Real Estate Investing Glossary

A tax-deferred exchange under IRS Section 1031 that allows investors to sell an investment property and reinvest the proceeds into a "like-kind" property, deferring capital gains taxes.

The estimated market value of a property after all planned renovations and repairs are completed. ARV is critical for fix-and-flip investors and BRRRR strategy practitioners to determine maximum purchase price.

The increase in a property's value over time. Appreciation can be natural (driven by market forces) or forced (driven by improvements, renovations, or increased rental income).

An investment strategy that stands for Buy, Rehab, Rent, Refinance, Repeat. Investors purchase undervalued properties, renovate them to increase value, rent them out, refinance to pull out their initial capital, and repeat the process.

The capitalization rate is the ratio of a property's net operating income (NOI) to its purchase price or current market value, expressed as a percentage. It measures the expected rate of return on an investment property.

The net amount of money remaining after all income is collected and all expenses (including mortgage payments) are paid. Positive cash flow means the property generates profit each month.

The ratio of annual pre-tax cash flow to the total cash invested in a property. Unlike cap rate, cash-on-cash return accounts for financing and measures the return on your actual out-of-pocket investment.

A Debt Service Coverage Ratio loan is an investment property mortgage where qualification is based on the property's rental income rather than the borrower's personal income. Lenders typically require a DSCR of 1.0 or higher.

The ratio of a property's net operating income to its total debt service (mortgage payments). A DSCR above 1.0 means the property generates enough income to cover its debt obligations.

A tax deduction that allows property owners to deduct the cost of the building (not land) over its useful life — 27.5 years for residential and 39 years for commercial property. Depreciation reduces taxable income without requiring an actual cash outlay.

The difference between a property's current market value and the outstanding mortgage balance. Equity increases through mortgage paydown, property appreciation, and forced appreciation from renovations.

An investment strategy where a property is purchased below market value, renovated to increase its value, and then sold for a profit. Success depends on accurate rehab cost estimates and after-repair value (ARV) projections.

A quick valuation metric calculated by dividing a property's price by its gross annual rental income. A lower GRM suggests a better investment, but it doesn't account for expenses.

A short-term, asset-based loan from private lenders used primarily for fix-and-flip projects or bridge financing. Interest rates are higher than conventional loans but approval is faster and based on the property's value rather than borrower creditworthiness.

A strategy where an investor lives in one unit of a multi-family property (or rents out rooms in a single-family home) and rents out the remaining units to offset or eliminate their housing costs.

A metric that accounts for the time value of money to calculate the annualized return on an investment over its entire holding period, including cash flows, appreciation, and the eventual sale.

The ratio of a mortgage loan amount to the appraised value of the property, expressed as a percentage. An 80% LTV means the borrower is financing 80% of the property's value and putting 20% down.

The total income generated by a property after deducting all operating expenses, but before deducting mortgage payments, capital expenditures, and income taxes.

A property rented for brief periods, typically less than 30 days, often through platforms like Airbnb or VRBO. STRs can generate significantly higher income than long-term rentals but require more active management.

The percentage of time a rental property is unoccupied during a given period. Investors typically budget 5-10% vacancy when analyzing deals to account for tenant turnover and unleased periods.