Real Estate Investor Glossary
Plain-language definitions of the terms property investors actually use, each with the formula, a worked example, and the mistake people usually make with it.
Metrics
The numbers investors run before they run a deal.
Debt Service Coverage Ratio (DSCR)
DSCR is a property’s gross monthly rent divided by its total monthly mortgage payment. A DSCR of 1.00 means the rent exactly covers the payment; 1.25 means rent exceeds the payment by 25%.
Net Operating Income (NOI)
Net operating income is a property’s annual income minus its operating expenses, calculated before any mortgage payment. It measures what the property earns, independent of how it was financed.
Capitalization Rate (Cap Rate)
A cap rate is a property’s annual net operating income divided by its price or value, expressed as a percentage. It is the unlevered yield the property produces at that price.
1031 Exchange
A 1031 exchange lets an investor sell investment property and reinvest the proceeds into like-kind property while deferring capital gains tax, provided strict identification and closing deadlines are met.
Cash-on-Cash Return
Cash-on-cash return is the annual pre-tax cash flow a property produces divided by the total cash you put into it. Unlike cap rate, it accounts for financing.
Gross Rent Multiplier (GRM)
Gross rent multiplier is a property’s price divided by its annual gross rent. A $400,000 property renting for $40,000 a year has a GRM of 10.
Rental Property Depreciation
Depreciation is an annual deduction for the wearing out of a rental building, taken over 27.5 years for residential property. Land is never depreciated.
After Repair Value (ARV)
After repair value is the estimated market value of a property once planned renovations are finished. It is the basis for most fix-and-flip and BRRRR lending decisions.
Seasoning Period
A seasoning period is the minimum time a lender requires you to have held a property, a loan, or funds before it will lend against them. Title seasoning is the version that most affects investors.
The 70% Rule
The 70% rule says a flipper should pay no more than 70% of a property’s after repair value, minus the cost of repairs. On a $400,000 ARV with $60,000 of rehab, the maximum offer is $220,000.
Form 1007 (Single-Family Comparable Rent Schedule)
Form 1007 is a one-page appraisal addendum, ordered alongside the standard appraisal on a one-unit property, in which the appraiser identifies comparable rentals and reconciles them to a single opinion of the property’s market rent.
Form 1025 (Small Residential Income Property Appraisal Report)
Form 1025 is the standard appraisal report used for two-to-four unit residential properties. Unlike the one-unit report, it includes an income approach and a unit-by-unit rent analysis, since these properties are typically rented.
Form 1004 (Uniform Residential Appraisal Report)
Form 1004, the Uniform Residential Appraisal Report, is the standard appraisal form for one-unit residential properties. It documents the property, the neighborhood, and comparable sales, and reconciles them into a single opinion of value.
Form 216 (Operating Income Statement)
Form 216, the Operating Income Statement, is an appraisal form used alongside a small residential income property appraisal to develop the estimated income and expenses that support an income-approach opinion of value.
Comparable Rent Schedule
A comparable rent schedule is the appraisal method of estimating a property’s market rent by identifying similar rented properties nearby, adjusting their rents for differences, and reconciling them into a single opinion. On one-unit properties this method is formalized as Form 1007; on two-to-four unit properties it is built into Form 1025.
Market Rent vs. Actual Rent
Market rent is an appraiser’s opinion of what a comparable unit should currently rent for. Actual rent is the contract rent stated in an existing lease. The two frequently differ, and which one a lender uses to qualify a loan depends on the lender’s policy.
Vacancy and Collection Loss
Vacancy and collection loss is the portion of a property’s potential gross rent lost to unrented time and to rent billed but not collected. Subtracting it from potential gross rent produces effective gross income.
Appraisal Subject to Completion
An appraisal made subject to completion values a property as though planned repairs, alterations, or construction described in plans and specifications have already been finished, rather than valuing the property in its current, unfinished condition.
As-Is vs. ARV Appraisal
An as-is appraisal reports a property’s value in its current condition on the inspection date. An ARV appraisal reports the value the property is expected to reach once specified renovation is finished. Lenders use one, the other, or both depending on the loan.
Appraisal Reconsideration of Value (ROV)
A reconsideration of value, or ROV, is a formal request asking an appraiser to revisit a figure on a completed appraisal — typically the value, but sometimes a rent opinion — using additional data or pointing out a factual error.
Loan Structures & Entities
How investment property is financed and held.
Hard Money Loan
A hard money loan is short-term real estate financing secured by the property and underwritten mainly on its value, typically from a private lender rather than a bank.
Non-QM Loan
A non-QM loan is a mortgage that does not meet the Qualified Mortgage standard, usually because it verifies income by some route other than tax returns. It is a documentation category, not a credit-quality one.
Self-Directed IRA (Real Estate)
A self-directed IRA is a retirement account held at a custodian that permits alternative assets, including real estate. The IRA owns the property; all income and expenses flow through the account.
Cost Segregation Study
A cost segregation study reclassifies parts of a building into 5, 7 and 15-year depreciation lives instead of 27.5 or 39, moving deductions into the early years of ownership.
LLC for Rental Property
An LLC is a legal entity that can hold title to rental property, separating the property’s liabilities from the owner’s personal assets. Most investor lenders permit it; most conventional lenders do not.
Blanket Mortgage
A blanket mortgage is a single loan secured by two or more properties. It consolidates a portfolio into one payment, one rate and one maturity.
Cash-Out Refinance (Rental Property)
A cash-out refinance replaces an existing loan on a rental with a larger one, paying the borrower the difference in cash. The proceeds are loan proceeds, not taxable income.
No-Income-Verification Mortgage
A no-income-verification mortgage qualifies a borrower without tax returns, W-2s or pay stubs. On investment property this generally means a DSCR loan, which qualifies on the property’s rent instead.
Asset-Based Lending
Asset-based lending underwrites primarily on the value and income of the collateral rather than the borrower’s personal income. In real estate this covers hard money, bridge and DSCR loans.
Umbrella Policy (Rental Property)
An umbrella policy provides additional liability coverage above the limits of your underlying landlord and auto policies, typically in increments of $1 million.
Interest-Only DSCR Loan
An interest-only DSCR loan requires only interest payments for an initial period, typically five to ten years, before converting to fully amortising payments for the remaining term.
Cross-Collateralization
Cross-collateralization means pledging more than one property as security for a single loan, so the lender can look to multiple assets if the borrower defaults.
Delayed Financing Exception
The delayed financing exception allows a buyer who purchased a property with cash to take a cash-out refinance immediately, without waiting out the usual seasoning period.
Strategies
How investors describe what they are doing.
House Hacking
House hacking means living in one part of a property while renting out the others, so tenant rent offsets or eliminates your housing cost.
Fix and Flip
Fix and flip means buying a property below market value, renovating it, and reselling it at a profit within a short holding period, typically four to nine months.
Rental Arbitrage
Rental arbitrage means leasing a property long-term and re-renting it on short-term platforms, keeping the spread between the nightly revenue and the lease payment.
Real Estate Syndication
A real estate syndication pools money from multiple passive investors to acquire a property, with a sponsor who finds, finances and operates it in exchange for fees and a share of profits.
Mid-Term Rental
A mid-term rental is a furnished property let for roughly one to six months — longer than a short-term stay, shorter than a standard annual lease.
Turnkey Rental Property
A turnkey rental is a property sold already renovated, tenanted and often under property management, so the buyer begins collecting rent immediately.
Short-Term Rental Investing
Short-term rental investing means owning property rented by the night or week through platforms such as Airbnb and Vrbo, rather than on annual leases.
Buy and Hold
Buy and hold means acquiring rental property and keeping it long term for rental income, mortgage paydown, appreciation and tax benefits, rather than reselling quickly.
Land Trust
A land trust is a revocable trust that holds title to real estate, with a trustee named in public records and the beneficial owner not disclosed.
Quit Claim Deed to LLC
A quit claim deed transfers whatever interest the grantor has in a property, with no warranty of title. Investors commonly use one to move property into an LLC they own.
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