The Real Estate investment world is filled with industry jargon that can make things hard to understand. We built this real estate investing glossary to help you better navigate the space.

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1031 Exchange

Named after section 1031 of the U.S. Internal Revenue Code, a 1031 Exchange is a transaction that allows an individual or entity to defer capital gains taxes on the sale of an income property by rolling proceeds into the purchase of another qualifying investment property. It also is commonly referred to as a like-kind exchange as investors are swapping one income property for another similar or “like-kind” property.


Absorption / Absorption rate

The amount of inventory or units of a specific commercial property that are leased during a specific period. Absorption over a specific period of time, such as one year, is often reported as an annual absorption rate.

Accessory Dwelling Unit (ADU)

An additional or accessory unit on a single-family housing lot with independent exterior access from the main house. An ADU can be attached, detached or exist within the main residence. Generally, ADUs do not count toward the allowable density on the lot.

Affordable Housing

Affordable housing is often used generically to describe the cost burden on renters. Technically, government housing programs set the maximum threshold for federally subsidized affordable housing at 30% of Area Median Income (AMI).

Age-Restricted Housing

A housing community that typically limits 80% of the ownership to individual who are over a set age. The set minimum age can vary depending on the property or residential community, such as 50, 55 or 60+.

The Agencies

Also known at government-sponsored enterprise or GSEs, the agencies are financial services corporations including Fannie Mae, Freddie Mac and Ginnie Mae that were created by the government to enhance liquidity to the housing markets during both good and poor economic cycles.


An increase in a property’s value.


Delayed or behind billing.

Asset Class

A graded ranking system used to rate the quality of a property based on factors such as age, amenities and location. Asset classes are graded on a scale A through C.

  • Class-A properties are best-in-class properties that are often new or “like new” with top-end amenities.
  • Class-B properties are generally built within the last 10-20 years and are in reasonably good condition.
  • Class-C properties are usually defined as 20+ years old and in need of renovations or updates. They also may be in a less desirable location.


Basis Points (bps)

A basis point is equivalent to one hundredth of a percentage point. They are a unit of measurement often used to describe a change in interest rates, financing costs or cap rates. For example, if the 10-year Treasury rises from 1% to 1.5%, it represents a 50 basis point increase.

Bridge Loan

A short-term loan often used to “bridge” a temporary financing gap, such as a shortage in cash flow. Borrowers frequently secure bridge loans to fund properties in transition, such as a renovation or redevelopment.

Buy-Side Representation

The broker, attorney or other parties representing the buyer in a real estate transaction.


Capitalization (Cap) Rate

The ratio of net operating income to property value or sale price. It is a common benchmark used to estimate an investor’s potential return on an investment, and to compare investment properties. Higher cap rates generally translate to higher return or higher yielding assets. To calculate the cap rate, divide the NOI  by the total asset value.

Capital Expenditures (Cap-ex)

Money spent on long-term expenses, such as a roof repair, parking lot resurfacing or new HVAC system, usually with an aim to maintain or extend the useful life of a property.

Capital Gain

Taxable income derived from the sale of an investment. It is equal to the sales price minus the original purchase price, as well as any other property or sale-related costs than can be used to adjust the gain, such as the expense of marketing a property for sale or capital improvements made to an asset that helped to increase the sales price.  

Capital Stack

The myriad of different sources of debt and equity used to fund the acquisition or development of a property. The capital stack often starts with a senior mortgage that has a first position related to the underlying collateral. Each layer of subordinate debt or equity on top of that typically comes with higher risk and the potential for a higher return.  

Cash Flow

Income generated after expenses. To calculate cash flow, subtract the operating expenses from the revenue.

Cash-On-Cash Return

A rate of return that accounts for the debt service on an asset.  To calculate the cash-on-cash return, divide the annual cash flow minus the debt service by the total equity invested in the asset. The total equity investment is usually the down payment and any capital improvement costs.

Commercial Mortgage-Backed Securities (CMBS)

A type of mortgage-backed security that is backed by commercial assets. Once originated, they are bundled into pools and sold to investors in the securities market.


Incentives given by owners to attract or retain tenants. Concessions usually include offers of free or discounted rent or parking, as well as giveaways on items such as gift cards.


Debt service coverage ratio

The ratio of net operating income (NOI) to annual debt service (ADS). Lenders often use the debt service coverage ratio to underwrite mortgages for an income property. Similar to a cap rate, it is calculated by dividing the NOI  by the total debt service.


The cancellation of a mortgage upon repayment of the loan.

Delaware Statutory Trust (DST)

A structure used to hold, manage and operate real estate on behalf of investors. It has become a popular vehicle for 1031 investors buying a fractional interest or direct ownership in a real estate property or properties.


For tax purposes, depreciation allocates the cost of an asset over its estimated useful life.

Discount Rate

A compound interest rate used to convert expected future income into a present value. A discount rate can also refer to the borrowing rate that the Federal Reserve System charges to its member banks.

Discounted Cash Flow

A method of investment analysis in which the anticipated future cash income is estimated and converted into a rate of return based on the time value of money.


The sale of a property.

Due Diligence

The vetting or analysis of an asset that is conducted before the purchase. Thorough due diligence involves a deep examination of a property’s financials, history of operating expenses and income, environmental assessments, inspection of structures and key equipment, etc.


Effective Gross Income

Specific to an income-producing property, income collected from rental units and any other miscellaneous sources of income, such as parking or other use fees.

Equity Multiple

The total net profit returned over the lifetime of an investment plus the maximum equity invested. Calculate the equity multiple by dividing the total cash distributions by the total equity invested.


Fair Housing Laws

A set of laws that protect people from discrimination based on race, color, religion, sex, familial status, national origin or disability when renting or buying a home.

Fair Market Rent

The amount that a property would command if it were currently available for lease versus properties or units that are subject to rent controls or units participating in subsidized housing programs that limit rents.

Fair Market Value (market value)

The selling price or market value of a property. Calculate the fair market value for an investment property by dividing the NOI by the cap rate.


A policy where lenders work with borrowers to remedy a default.

Full Service Lease (Gross Lease)

A lease structure where the landlord is responsible for paying all operating expenses for the property. This is the most common lease for an apartment or multifamily property.

Future Value

The estimated value of an asset based on the estimated future rate of growth over a designated period of time. The rate of growth could be based on increased cash flow due to a value-add or operations strategy, expected appreciation or other factors.  


Garden-Style Apartment

A collection of apartment buildings typically between one- and four-stories high surrounded by landscaped grounds. Garden-style apartment buildings typically do not have elevators, and each apartment occupies only one level.

Green Loan

Mortgages that garner lower rates or discounts for properties that incorporate features aimed at generating a positive environmental impact, such as energy and water efficiency.

Gross Potential Rent (GPR)

The rental income that a property could achieve if it was at full occupancy.


A co-signer. Someone who is assuming financial responsibility for your lease or loan in the event an individual or entity is unable to pay rent or loan payments.


Internal Rate of Return (IRR)

The true annual rate of return on an investment. Effectively, it equates the value of cash returns with cash invested, while also considering the application of compound interest.



A tax document used to report the income, losses and dividends to business partners or shareholders in an S corporation.



The time period after construction is completed where a developer or owner is leasing the apartment units in the property. Often, the lease-up period is 6-12 months after a project opens.


The use of debt to help finance an investment and increase the potential rate of return and/or one’s purchasing power.


The ease with which assets can be converted into cash.

Loan-To-Cost Ratio (LTC)

Typically used for construction financing, this ratio applies to the amount of money borrowed in relation to the total cost to build a property.

Loan-To-Value Ratio (LTV)

The amount of money borrowed in relation to the total market value of a property.

Low-Income Housing Tax Credits (LIHTC)

Federal program created under the Tax Reform Act of 1986 that gives tax credits as incentives for private equity investment in the development of affordable housing aimed at low-income tenants. Purchasing tax credits is viewed as more attractive than tax deductions because the credits provide a reduction in a taxpayer’s federal income tax, whereas a tax deduction only provides a reduction in taxable income.


Mezzanine Debt

A loan often used by developers to secure supplementary financing for development or redevelopment projects. These loans are typically subordinate or junior to a senior mortgage.

Mortgage Debt Service

The amount of money required to cover a mortgage’s principal payments, interest payments and any other costs, such as escrow for insurance premiums or property taxes.


Net Effective Rent

A measure of the expected income from a tenant, minus any concessions or abatements.

Net Operating Income (NOI)

The annual income that a property generates after accounting for all operating expenses, but before deducting income taxes and debt service costs.


Occupancy Rate

The percentage of total apartment units that are occupied.

Operating Expenses

Costs specifically related to the operation and maintenance of a property, including property taxes, insurance and utilities. However, it does not include capital expenditures, debt service or any costs that may be passed through to tenants.


Passive Income

Income derived from business or real estate investments where the individual is not actively participating in day-to-day management, operations or decision-making.

Preferred Equity

A form of equity financing that typically sits above mezzanine debt and below common equity, meaning it is subordinate to debt, but has a superior position compared to common equity. Depending on how it is structured, preferred equity investors can receive scheduled payments similar to debt with the added benefit of being able to share in some of the upside profits if an investment does well.

Pro Forma

Financial projections on income, such as occupancies and rent growth, as well as future expenses.


Real Estate Investment Trust (REIT)

An investment vehicle where investors purchase shares in a real estate operating company, which in turn invests the money in real estate assets and distributes any profits to investors in the form of dividends. The trust is not subject to corporate income tax as long as it complies with the tax requirements for a REIT.

Rent Control or Rent Stabilized Property

Laws restricting increases on rents. These laws may by governed by local or state governments and can include either a total block on rent increases or a maximum allowable rent increase.

Replacement Cost

The cost to construct or rebuild an existing property based on current market pricing for building materials and labor.

Return on Cost

A term used by developers to evaluate the viability of a project by dividing the return or net income of a property by the cost to develop the property

Return On Investment (ROI)

Direct measure of return on a particular investment relative to the investment’s cost. It is calculated by dividing the cost of the investment minus current value by the cost of the investment.


An amount of cash set aside for expenses that are not forecast or are otherwise unforeseen.


Section 8 Housing

A government funded low-income rental assistance program operated by the Department of Housing and Urban Development (HUD). The two types of Section 8 programs are place-based and tenant-based. Under the tenant-based program, HUD pays a rent subsidy to the landlord on behalf of qualified low-income residents. For place-based Section 8 programs, the rental assistance is tied to a rental property rather than an individual household.

A person or company that buys or sells a property. The sponsors are effectively the ownership entity of a property that conducts the finds the deals, conducts due diligence, negotiates the sales prices and secures the loan on behalf of equity investors in the asset.


Price differential, such as the difference between a bid and ask price on a property.

Stabilized Asset

Generally refers to assets that have achieved 85% or greater occupancy levels.


A person or entity that buys or builds a real estate property and then sells shares of that investment to equity investors.


A team of individuals or companies that pool resources (time, money, expertise, etc.) to accomplish a goal or complete a project that they are unlikely to be able to accomplish or complete on their own.


Total Operating Expenses

The sum of all operating costs, not including interest, depreciation and amortization.

Turnover Rate

The ratio between the number of move-outs or units vacated during a specific time period, usually one year, and the total number of units in a property.



The process of evaluating a loan to determine the likelihood that a borrower will pay as promised and that there is sufficient collateral in the value of the underlying property.


Vacancy Cost

The amount of rent that could have been collected from vacant units if they had been occupied or leased at current market rent.


A property that offers the opportunity to increase cash flow or fair market value through renovations that would in turn drive rents, improve occupancy levels or increase operational efficiencies.


Workforce Housing

Commonly defined as housing affordable to households earning between 60 and 120 percent of area median income (AMI).