The Gist of It

Below I would like to give you an idea of some of the terms that we use throughout this blog. Some of the terms that we use can be a little confusing, but here we offer a very general definition of those terms. Oftentimes these are not true definitions, and some of the information is from our own experiences in real estate investing. We hope you find it helpful!

  • A
    • Asset: anything that puts money in your pocket (i.e. a rental property, bonds,)
  • C
    • Cash on Cash: The annual before-tax cash flow of an investment expressed as a percentage of the initial cash invested. COC = Annual Cash Flowe / Initial Cash Invesment
  • D
    • DSCR: The ratio of Net Operating Income (NOI) to mortgage debt service. DSCRs are most commonly expressed as a decimal (e.g., 1.20). It means for every $1 in debt service, there is $1.20 in NOI.
  • E
    • Effective Gross Income (EGI): The EGI is the effective income derived by subtracting losses due to vacancy, concessions, employees, model units, and any bad debt
    • Exit Strategy: this is how the syndicator plans to cash investors out of their investment in the future. This may be by selling the property, purchasing their shares, or refinancing them out
  • F
    • Financial Freedom: when your passive income outweighs your liabilities and you are making more money than is regularly going out (think mortgage, utility and phone bills)Foreclosure: the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments
  • G
    • Gross Potential Rent (GPR): The amount of rent that an owner would collect if all apartments were occupied and all residents were paying the market rent
  • H
    • House Hacking: purchasing an owner-occupied multifamily home (duplex, triplex, quadplex) living in one unit, and renting out the other units—having your tenants pay for you mortgage and essentially living for free
  • I
    • Internal Rate of Return (IRR): The discount rate that equates all future returns of an investment to the initial outlay on that investment. Life Hack! Excel has a function to calculate this for you!
  • L
    • Liability: anything that takes money out of your pocket (i.e. car loan, mortgage, student loans, etc.)
    • Loss to Lease: For all leased units, the difference between market rents and actual contract rents. It is a metric that can helps operators find the right balance between current rents and potential profits. This perspective is from a multi-family property owner. For example, if the market rent is $1000 per unit and the in-place lease is $900, the loss to lease is $100 per month. In other words, owners are technically losing out on $100 in potential income with the current tenants in the unit
  • M
    • Market Rent: refers to the market value of a rental unit for lease based upon comparable rental rates for similar units in close proximity to the subject. Used to calculate value, cash flow, and potential loan amounts.
    • Multiple Listing Service (MLS): a service used by a group of real estate brokers. They band together to create an MLS that allows each of them to see one another’s listings of properties for sale
  • N
    • Net Operating Income (NOI): Total income less operating expenses
  • O
    • Occupancy Rate: The percentage of total apartment units that are occupied.
  • P
    • Passive Income: a stream of income earned with little effort (think rental property!)
    • Price Per Unit: Refers to the price of the property divided by the number of apartments. It is used to compare the value of the property compared to other similar properties. Example: $2,000,000 apartment complex with 80 units would be $25,000 per unit
    • Pro Forma: A projected financial statement for estimated revenues and expenses. Often detailed for one and five years.
  • R
    • Rent Concessions: A compromise a landlord makes to the original rent terms in the hopes of finding a tenant quickly. They are usually some form of a rebate that a landlord offers a tenant to try to persuade the tenant to move into the rental property
    • Rent Roll: The spreadsheet or document detailing each of the units in an apartment community. A good rent roll will include unit numbers, unit types, square feet, tenant names, market rents versus actual rent, deposit amounts held, move-in dates, lease-start and lease-end dates, and current status
    • Real Estate Owned (REO): a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction
    • Return on Investment (ROI): – An undiscounted return over a single period expressed as a percentage of the initial capital invested. ROI = (Gains – Cost) / Cost
  • S
  • T
    • T-12: A profit and loss statement showing the actual reported numbers for the last 12 months
    • Total Operating Expenses: The sum of all operating costs, not including interest, depreciation, and amortization
  • U
    • Underwriting: Financially analyzing investment real estate
    • Unit Mix: the different number of bedroom apartments in a property. Apartments range in sizes from efficiency to 5 bedrooms.
  • V
    • Vacancy Cost: The amount of rent that could have been collected from vacant units if they had been occupied and leased at current market rates
    • Vacancy Loss: How much potential revenue and cash flow is lost due to vacant units
  • W
  • X
  • Y
  • Z