Investor Glossary

The increase in a property's market value over time. Appreciation can be natural (market-driven) or forced (through renovations and improvements). Buy and hold investors benefit from both but cannot rely on either for positive cash flow.

Buy, Rehab, Rent, Refinance, Repeat. A portfolio-building strategy where an investor purchases a distressed property, renovates it, rents it, refinances to pull out equity, and redeploys that equity into the next deal — cycling capital rather than consuming it.

Net Operating Income divided by property value. Measures a property's income potential independent of financing. Used to compare properties and assess market-level pricing. A 7% cap rate means the property generates $7 in NOI for every $100 of value.

Major property expenses that extend the useful life of a component — roof replacement, HVAC system, foundation work. Distinguished from routine maintenance because CapEx costs are larger and less frequent. Smart investors reserve 5–10% of gross rent annually for CapEx.

Monthly rent minus all operating expenses and debt service. The money actually deposited into your account after everything is paid. Positive cash flow means the property earns money every month. Negative cash flow means you are subsidizing it.

Annual cash flow divided by total cash invested. Measures what your down payment and closing costs are actually earning annually. A $5,000 annual cash flow on a $50,000 total cash investment is a 10% cash-on-cash return.

A tax strategy that reclassifies portions of a property from 27.5-year to shorter depreciation schedules (5 or 15 years), accelerating tax deductions into earlier years of ownership. Most beneficial on properties valued over $500,000.

The total monthly mortgage payment including principal, interest, taxes, and insurance (PITI). Debt service is your largest fixed expense and the primary factor that determines whether a deal cash flows.

A non-cash tax deduction that allows landlords to deduct a portion of the property's building value each year over 27.5 years. Reduces taxable income without reducing actual cash flow — making it one of the most valuable benefits of rental property ownership.

Monthly gross rent divided by monthly PITI. A DSCR of 1.0 means rent exactly covers the mortgage. Lenders offering DSCR loans typically require 1.20–1.25, meaning the rent must cover 120–125% of the mortgage payment.

The difference between a property's market value and the outstanding loan balance. Equity grows through appreciation, mortgage paydown, and value-add improvements. Accessible through refinancing or sale.

Purchase price divided by annual gross rent. A rough valuation metric for comparing properties within the same market. Does not account for expenses — useful for quick screening, not final analysis.

Purchasing a 2–4 unit property, living in one unit, and renting the others. Allows investor to use owner-occupied financing (lower down payment, better rates) on what is effectively an investment property.

The loan amount divided by the property's appraised value, expressed as a percentage. A $160,000 loan on a $200,000 property is 80% LTV. Lower LTV means more equity. Lenders use LTV to determine rates and whether PMI is required.

Gross rent minus all operating expenses, not including mortgage payments. NOI is used to calculate cap rate and assess a property's income-generating ability independent of financing. NOI ÷ cap rate = estimated property value.

A tax-deferral mechanism that allows investors to sell a property and reinvest the proceeds into a like-kind replacement property without paying capital gains tax at the time of sale. Named for Section 1031 of the Internal Revenue Code. Requires 45-day identification and 180-day closing windows.

IRS classification for rental income and losses. Passive losses generally cannot offset ordinary (W-2) income except under specific conditions — active participation with AGI under $100,000 allows up to $25,000 deduction. Real estate professionals can deduct unlimited passive losses.

Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment. The total PITI payment is what must be covered by rent for a deal to cash flow positively.

A quick screening filter: monthly rent should equal at least 1% of the purchase price. A $150,000 property should rent for $1,500/month. Not a buying rule — just a filter to quickly eliminate deals that clearly will not cash flow.

The percentage of time a unit sits empty between tenants. Budget 5–8% of gross annual rent for vacancy even in strong markets. A unit that sits empty one month per year has an 8.3% vacancy rate. Ignoring vacancy is the most common cash flow calculation mistake.