terms every serious investor needs.

1 A B C D E F G H I L M N O P R S T V Y

1

A tax-deferred exchange allowing reinvestment of capital gains into like-kind property.

A

The gradual repayment of a loan's principal balance through scheduled payments.

The increase in a property's market value over time.

After-Repair Value — a property's estimated market value once renovations are complete.

B

Break-Even Point

Occupancy or rent level at which income covers all expenses with zero cash flow.

Buy, Rehab, Rent, Refinance, Repeat — a capital-recycling investment strategy.

C

Net operating income divided by property value; measures unleveraged yield.

Capital Expenditure (CapEx)

Major property improvements such as roof replacement or HVAC systems.

Net income after all expenses and debt service.

Liquid cash held to cover vacancies, capex, and emergencies.

Cash-on-Cash Return

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

Transaction fees paid at the close of a real-estate purchase.

Free rent or other incentives offered to attract tenants in a soft market.

D

Total annual mortgage payments — principal plus interest.

A non-cash tax deduction reflecting the wear of a property's structure.

Cash paid up front toward the purchase price.

Debt Service Coverage Ratio — NOI divided by annual debt service.

E

Effective Gross Income (EGI)

Gross potential rent minus vacancy and collection loss, plus other income.

The portion of a property's value owned outright by the investor.

A neutral third-party account that holds funds during a transaction.

Legal process by which a landlord regains possession of a property from a non-compliant tenant.

F

A government-backed mortgage available with lower down payments.

G

Gross Rent Multiplier

Property price divided by annual gross rent.

H

Hard Money Loan

Short-term, asset-based financing typically used for flips or BRRRR.

Homeowners Association — collects fees and enforces community rules.

Living in part of a property while renting other units or rooms to offset housing costs.

I

Internal Rate of Return (IRR)

The annualized return considering time value of all cash flows.

L

The use of borrowed capital to increase potential return on investment.

Loan Origination Fee

Lender charge for processing a mortgage, typically 0.5–1.5% of loan amount.

Loan-Level Pricing Adjustment (LLPA)

Risk-based pricing adjustments lenders add to rate or fee for investment properties.

Loan-to-Value — the loan amount divided by the property value.

M

Maintenance Reserve

Funds set aside monthly for routine repairs and unexpected fixes.

N

Net Operating Income (NOI)

Effective rental income minus operating expenses; excludes debt service.

Annual NOI as a percentage of property value — same concept as cap rate.

Non-Recourse Loan

Loan secured only by the property itself — the lender cannot pursue personal assets.

O

Operating Expenses

Recurring costs to operate a property excluding mortgage payments.

A buyer who will live in the property as their primary residence.

P

Principal, Interest, Taxes, and Insurance — the four components of a typical mortgage payment.

Upfront fees paid to lower a mortgage's interest rate (one point = 1% of loan amount).

The outstanding balance of a loan, excluding interest.

A forward-looking financial projection of property performance.

Rent calculated for a partial month based on actual days occupied.

Property Management Fee

Compensation paid to a third-party manager, usually 8–10% of collected rent.

R

Loan in which the lender can pursue personal assets if the property doesn't cover the debt.

Replacing an existing mortgage with new financing, typically to extract equity or lower rate.

A document listing all tenants, rents, and lease terms in a property.

Annual rental income as a percentage of property value.

Return on Investment — net gain divided by invested capital.

S

The period a property or loan must be held before refinancing.

Short-Term Rental (STR)

A rental leased nightly or weekly, typically via Airbnb or VRBO.

A geographic subset of a metro with distinct supply, demand, and pricing characteristics.

T

Title Insurance

Protection against losses from defects in a property's title.

The process of preparing a unit between tenants — cleaning, painting, repairs, marketing.

V

Percentage of time a unit is unoccupied within a year.

Y

Annual income expressed as a percentage of investment cost.