Real Estate Glossary

Annual NOI divided by purchase price. Cap rate measures the property's earning power as if you owned it free-and-clear, with no mortgage. Stripping out financing makes it the right metric for comparing properties to each other and to alternatives like bonds.

Annual cash flow divided by total cash invested (down payment + closing costs + initial repairs). Cash-on-cash measures the return on the cash YOU specifically put in, after the lender takes their cut. Unlike cap rate, it does include financing.

Annual NOI divided by annual debt service (mortgage P&I). DSCR tells you whether the property can cover its own mortgage from operating income. Every lender pulls it, and each lender sets its own bar.

Effective gross rental income minus operating expenses, before mortgage P&I and income tax. NOI is the property's operating performance as if you owned it free-and-clear — it isolates the asset from how you financed it. Cap rate and DSCR both start from NOI.

Property price divided by annual gross rent. The simplest screening ratio in real estate — no opex needed, so you can compute it for every listing in a search result without pulling expense data. Lower is better.

A property passes the 1% rule when its monthly rent is at least 1% of the purchase price. A $200,000 property renting for $2,000/mo passes. The rule is a 5-second screening filter, not a buy decision — failing it doesn't mean the deal is bad, and passing it doesn't mean it's good.

An investment strategy: buy a property, renovate it, rent it, seek new financing, and repeat. The refinance amount, timing, appraisal, costs, loan payoff, and post-refinance cash flow are uncertain; capital is not necessarily recovered. TrueCap does not currently publish a BRRRR acquisition model.

Mortgage loan amount divided by the lender's accepted property value. A $300,000 loan against a $400,000 value is 75% LTV. Maximum LTV and the value basis vary by lender, occupancy, property, borrower, loan purpose, and program; use the lender's written terms for the deal.

Personal monthly debt obligations divided by personal gross monthly income. Underwriting limits and included obligations vary by lender and program. Some investor-loan programs emphasize property DSCR rather than a traditional DTI test, but may still evaluate credit, liquidity, reserves, guarantors, and other eligibility requirements.

Percentage of potential scheduled rent not collected because a unit is vacant. A screening assumption should reflect the property's leases, turnover, condition, submarket, and evidence; a generic percentage is only a starting point and should be stress-tested.

Operating expenses divided by effective gross income. The inverse of NOI margin. A 40% OER means 40 cents of every rent dollar goes to property tax, insurance, maintenance, management, and other running costs; 60 cents is NOI.

Money set aside for major repairs and replacements — roof, HVAC, water heater, flooring, exterior paint. These hit every 5-25 years depending on the system. Smart underwriting reserves 5-10% of rent monthly for CapEx so a $15k roof replacement in year 7 doesn't wipe out 5 years of cash flow.

A tax-cost-recovery concept that may allocate eligible building basis over an applicable recovery period; land is not depreciable. Classification, basis, placed-in-service date, personal-use rules, passive-activity limits, and the taxpayer's facts determine timing and usability. TrueCap does not currently publish tax-strategy outputs; consult a qualified tax professional.

Growth in property value over time. Historical U.S. average is ~3% annually but varies wildly by market (Bay Area has averaged 6%+ over 30 years; rural Ohio under 2%). Appreciation is unrealized until you sell or refinance — it shows up in net worth, not monthly cash flow.

A screening condition where the property's unlevered yield is below the effective cost of debt. Cap rate and note rate are not a complete comparison because amortization, fees, term, and cash-flow timing also matter. Test the full loan schedule and downside assumptions rather than assuming appreciation will repair the gap.

Repairs and updates to a property, from cosmetic finishes to systems or structural work. Budget, scope, contingency, funding timing, downtime, permits, and the evidence for any stabilized rent or value should be reviewed separately.

An estimate of a property's value after a defined renovation scope is complete. Comparable selection, condition, completion, appraisal methodology, and lender policy can all change the amount available for a sale or refinance.

The highest purchase price that still meets your buy-and-hold targets under the assumptions shown — DSCR, cap rate, cash flow, cash-on-cash return, IRR, or cash required.

Your projection of the property's future operating performance, as opposed to the seller's trailing actuals. Marketing materials may use pro-forma cap rates with optimistic rent growth or expense assumptions. For screening, compare the pro forma with trailing actuals and your own verified assumptions before recording a decision.

A U.S. tax provision that may defer recognition of eligible gain when qualifying real property is exchanged under detailed like-kind, timing, identification, intermediary, and taxpayer rules. It does not erase tax, and TrueCap doesn't model it; get transaction-specific tax and legal advice before relying on it.

Buying a 2-4 unit property, living in one unit, and renting out the others. Eligible owner-occupants may have lower-down-payment options than investors, but down payment, occupancy certification, unit-count eligibility, reserves, mortgage insurance, and any later change in use depend on the specific loan documents and program. A 12-month scenario does not itself authorize conversion to a rental.

HUD's annual estimate of 40th-percentile gross rent for a standard-quality unit in an FMR area and bedroom count. FMR is an area benchmark used in several housing programs, not an address-level market comp, rent floor, payment standard, approved contract rent, or collection promise. TrueCap can start with a HUD benchmark, ZIP-level when available and otherwise at the broader FMR area; replace it with current comparable leases and property-specific program figures where applicable.

The portion of each mortgage payment that reduces the loan balance (vs. paying interest). On a typical 30-year mortgage, year 1 is ~80% interest / 20% principal; year 25 is the inverse. Principal paydown is real wealth building — your tenant is paying off your loan — but it doesn't show up in cash flow.

Rent minus operating expenses minus mortgage payment. The cash that lands in your account each month. Monthly cash flow is what funds your life. Wealth-building investors weight IRR; income investors weight monthly cash flow.

Annualized return over the full hold period, including cash flow, principal paydown, appreciation, and exit proceeds. IRR captures the FULL return story: monthly cash flow + principal paydown + appreciation + exit value, all rolled into one annualized number. It's the right metric for wealth-builders.

Total cash returned (cash flow + net sale proceeds) ÷ total cash invested. 2.0× means you doubled your money over the hold. Unlike IRR, the equity multiple ignores timing and answers the blunt question: how many times did I get my money back? Read the two together — IRR is the speed of the return, the multiple is its size.

A 0–100 heuristic summary of the modeled cap rate, cash-on-cash, monthly cash flow, DSCR, and projected return, for consistent triage. The Deal score helps you sort analyses for deeper review. It is not your Buy Box fit; read it after your targets and the underlying metrics.

An educational scenario that applies an assumed marginal rate to modeled taxable rental income or loss. It is not a determination of liability, eligibility, or whether a loss is currently usable. Tax treatment can materially affect an investor's outcome, but it depends on the taxpayer, ownership, property use, basis, activity rules, and jurisdiction. TrueCap does not currently expose a tax-specific analysis module; use a qualified professional and taxpayer-specific model.

Pre-tax cash flow adjusted by a taxpayer-specific estimate of income taxes attributable to the rental. TrueCap does not currently expose an after-tax cash-flow module. Tax treatment can shift an investor's realized result in either direction, but eligibility and timing depend on facts that a general rental screen cannot determine. Use a qualified professional and taxpayer-specific model.

Share of the purchase price you pay in cash. Required investment-property down payment varies by occupancy, borrower, property, lender, and loan program. Down payment is the inverse of LTV and a major driver of leverage and liquidity. Compare written loan quotes and stress-test reserves instead of treating a percentage range as a universal sweet spot.

Annual mortgage rate. Pricing varies by occupancy, program, borrower, property, leverage, points, lender, and lock date. Rate materially changes payment and modeled cash flow. Compare current written quotes on the same terms and stress a higher-rate case; a generic market spread is not a quote or approval.

Years over which the loan amortizes. 30-year fixed is the default; 15-year fixed reduces total interest paid but spikes the monthly payment. 30-year vs 15-year is the classic trade. 30-year wins on cash-on-cash return; 15-year wins on total wealth accumulated. Most investors pick 30-year for flexibility, then make extra principal payments when cash flow is strong.

Lender fees, title, escrow, insurance prepay, etc. Typically 2-4% of purchase price for investment properties. Closing costs eat into your cash-on-cash return immediately. They're often forgotten in the initial back-of-napkin underwrite. Always include them in your total cash invested when calculating CoC.

Annual property tax as a percent of value. Enter a local annual bill or a reviewed local effective rate; a blank field uses a TrueCap default of 1.1% — replace it with your local number. Property tax is the second-largest expense after mortgage on most deals. State rates vary wildly: 0.3% in Hawaii vs 2.5%+ in some Texas MUD zones. Always pull the ACTUAL current tax bill from the county appraisal district — don't trust Zillow's estimate.

Annual landlord insurance. Typically 0.3-0.7% of property value for SFR; higher in coastal/storm zones. Insurance has been the most-moved-against expense in rental investing since 2020. FL/LA/coastal TX up 25-40% in 5 years. Always quote insurance YOURSELF before signing a contract — don't trust the seller's last-year number.

A planning reserve for routine repairs; the appropriate amount depends on the property's systems, condition, service history, and operating plan. Building age is only a screening signal, not a reserve multiplier. Size maintenance and capital reserves from the inspection, remaining useful life of major systems, service history, quotes, warranties, and an explicit contingency for unknowns.

Property management cost as % of collected rent. Typical PM fees: 8-10%. Set to 0 if you self-manage. Always include 8-10% management in your underwrite even if you plan to self-manage. Why? Your time has cost. AND if you ever sell or hand off the property, the next owner will need PM in the model. A deal that only works at 0% management is a fragile deal.

Monthly homeowners association dues, if applicable. Often covers exterior maintenance, common-area landscaping, and shared amenities. HOAs are an expense killer in many condo/townhome deals. They go UP, never down, and special assessments can hit $5-20k. Always pull the HOA's last 2 years of financials + reserve study before buying a condo as an investment.

Monthly utilities the owner covers — water/sewer, trash, sometimes gas. Most SFRs put utilities on the tenant; multi-family deals often split them. On multi-family without separate meters, utilities can be $200-500/mo of NOI killer. Sub-metering or RUBS (Ratio Utility Billing) is one of the highest-ROI improvements you can make to a small multi-family.

Portion of purchase price allocated to depreciable building (not land). Defaults to 80% for SFR; land value varies by market. A supported allocation to depreciable building affects the modeled depreciation deduction. The allocation must be grounded in the property's facts; a default percentage is only an input assumption, and passive-loss and other limits determine the actual tax effect.

Your estimated average return per year over a 10-year hold, blending cash flow, loan paydown, and appreciation — not just the rent you pocket today. Cash flow alone undersells a rental: a deal that's near break-even today can still build real wealth through equity paydown and appreciation. This number is the closest single figure to 'what will this actually earn me long-term.'

Editable annual rent-change assumption used in the 10-year projection; it is not a forecast or permitted increase. Different assumptions compound into materially different year-10 results. Use current property and submarket evidence, verify applicable rent rules, and run flat and downside cases.

Editable annual operating-expense change assumption used in the projection. Taxes, insurance, utilities, labor, repairs, and other expenses can move differently from rent and from one another. Use current evidence and model expense growth that equals or exceeds rent growth as a downside case.

An editable sale-cost assumption that can include brokerage compensation, transfer taxes, title or legal fees, concessions, and other transaction-specific costs. Selling costs reduce modeled net sale proceeds and can materially change IRR. For illustration, an entered 8% cost on a $500,000 modeled sale is $40,000; obtain transaction- and jurisdiction-specific estimates rather than treating that example as typical or as a reason to choose a holding strategy.