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 distressed property cheap, Rehab it, Rent it out, Refinance based on the new higher appraised value (pulling most of your cash back out), then Repeat with a different property. Done well, you end up owning a cash-flowing rental with most of your original capital still available for the next deal.

Mortgage loan amount divided by property value. 75% LTV on a $400k property = $300k loan. Conventional investment-property loans typically max at 80-85% LTV; DSCR loans max at 75-80%. Cash-out refis cap LTV lower (70-75%) to leave the lender margin.

Personal monthly debt obligations divided by personal gross monthly income. Conventional residential lenders cap DTI around 43-50% to approve a loan. DSCR loans bypass DTI entirely — they qualify based on the property's DSCR instead.

Percentage of the year a unit sits empty. Standard underwriting assumes 5-8% vacancy as a floor — even a stable rental has turnover, repairs between tenants, and the occasional bad tenant. Don't underwrite at 0%; you'll be wrong every time.

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.

The IRS lets you deduct a portion of the building's value (not the land) each year as a paper expense, even though the property isn't actually losing value. Residential rentals depreciate over 27.5 years straight-line. This deduction frequently turns a positive-cash-flow rental into a paper tax loss, sheltering the cash flow from income tax.

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.

When your borrowing rate exceeds the property's cap rate, so every borrowed dollar costs more than the property earns. 2026's dominant trap: 6% cap rate financed at 7% mortgage = -1% on each borrowed dollar. Deals can still pencil with appreciation, tax savings, or principal paydown, but you need to know what you're signing up for.

Repairs and updates to a property — cosmetic (paint, flooring, fixtures), systems (HVAC, electrical, plumbing), or structural. BRRRR investors deliberately buy properties that need rehab so the post-renovation appraisal is high enough to refinance most of their cash out.

The property's projected value once rehab is complete. ARV drives the BRRRR refinance: most lenders cap the cash-out at 75% of ARV. So a $400k ARV supports a $300k post-refi loan — if your all-in cost is under that, you've achieved infinite return.

The highest modeled purchase price that still meets the selected target profile under the assumptions shown. For BRRRR, the boundary can use ARV, refinance LTV, rehab, closing, and holding costs; for buy-and-hold, it can solve against selected DSCR, cap-rate, cash-flow, or return rules. It is not a recommended offer, appraisal, or substitute for verification.

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 tax-deferred swap of one investment property for another. When you sell an investment property at a gain, you'd normally pay capital gains tax — a 1031 lets you defer that tax indefinitely as long as you reinvest the proceeds into a 'like-kind' investment property within strict deadlines (45 days to identify, 180 days to close).

Buying a 2-4 unit property, living in one unit, and renting out the others. The big advantage: owner-occupied financing (3-5% down conventional vs 20-25% for investment property), so your barrier to entry is dramatically lower. After 12 months you can move out, and the property becomes a normal rental.

HUD's annual estimate of typical rent for a given county and bedroom count, used to set Section 8 voucher payment standards. FMR is a useful 'is the asking rent realistic?' floor — actual market rent in most areas runs slightly above FMR. TrueCap auto-fills FMR from the HUD API when you enter an address.

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 secondary 0–100 composite of modeled cap rate, cash-on-cash, monthly cash flow, DSCR, and projected return for consistent triage. The Screening Index can help sort analyses for deeper review, but it is not selected-rule fit, evidence readiness, a probability of success, an appraisal, or investment advice. Read it after the selected rules and underlying metrics.

Illustrative monthly year-1 tax effect at the entered marginal rate: modeled deductions netted against modeled taxable rental income. A positive or negative result is a scenario output, not a determination of the taxpayer's liability or current ability to use a loss. Depreciation can materially change modeled taxable rental income. TrueCap's figure is deliberately simplified: it applies the entered marginal rate and does not decide whether a loss is currently usable under passive-activity, at-risk, or material-participation rules. The estimate also runs both ways, so positive taxable rental income can produce a negative net tax impact.

Monthly cash flow plus the estimated year-1 net tax effect — deductions (depreciation, deductible interest, operating expenses) netted against tax owed on the rental income. The same simplified math as the Illustrative Tax Impact panel's year-1 line. Most investors compare deals on pre-tax cash flow, but the post-tax number can shift the picture in both directions: a leveraged deal's deductions can turn a small pre-tax loss into an after-tax positive, while a strong cash-flower can owe tax on its rental income. TrueCap nets the two rather than counting deductions as a one-way bonus.

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. Defaults to your state's effective rate (1.49% PA, 1.68% TX, etc.) — adjust for your county. 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.

Realtor commissions + transfer tax + title fees on sale. Typically 6-9% of sale price. Selling costs eat into your IRR on the exit. A $500k sale at 8% selling cost = $40k of exit friction. This is one of the reasons long-hold strategies win — you avoid the friction by simply not selling.