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. The higher it is, the more bankable the deal.

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 maximum price you can pay for a property and still hit your target return / cash-back-at-refi. For BRRRR: MAO = (ARV × refi LTV) − rehab cost − closing − holding. For buy-and-hold: MAO solves for a target DSCR or cap rate. Computed automatically in TrueCap Pro.

Your projection of the property's future operating performance, as opposed to the seller's trailing actuals. Brokers always pitch pro-forma cap rates that include optimistic rent bumps and aggressive expense assumptions. For triage use pro-forma; for the actual offer, recompute using trailing actuals plus YOUR conservative growth assumptions.

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.