Reference
Real Estate Investing Terms Glossary
Every metric this site computes, defined once with its formula, a relevant rental or strategy example, and the specific way people get it wrong. 21 terms, grouped by what they measure. Each one links to the calculator that computes it.
Income and expenses
- Net operating incomeNOINOI = effective gross income − operating expensesNet operating income is what a property earns after vacancy and operating expenses but before any mortgage payment, depreciation or income tax.
- Effective gross incomeEGIEGI = (scheduled rent + other income) − vacancy and credit lossEffective gross income is gross potential income minus vacancy and credit loss.
- Operating expensesOpExOpEx = fixed costs + management + maintenance reserve + CapEx reserveOperating expenses are the recurring costs of running the property: taxes, insurance, management, maintenance, utilities the owner pays, HOA dues, and a reserve for capital replacement.
- Vacancy rateVacancy loss = gross potential income × vacancy rateVacancy rate is the share of available rental capacity that sits empty over a measured period.
- Occupancy rateOccupancy rate = 100 − vacancy rateOccupancy rate is the complement of vacancy: the share of available capacity that is occupied, so 95% occupancy and 5% vacancy describe one fact from two sides.
Return metrics
- Capitalization rateCap rateCap rate = NOI ÷ purchase priceThe capitalization rate is net operating income divided by price, expressed as a percentage.
- Cash-on-cash returnCoCCash-on-cash = annual pre-tax cash flow ÷ total cash investedCash-on-cash return is annual pre-tax cash flow divided by the total cash you actually put into the deal — down payment, closing costs and rehab.
- Gross rent multiplierGRMGRM = purchase price ÷ gross annual rentGross rent multiplier is purchase price divided by gross annual scheduled rent.
- Internal rate of returnIRR0 = Σ cash flow at year t ÷ (1 + IRR)^tInternal rate of return is the annual discount rate at which the deal's cash flows — the money in at purchase, the cash flow each year and the net proceeds at sale — net out to zero.
- Equity multipleEquity multiple = (cumulative cash flow + net sale proceeds) ÷ total cash investedEquity multiple is total cash returned divided by total cash invested, with no adjustment for time.
- Break-even occupancyBreak-even occupancy = (occupancy-independent expenses + debt service) ÷ (gross potential income × (1 − management %))Break-even occupancy is the occupancy at which annual pre-tax cash flow is exactly zero — the share of gross potential income the property must collect to cover operating expenses and debt service with nothing left over.
Financing
- Debt service coverage ratioDSCRDSCR = NOI ÷ annual debt serviceDSCR is net operating income divided by annual debt service.
- Loan-to-valueLTVLTV = loan amount ÷ appraised valueLoan-to-value is the loan balance divided by the property's appraised value.
- Debt serviceAnnual debt service = monthly principal and interest × 12Debt service is the total of principal and interest paid on the loan over a year.
- Seller financingOwner carryNote amount = purchase price − down paymentSeller financing is when the seller acts as the bank: you pay a down payment and sign a promissory note secured by the property, then pay the seller monthly.
Tax
- Capital expenditureCapExCapEx reserve = gross scheduled rent × reserve percentageCapital expenditure is money spent on components with a useful life longer than a year — roof, furnace, windows, a full kitchen.
- Cost basisAdjusted basisDepreciable basis = (price + capitalised closing) − land allocation + upfront building improvementsCost basis starts with purchase price, capitalised closing costs and improvements.
- Depreciation recaptureSection 1250 recaptureRecapture tax = accumulated depreciation × 25% (maximum federal rate)Depreciation recapture is the tax owed at sale on the depreciation you deducted along the way.
- 1031 exchangeLike-kind exchangeDeferred tax = (capital gain × capital gains rate) + (depreciation × 25%)A 1031 exchange defers capital gains tax and depreciation recapture by rolling the proceeds of an investment-property sale into another investment property.
Strategy
- After-repair valueARVARV = price per finished square foot of comparable sales × subject square footageAfter-repair value is what the property will appraise for once the planned work is finished, supported by closed sales of comparable finished properties.
- House hackingEffective housing cost = PITI + operating costs − rent collectedHouse hacking means living in part of a property and renting the rest — the other side of a duplex, spare bedrooms, or an accessory dwelling unit.
Common questions about these terms
- What are the most important metrics in rental property investing?
- Net operating income, cap rate, cash-on-cash return and DSCR. NOI describes the building, cap rate prices it, DSCR decides whether a lender will fund it, and cash-on-cash tells you what you personally earn in year one. Everything else on this page is either an input to those four or a shortcut for estimating them.
- Why do the same terms mean different things in different places?
- Because there is no standards body. Cap rate is sometimes quoted on purchase price and sometimes on all-in cost; gross rent multiplier is sometimes annual and sometimes monthly; the 50% rule sometimes includes vacancy and sometimes does not. Each definition here states which convention it uses, and every calculator on this site uses the same one throughout.
- Where do the worked examples come from?
- The rental metric examples use the analyzer's default $265,000 duplex renting for $2,650 a month, bought with 25% down at 6.75% over 30 years. Strategy and tax entries use representative assumptions from their own calculators, which save their inputs separately.
The calculators these terms feed
The rental analyzer, single-metric calculators, 1% and 50% rules, vacancy comparison and deal report share one rental deal. Strategy calculators save their own assumptions.
- rental property calculatorThe full underwriting model: NOI, cap rate, cash-on-cash, DSCR, amortisation, a 30-year projection and a printable deal report.
- cap rate calculatorNet operating income divided by price, with every expense line shown and the debt service deliberately left out.
- dscr calculatorDebt service coverage ratio against real lender thresholds, plus the loan amount your NOI will actually support.
- cash on cash return calculatorAnnual pre-tax cash flow over every dollar of cash you put in — down payment, closing costs and rehab.
- rental property roi calculatorCash flow, principal paydown and appreciation combined into a pre-tax return, with separate context on potential tax savings.
- real estate investment calculatorYear-by-year projection to your exit, with equity multiple and IRR at every possible sale year.
- noi calculatorNet operating income built line by line from gross scheduled rent, and why the mortgage never appears in it.
- gross rent multiplierPrice divided by gross annual rent — the fastest screen there is, and the one that hides the most.
- rental yield calculatorGross yield and net yield side by side, with the gap between them explained in dollars.
- vacancy rate calculatorEmpty days and vacant unit-months turned into the rent they cost, then fed back through your own deal as real NOI and cash-flow differences against your underwriting allowance.
- brrrr calculatorBuy, rehab, rent, refinance, repeat — cash left in the deal, capital recycled, and infinite returns handled properly.
- fix and flip calculatorHard-money points and carry, contingency, selling costs and the ARV at which the project breaks even.
- house hack calculatorWhat your housing actually costs once tenants cover part of it, and what the building looks like after you move out.
- short term rental calculatorADR and occupancy through to NOI, with the long-term lease comparison that decides whether the extra work pays.
- seller financing calculatorOwner-carry notes: payment, balloon balance, interest to the balloon, and what the seller nets versus a cash sale.
- rental property depreciation calculator27.5-year straight line with the IRS mid-month convention, the annual tax shield, and recapture at sale.
- 1 percent rule real estateMonthly rent against purchase price, what the rule was calibrated for, and the interest rate at which it stops working.
- 50 percent rule real estateHalf of gross rent goes to operating expenses. Tested against your own itemised budget, line by line.
- 70 percent rule house flippingMaximum allowable offer for a flip: 70% of after-repair value, less the rehab budget.
- printable rental property deal reportThe whole analysis in a printable report, laid out for Letter and A4, ready to print or send to a lender.