Annual Percentage Rate (APR): the total yearly cost of borrowing money, expressed as a percentage. It includes not only the nominal interest rate but also additional fees and closing costs associated with a loan, offering a more comprehensive picture of the total cost of credit than the interest rate alone.
Asset Value: the monetary worth of an entity’s resources after subtracting its liabilities and, in some cases, prior capital obligations. It is a critical metric in real estate for determining the true worth of an asset.
Capitalization Rate: a fundamental real estate metric used to estimate an income-producing property’s potential 1-year return on investment, calculated as Net Operating Income (NOI) divided by the current market value or sale price. Expressed as a percentage, it allows investors to compare risks and returns across properties.
Cash Flow: the total amount of money and cash equivalents moving into and out of a business, project, or personal financial account during a specific period.
Cash-on-Cash Return: measures the annual pre-tax cash flow of an investment (usually real estate) relative to the total cash invested, expressed as a percentage. It is calculated by dividing the annual net cash flow by the total cash invested. Generally, a 6% to 12% return is considered healthy, though this varies by market and property type.
Debt-to-Income (DTI) Ratio: is your total monthly debt payments divided by your gross monthly income.
Equity: the difference between the current market value of a property and the outstanding balance of all liens and mortgages secured by that property (ex: if you own a $400,000 property and your mortgage on that property is $210,000, you have $190,000 in equity).
Federal Housing Administration (FHA) Loan: government-backed mortgages insured by the FHA and issued by private lenders, designed for borrowers with lower credit scores or limited savings.
Gross Profit: the total revenue generated by a property before deducting working expenses and taxes.
Interest Rate: the fee paid to the lender in addition to the principal.
Leverage: is the strategic use of borrowed capital (debt, such as a mortgage) to purchase a property, with the aim of increasing the potential return on investment (ROI).
Loan Term: the length of time you have to repay a loan.
Maintenance Expense: the costs incurred on a regular basis to keep assets—such as real estate, vehicles, or machinery—in optimal working condition.
Mortgage: a legal agreement between a borrower and a lender that allows the borrower to purchase real estate using funds provided by the lender, with the property itself serving as collateral. The lender holds a lien on the property, meaning they have the right to take possession through foreclosure if the borrower fails to repay the loan plus interest.
Multi-Family Home: a single building or complex containing multiple, separate housing units designed to accommodate more than one family living independently.
Net Profit: the actual profit after working expenses have been paid.
Principal: the original sum of money borrowed from a lender, excluding any interest, fees, or taxes.
Principal Payment: a payment in addition to the monthly mortgage payment that directly pays back the original sum borrowed and does not pay back the loan’s interest or fees.
Property Tax: a mandatory financial charge levied by a local government on the value of a property based on the property’s assessed value.
Purchase Price: the agreed-upon dollar amount a buyer promises to pay a seller in exchange for the ownership, rights, and title to a property.
Quadplex: a multi-family residential building that contains four completely separate living units within a single structure.
Rent: a tenant’s regular payment to a landlord for the use of property or land.
Vacancy Rate: the percentage of available units or positions that are unoccupied at a given time.