1031 Exchange
A tax-deferred method allowing investors in real estate to swap investment properties for others of similar value while deferring capital gains tax on the profit from the sale.
990-T
An exempt organization business income tax return used by tax-exempt organizations and other entities to report unrelated business income and proxy tax liability.
Accessibility
Refers to the equitable design and layout of a property, as well as the presence of features like ramps, elevators, wide doorways, and any other physical features that ensure ease of access for people with disabilities. It can also refer to how accessible a property is relative to major interstates and economic drivers.
Accredited Investor
As defined by SEC Rule 501 of Regulation D, an individual with an annual income of at least $200,000 (or $300,000 for joint income) in each of the two most recent years and a reasonable expectation of reaching the same income level in the current year, or a net worth of at least $1 million (for both individual and joint net worth) at the time of purchase, excluding the value of their primary residence. There are other categories of accredited investors, including certain entities and individuals holding specific professional certifications.
Accrual Basis Accounting
Records revenue and expenses when they are earned or incurred, regardless of when cash is received or paid out. For example, a contractor who completes a job in December but doesn’t receive payment until January would record the revenues and expenses in December using accrual basis accounting.
Acquisition
Real estate acquisition is the process of gaining ownership or control of real estate, or an interest in it. The process can vary by country, but most follow a standard process.
Acquisition Fee
A standard compensation paid to the general partner for the time spent managing the responsibilities associated with acquiring a property.
Active Investors
In multifamily real estate, these partners participate in the renovation, construction, property management, or acquisition labor.
Adjustable-Rate Mortgage
In real estate, an ARM stands for Adjustable Rate Mortgage, which is a type of mortgage where the interest rate changes periodically based on market conditions. ARMs are different from fixed rate mortgages, where the interest rate stays the same for the life of the loan.
Allocate
Refers to the way in which investors split different types of investments in their portfolio based on their risk tolerance.
Alpha
The measure of an investment’s performance that indicates its ability to generate returns exceeding its benchmark.
Amenities
Items or services that provide comfort, convenience, or enjoyment such as a swimming pool or fitness center.
Amortization
1. In real estate, amortization is the process of paying off a loan through a series of equal installments that include both interest and principal payments over the life of the loan. The schedule of payments is called an amortization schedule, which shows how much of each monthly payment goes toward interest and principal. As the borrower pays off the principal, the amount of interest they pay decreases.
2. This is the process of paying off a loan over time through a series of fixed principal and interest payments.
Ancillary Income
A term used that refers to any additional revenue generated from sources other than basic rent, such as fees for parking, pets, storage space, late payment charges, utility reimbursements, etc.
Annualized Market Rent
Annualized market rent refers to the potential annual rental income a property could generate based on the current market rate for comparable units, calculated by multiplying the monthly market rent by 12.
Annual Percentage Yield
APY is the realized rate of return on an investment over a year and is expressed as a percentage.
Appreciation
The increase in the value of a property over time. There are two ways for an asset to appreciate: natural appreciation (market dynamics – cap rate naturally decreases) and forced appreciation (property improves through renovations or operational improvements to increase value).
Asset
Any land or property that can provide value to its owner and used to create wealth.
Asset Class
Property classes that categorize real estate based on quality, age, location, and potential for income. The most common property classes are A, B, and C, with A being the highest quality and C being the lowest.
Asset Management Fee
A charge paid to an individual or entity for overseeing and managing a real estate investment portfolio or property, typically calculated as a percentage of the total value of assets under management.
Assets Under Management (AUM)
The total market value of an owner/operator’s current financial assets (capital managed).
Ballast
Something that gives stability, literally and figuratively.
Balloon Payment
In real estate, a balloon payment is a large, one-time payment made at the end of a loan term to pay off the remaining balance. This payment is usually larger than all the payments made during the loan term and includes the principal amount and interest accrued.
Basis Points (BPS)
A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point equals 0.01% (1/100 of a percent). If interest rates rose from 4.00% to 5.00%, rates rose 100 basis points.
Bonus Depreciation
Refers to an IRS tax incentive code allowing taxpayers to expedite deductions on the asset they invest in. Simply put, some parts of a property depreciate much faster than others—e.g., fixtures, floors, etc. Rather than wait for the entire “useful life” of a property, investors can depreciate the cost of eligible assets sooner than 27.5 years. Remember that political events, such as the inauguration of a new presidential administration, can impact investment real estate. While depreciation had once increased to 100%, depreciation percentages are now phasing out (60% in 2024; 40% in 2025; 20% in 2026).
Boot Taxation
A “boot” is a gain realized in a 1031 exchange. Boot can be generated by taking out cash from proceeds of a sale, spending less than the exchange value on the replacement property, not replacing debt paid off on the relinquished property, over-mortgaging the replacement property, or paying debts not secured by a mortgage or deed of trust on the relinquished property. For example, if a replacement property is worth less than the sold property, you will owe taxes on the difference.
Bridge Loan
A bridge loan is a short-term loan used until a person or company secures permanent financing or pays an existing obligation. It allows the borrower to meet current obligations by providing immediate cash flow. Bridge loans have relatively high interest rates and are usually backed by some form of collateral, such as real estate. Bridge loans offer optimally prepayment flexibility relative to fixed-rate, permanent loans.
Build-to-Rent (BTR)
Build-to-rent (BTR) housing refers to residential properties, like single-family homes, townhouses, or duplexes, that are built specifically for long-term rental occupancy, rather than for sale, often managed by a single entity as a community.
Bulk Purchasing
When a consumer buys large quantities of product at once to achieve a lower cost per unit.
Buy, Renovate, Rent, Refinance, Repeat (BRRRR) Method
This method involves buying, renovating, and renting a property to build equity before refinancing and/or selling it and is generally most relevant to individuals or small groups of partners looking to focus on single-family homes or small duplex or triplex properties along with apartments.
Capital Events
Can refer to several things, including refinances, recapitalizations, and sales.
Capital Expenditures (CapEx)
Expenses real estate investors incur to maintain or improve a property’s condition and value. CapEx investments typically include significant, one-time expenses such as major renovations, repairs, or upgrades to a property’s physical structure or systems. For example, installing a new roof, replacing outdated plumbing or electrical systems, or upgrading the landscaping are all CapEx investments.
Capital Gains
A capital gain refers to the increase in the value of a capital asset that is realized when it is sold. In other words, a capital gain occurs when you sell an asset for more than what you paid to purchase it.
Capital Preservation
A strategy focused on protecting the initial value of the investment with the goal of minimizing risk and ensuring the principal investment remains intact.
Capital Reserves (CapEx Reserves)
Capital reserves, also known as CapEx reserves, are funds set aside for future capital expenditures or long-term investments in real estate. They are usually collected or accounted for annually on a per unit or per square foot basis. Capital reserves are a crucial part of a property’s financial health, allowing property owners to proactively address maintenance, repairs, and upgrades without using their regular operating budget or taking out loans.
Capital Stack
A hierarchical representation of the financial structure of a commercial real estate deal. A capital stack visualizes the various types of capital used to finance a real estate project, typically ordered by their priority of repayment in the event of a sale, refinancing, or liquidation.
Capitalization (Cap) Rate
The cap rate is a metric used in real estate valuation. It is calculated by dividing the property’s net operating income before debt service by its market value and expressed as a percentage. It shows the expected annual return on investment if you purchase the property on an all-cash basis with no leverage.
Cap Rate Sensitivity Analysis
Estimates the future sale price of a property when it is sold or refinanced.
Carve-Out
A carve-out in real estate refers to certain provisions in a loan agreement. A carve-out provision in a commercial or multifamily mortgage agreement is a clause that gives a lender the right to go after a borrower’s personal assets if the lender forecloses on the property. This is also known as a carve-out guarantee. Carve-out guarantees are common in non-recourse loans, and are usually triggered by specific actions that can harm the lender, such as “”bad boy acts”” or insolvency. If the guarantee is violated, the lender can seek damages or the entire loan amount, and the non-recourse loan becomes a full recourse financial instrument.
Cash Basis Accounting
Records revenue and expenses when cash is received or paid out. For example, a retail store that exchanges cash for goods at the time of sale would use cash basis accounting.
Cash Flow
A catch-all term typically used to describe the income a property produces after all operating expenses have been paid. It can be shown before debt and after debt service.
Cash-on-Cash Return/Yield
A cash-on-cash return or yield in real estate refers to a metric that calculates the annual pre-tax cash flow a property generates divided by the total amount of cash/equity invested by the investor, essentially showing the annual percentage return. It is shown as both an unlevered and levered calculation.
Cash-Out Refinance
A cash-out refinance allows you to take out a new mortgage that’s larger than your current mortgage, effectively tapping into the equity of a project for a lump sum of cash, which you can then use for various purposes.
Catch-Up
Once the LPs have received their preferred return, the GP “catches up” by receiving a larger share of the remaining profits, potentially 100%, until they reach their agreed-upon share of the overall profits.
C Corporation
A business structure where real estate assets, such as apartment buildings, are owned by a corporation itself rather than by the individual investors.
Certified Public Accountant (CPA)
A financial expert and trusted advisor who meets specific educational, workplace experience, and licensing criteria. Key responsibilities include preparing/analyzing financial records, filing tax returns, auditing financial statements, etc.
CPAs must pass an accounting exam and have substantial experience in the field. It’s important to note that not all CPAs are proactive planners outside of taxes. Some CPAs’ scope is limited to filing returns, so working with a CPA focused on strategy would be ideal.
Chasing Yield
A strategy of seeking higher returns by taking on more risk.
Class “A” Property
In real estate, a Class A property is considered the top tier in a specific market, and is usually the highest quality building in the area. Class A properties are often located in desirable areas, such as prime neighborhoods or submarkets, and are typically newer buildings constructed within the last 15 years. They are known for their high-end construction and interior finishes, modern architectural design, and state-of-the-art mechanical systems and technology. Class A properties also have a variety of amenities, such as fitness centers, high-speed elevators, and on-site dining.
Class “B” Property
In real estate, a Class B property is a commercial building that’s generally older than 15 years, well-maintained, and located in a good area. Class B properties are typically a step down from Class A buildings in terms of quality, location, and amenities, but they can still be functional and have average rents.
Class “C” Property
In real estate, Class C neighborhoods aren’t necessarily bad, but the properties tend to be older and don’t have the finishes that Class A or B typically have. Some properties may be over 20 years old. Investors and renters shouldn’t expect a whole lot of amenities. Class C properties may also require a lot of repairs or renovations before they can be ready to rent. However, this is expected because these properties have a lower price.
Closing Costs
An expense structure associated with buying or selling a property, including (but not limited to) an appraisal, property inspection, environmental study, transfer taxes, etc.
Co-signer
An individual who agrees to provide payment on a loan or lease if the primary borrower/leasee cannot. Co-signers are legally responsibly for the debt.
Commercial Mortgage-Backed Securities (CMBS)
CMBS loans, or conduit debt, are real estate loans pooled with similar mortgages and sold on the secondary market. They are fixed-income investment products securitized by mortgages on multifamily and commercial properties. Depending on the investors’ position in the debt capital stack, these loans have various risks and return tranches.
Commercial Property
Commercial property refers to real estate used for business purposes, such as retail spaces, office buildings, warehouses, and industrial sites, rather than for residential living.
Common Equity
Common equity sits in the first loss position of the entire real estate capital stack. Its payment priority sits behind the first mortgage, preferred equity, or mezzanine debt. However, it also has significant advantages that attract investors, like a higher rate of return with no ceiling on return potential or the upside when the net cash flow and property value increase.
Comparative Market Analysis (CMA)
In real estate, a Competitive Market Analysis (CMA) is a report that helps determine a property’s fair market value by examining sales of similar properties in the area to assist buyers and sellers in setting listing, offering, or sale prices. It can also be used to determine market rental rates.
Compound Interest
Compound interest is the interest you earn on interest. This can be illustrated by using basic math: if you have $100 and it earns 5% interest each year, you’ll have $105 at the end of the first year. At the end of the second year, you’ll have $110.25. Not only did you earn $5 on the initial $100 deposit, you also earned $0.25 on the $5 in interest.
Concessions
A temporary incentive a landlord offers to attract potential residents or encourage existing ones to renew their lease. This concession typically takes the form of free rent or waived fees.
Construction Fee
A charge paid to a developer, sponsor, or both, depending on the deal, for construction oversight, legal fees, permits, architectural fees, materials, contractors, labor, and other supplementary expenses.
Contiguity
The state of being contiguous, as in bordering or being in close or sequential proximity to something.
Contractor
An individual or entity undertaking a contract to provide materials or labor to perform a service or do a job.
Controllable Operating Expenses
Expenses that a property owner or manager can directly influence. These expenses include salaries/payroll, repairs/maintenance, administrative costs, marketing, etc.
Core Investments
Core real estate investments focus on high-quality, stable properties located in prime markets. These assets typically include well-maintained office buildings, retail centers, industrial properties and multifamily apartments in top urban and suburban areas. The hallmark of core investments is their ability to generate consistent, long-term income with minimal risk. These properties are fully leased to creditworthy tenants or residents, ensuring a steady stream of rental income and low vacancy rates.
Core Plus Investments
Core plus properties are real estate investments that offer a balance between stable income and the potential for value appreciation, often targeting slightly older or less desirable locations than core properties, but with opportunities for improvement and higher returns.
Cost Segregation
Think of your investment property like a band: not every member ages the same. The structure (the foundation, the walls) is the steady bass player, sticking around for the long haul (typically 27.5 years for residential real estate). But the flashier parts of the property? The carpets, cabinets, and light fixtures? They’re more like the lead guitarist, burning bright, burning fast, and retiring early. Instead of depreciating your entire property as one unit over nearly three decades, a cost segregation breaks it into components based on how quickly each part actually wears out, allowing you to accelerate depreciation on shorter-lived assets.
Credit Loss/Bad Debt
Credit loss or bad debt is the amount of unpaid rent and fees that a property owner cannot collect from a resident. It’s a financial loss that adversely impacts the total rental revenue.
Creditworthiness
The extent to which an individual’s or entity’s credit history is considered ideal for receiving financial credit.
Debt Service
Debt service in real estate is the total amount of interest and principal paid on a property’s loans in a year. It’s a key factor in determining if a property is financially viable.
Debt Service Coverage Ratio (DSCR)
This metric measures how well a property’s operating cash flow can cover its mortgage payments, indicating whether it generates enough income to service its debt obligations. It’s calculated by dividing the property’s net operating income by its annual debt service, including principal and interest payments. Said another way, a property generates $200,000 in net operating income. Most, not all lenders will underwrite to a minimum DSCR of 1.25, meaning a lender will give a borrower loan proceeds that result in $160,000 of annual debt service ($200,000 / $160,000).
Debt Yield
Debt yield is a financial and underestimated metric used to assess the risk of a real estate loan. It’s calculated by dividing a property’s net operating income by the loan amount. For example, a property with a first mortgage of $1,000,000 generates a net operating income of $100,000. That represents a debt yield of 10% ($100,000/$1,000,000). Lenders compare this debt yield to the market cap rate to assess the margin for error of a particular investment.
Deductible
A specified amount of money that the insured must pay before an insurance company will pay a claim on the insurance policy.
Deed of Trust
A legal agreement between a borrower, lender, and a trustee that secures a loan on real estate for the duration of the loan.
Default
A default occurs when a borrower fails to make their mortgage payments as agreed, potentially leading to foreclosure and damaging their credit.
Defeasance
A clause in a real estate loan agreement that lets a borrower replace the asset securing the loan with substitute collateral that provides similar cash flows over the loan’s remaining term. It is often used in real estate transactions involving securitized loans. It is akin to a prepayment penalty compensating the lender for projected interest income lost when a loan is paid early.
Delaware Statutory Trusts (DSTs)
A legal entity that allows investors to pool money to buy real estate. DSTs are often used to invest in large properties or portfolios. Investors buy an interest in the trust rather than own the property directly. DSTs are 1031 eligible, unlike traditional private placement funds.
Delinquency
Refers to the state a renter is in when their rent is past due. It can also refer to a borrower who is behind on their mortgage payments or property taxes.
Deliveries/New Supply
A property is considered delivered when it has been completed and received a certificate of occupancy, regardless of whether tenants/residents have moved in. This means the property’s status has changed from “under construction” to “inventory.”
Demographics
Representative data showing a changing population, including age, race, gender, income, migration patterns, and population growth.
Depreciation
The process by which the value of an asset is gradually reduced over time due to deterioration or obsolescence. It is the incremental loss of an asset’s value due to assumed wear and tear.
Developer
An individual or entity that acquires land or properties, then plans, finances, and oversees the construction or renovation of projects to create or improve real estate to generate a profit.
Direct Ownership
In real estate, this is when an individual or company independently buys and manages a multifamily property, such as an apartment building.
Disposition
Disposition refers to the process of selling or otherwise transferring ownership of a property, encompassing various methods like traditional sales, foreclosures, short sales, and auctions.
Disposition Fee
Sometimes referred to as an “exit” fee, this fee is paid to a sponsor for their marketing efforts and the execution of the property sale. It typically ranges from 0.5% to 2% of the gross sales proceeds.
Disqualified Persons/Individuals
The IRA owner and their spouse, ancestors (parents, grandparents), lineal descendants (children, grandchildren) and their spouses, fiduciaries, advisors, and specific business entities controlled by the individuals listed above that are prohibited from SDIRA transactions.
Distributions
A distribution payment refers to the disbursement of profits or earnings generated by an investment property. If they occur, distributions from private real estate investments predominantly come from property-generated revenue.
Diversification
Diversify in real estate means spreading your investments. This can be across different types of properties, locations, and investment strategies. This ensures that your portfolio is not too dependent on a single market or asset type.
Dividend
A distribution of cash or other assets paid to investors by a corporation or other entity out of its profits or earnings, typically on a pro rata basis according to their ownership interests.
Doesn’t Pencil (phrase)
In real estate, “doesn’t pencil” means that a project or investment doesn’t provide an adequate return on the investment of resources. Pencil, when used as a verb, means for a financial pro forma to make at least some sense, that there would be a reason why someone would invest one or ten or fifty million dollars in a project: namely, a return on their investment (or at least on the equity they put into it, assuming a loan is involved). The word “pencil” is used instead of “pen” to imply that the numbers are not final and can be erased and recalculated. As investors learn more, they can change assumptions and update their financial projections.
Down Payment(s)
A down payment is the initial payment made toward a purchase. It’s a percentage of the purchase price that’s paid upfront at closing. Down payments are usually made with certified funds, such as a cashier’s check, certified check, or wire transfer.
Due Diligence
Rigorously exploring an asset or product’s quality and quantity to ensure a sound investment. Due diligence involves a thorough assessment of the property, including inspections, title searches, and review of relevant documents to uncover potential issues. It helps buyers identify potential problems (like structural issues, liens, or zoning violations) before committing to a purchase.
E-commerce
Buying and selling goods and services electronically (on the internet).
Eco-conscious
Being aware of how one’s actions affect the environment and taking actionable steps to reduce harmful impact.
Economic Downturn/Recession
A prolonged period of time wherein a decline in economic activity (business/consumer relations) results in the decreased value of assets.
Economic Performance
In the context of real estate, “economic performance” refers to how well the real estate market and related industries are performing, measured by indicators like property values, rental rates, construction activity, and overall economic health, which is influenced by factors like interest rates, inflation, and employment.
Economic Vacancy
This vacancy is the income a property owner loses due to vacant units, concessions, credit loss/bad debt, and non-revenue units. It’s expressed as a percentage and calculated by comparing the property’s actual rental income to its gross potential revenue.
Economies of Scale
Economies of scale occur when increasing the size of a real estate portfolio or business leads to lower costs per unit of output, such as property management or construction, due to factors like shared fixed costs and increased bargaining power.
Effective Gross Revenue (EGR)
An apartment community’s total income after accounting for economic vacancy and ancillary revenue.
Endorsement
In real estate, an endorsement is when someone signs over property to another person, granting all legal rights to the endorsee. The person making the endorsement is called the endorser.
Equity Multiple (EMx)
A financial metric that compares the total cash an investor receives from an investment over a period of time to the total amount of capital they invested. It is calculated by dividing the total cash distributions received (including sale proceeds) during the holding period by the total equity invested. While a helpful metric, it does not take into account the time value of money.
Equity Raise Fee
Also called a fundraising fee, it represents a percentage of the total equity raised in a deal (typically 2% to 3%) paid to a sponsor for their success in raising capital, driving sales, and securing investors.
Equity/Residual Profit Split
This determines how the remaining profits are allocated between the investors and the sponsor after preferred returns have been paid. While the exact split varies by deal, limited partners typically receive the larger share.
Evergreen
An “evergreen fund” is a type of investment vehicle, typically within the private market space, that allows investors to continuously invest and redeem capital on a periodic basis, meaning it doesn’t have a fixed lifespan like traditional funds and instead operates perpetually, providing ongoing access to private market investments with more flexibility for investors to enter and exit as needed; essentially, it’s always open for investment and reinvestment of proceeds from realized assets.
Eviction
The legal process by which a landlord removes a tenant/resident from a rental property, often initiated when a tenant/resident violates the lease terms or fails to pay rent.
Exchange-Traded Fund (ETF)
A pooled investment vehicle that offers exposure to a broad range of underlying assets, such as stocks, bonds, commodities, or market strategies, while trading on public exchanges with the liquidity of individual stocks.
Exit Strategy
An exit strategy is a plan outlining how an investor will eventually sell or dispose of their property to realize a profit or achieve their investment goals. It’s crucial for maximizing returns and managing risks.
Expenditure
The act of spending money.
Expense Report
A document detailing business-related expenses.
Fair Market Value (FMV)
Fair market value in real estate is the price a property would likely sell for on the open market, assuming a willing buyer and seller with reasonable knowledge of the property. It’s a legal term that’s based on the idea that neither party is under pressure to buy or sell, and both have the relevant facts. FMV is different from a buyer or seller’s opinion of value, appraised price, or tax value.
Many factors can affect a property’s FMV, including: location, condition, age, size, quality of improvements, prices of comparable nearby homes.
Family Office(s)
In essence, a family office in real estate acts as the steward of the family’s property interests, offering specialized expertise and comprehensive services to navigate the complexities of the real estate market effectively.
Fannie Mae
Fannie Mae is a government-sponsored enterprise (GSE) that helps people buy residential real estate. It buys mortgages from lenders, freeing up money for lenders to make additional loans and injecting liquidity into the industry.
Federal Deposit Insurance Corporation (FDIC)
A U.S. government agency that examines and oversees the process of insuring bank deposits to protect depositors’ money in the event of a bank failure.
Federal Housing Administration (FHA)
Established in 1934, this section of the U.S. Department of Housing and Urban Development (HUD) is a government agency insuring mortgages for homes, multifamily properties, and residential care facilities. The FHA is part of the U.S. Department of Housing and Urban Development (“HUD”).
Fiduciary Duty
A legal and ethical obligation to act solely in the best interests of another party, prioritizing their needs and interests above your own. In real estate investing, one’s fiduciary duty represents the way a person or entity should ethically act on behalf of another in financial matters.
Financial Advisor
Generally speaking, a financial advisor provides financial planning and risk management strategies to maximize their clients’ returns while offering guidance on investing. Financial advising is a broad practice with many subcategories, depending on one’s needs.
Fixed vs. Floating Interest Rates
Fixed rates remain the same throughout the loan term, while floating rates fluctuate with market trends. Fixed-rate, permanent loans are better for budgeting and long-term planning, but come with stiff prepayment penalties in the form of defeasance or yield maintenance. Floating rate loans or bridge loans are shorter term and come with higher interest rates, but offers borrowers optimal prepayment flexibility.
Fixed-term Lease
Fixed rates remain the same throughout the loan term, while floating rates fluctuate with market trends. Fixed-rate, permanent loans are better for budgeting and long-term planning, but come with stiff prepayment penalties in the form of defeasance or yield maintenance. Floating rate loans or bridge loans are shorter term and come with higher interest rates, but offers borrowers optimal prepayment flexibility.
Forced Appreciation
The increased value of a property over time due to factors like renovating, upgrading, or improving the property.
Freddie Mac
A moniker for the government-sponsored enterprise that issues mortgage loans and purchases loans from lenders to replenish their supply of funds known as the Federal Home Loan Mortgage Corporation (FHLMC).
Front-Load
Also known as accelerated depreciation, to “front-load” depreciation means to allow a business or individual to deduct a larger portion of an asset’s cost in the initial years of its useful life. Investors may front-load depreciation expenses to further reduce taxable net income.
Full Cycle
For an asset to go “full cycle,” it means an investor has successfully taken a property from acquisition to sale, achieving their investment goals and potentially repeating the process, marking a complete investment journey.
Fundamentals
Real estate fundamentals are the core principles and concepts that drive the real estate industry, including understanding market dynamics, property valuation, financing, legal considerations, etc. Understanding supply and demand, economic indicators, and market trends is crucial for making informed decisions.
GAAP Compliance
GAAP compliance is when a company follows Generally Accepted Accounting Principles (GAAP), which are a set of accounting standards and guidelines for financial reporting in the United States. GAAP compliance is important because it helps ensure that financial statements are accurate, consistent, and transparent. This helps investors, lenders, and other stakeholders make informed decisions
Gain to Lease (GTL)
This is the direct opposite of the loss to lease calculation. It occurs when the actual in-place rent exceeds the market rental rate. For example, the market rent is $1,200/unit/month, while the current leased rent is $1,300/unit/month. This math results in a $100/unit/month gain to lease or $1,200 annually, which is added to gross potential rent.
Garden-style
Garden-style apartments are low-rise buildings (typically 2-4 stories) surrounded by landscaped green spaces, offering a suburban feel with direct access to outdoor areas and amenities like pools and communal spaces. These apartment complexes usually consist of multiple buildings that are spread out across a large plot of land.
General and Administrative Expenses (G&A)
These expenses encompass the costs associated with the day-to-day management and operation of a property, including items like office supplies and software, but excluding direct costs related to property maintenance or tenant services.
General Partner (GP)
An individual or company in charge of finding, acquiring, and managing real estate property on behalf of the partnership. A general partner is sometimes called the “sponsor” or “owner/operator.”
General Vacancy
General vacancy is a percentage of available units in a real estate property that are unoccupied during a specific period of time. It’s also known as a vacancy rate and is the opposite of the occupancy rate, which is the percentage of occupied units.
Going IPO
Going IPO, or initial public offering, is when a private company sells shares of its stock to the public for the first time, making it a public company. This transition means that the company is no longer owned by private investors and is instead publicly owned. Investors can then purchase the company’s shares on a stock exchange, such as the Nasdaq or New York Stock Exchange, making them shareholders in the business.
Government-Sponsored Enterprise (GSE)
Government-Sponsored Enterprises, like Fannie Mae and Freddie Mac, are privately held financial entities, created by Congress to enhance credit flow in the housing market, particularly for multifamily properties, by purchasing mortgages and packaging them into securities, supporting liquidity and affordability.
Great Financial Crisis
Also known as the Global Financial Crisis and Great Recession, this was a period of severe economic strain among financial markets from 2007 to 2009. The crisis began with the collapse of the U.S. housing market and was instigated by an excess of mortgage-backed securities (“MBS”), which bundled high-risk loans. Reckless lending led to many loans defaulting and failing financial institutions.
Gross Income
The total revenue generated by a property before any expenses or deductions are taken into account.
Gross Lease
A gross lease means the tenant pays a fixed rent amount, and the landlord covers all property-related expenses like taxes, insurance, and maintenance.
Gross Potential Rent (GPR)
Gross potential rent (GPR) is a metric used in real estate to estimate the maximum amount of rental income a property could generate if it were fully rented at current market rates. It’s calculated by adding up the market rent of each unit in a property, assuming all units are rented and residents make payments as expected.
Gross Potential Revenue (GPR)
The maximum revenue a property can achieve at a given time if the property was 100% leased and loss/gain to lease is deducted or added to the gross potential rent.
Guarantor
A guarantor is an individual or entity who agrees to cover the borrower’s debt if they default, acting as a backup for the lender, and reducing risk, especially when the borrower’s financial standing is weaker.
Hedge
A risk management strategy that reduces the potential for financial losses. A hedge should offset or limit the impact of a decline in one investment with another investment that performs differently.
Hedge Against Inflation
An investment that can protect a currency’s decreased purchasing power due to rising prices. Investors looking for an inflation hedge want to invest in an asset expected to maintain or even increase its value over time.
High-Net-Worth Individuals
To be considered high-net-worth, individuals must have a net worth of $1.5 million or $750,000 in investable assets. No multi-industry level of wealth must be met to be considered a high-net-worth individual.
High-Rise
A high-rise apartment building is a multi-story residential building, typically found in urban areas, with at least 75 feet of height above the lowest level accessible by fire department vehicles, or roughly 7 or more stories.
Hold(ing) Period
A holding period in real estate is the amount of time an investor plans to own a property before selling it. Holding periods are important because they can affect taxes and help determine the average annual return of an investment. Simply put, this is the period during a real estate transaction in which an owner/operator (sponsor) owns or “holds” a property before selling it.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a flexible loan that lets you borrow money against the equity in your home. You can use the money for large expenses, debt consolidation, or home improvements.
House Flipping
The practice of buying a property with the intention of adding value and selling it for a profit.
Housing and Urban Development (HUD)
HUD stands for the United States Department of Housing and Urban Development, a federal agency that provides housing assistance and enforces housing law. These long-term loans have a relatively low interest rate and a longer amortization period.
HVAC
An acronym for heating, ventilation, and air conditioning.
Identification Period
Refers to a stipulation in a 1031 exchange where you only have a 45-day window from the close of the sale to find up to three like-kind properties.
Illiquid Asset
An Illiquid asset refers to a property that cannot be converted into cash without significantly affecting its value.
Impact Investing
Investing in businesses, projects, or funds that generate a financial return and a measurable positive impact on society or the environment.
In-place Cash Flow
Cash flow a property generates at the time of purchase adjusted for real estate taxes post acquisition.
Income Statement
A financial report summarizing a business’s revenues, expenses, and profits over a set period.
Income Tax
This tax is levied by the government directly on income, especially an annual tax on personal income.
Industrial Real Estate
Industrial real estate is land and buildings used for manufacturing, storage, and distribution. It’s a vital part of the global supply chain.
Inflation
When the value of money decreases and the cost of goods and services increases.
Inflation-adjusted Annuities
Similar to other insured products, an annuity is a contract between a borrower and insurer outlining protective measures to keep retirement funds safe from volatile interest rate environments. Inflation-adjusted annuities detail contractual obligations on behalf of the insurer to account for inflation.
Institutional Capital
An institutional real estate investor is a large company or organization with substantial capital and an allocation to real estate investments. Pension funds, life insurance companies, investment banks, sovereign wealth funds, and endowments are examples of institutional investors.
Interest Rate
In real estate, interest rates are the percentage fee a lender charges on a mortgage loan, or the cost of borrowing money. Interest rates are a key factor in the real estate acquisition process, as they help determine the total cost of a mortgage over time.
Interest Rate Cap
An interest rate cap is a financial instrument that protects a borrower from rising interest rates by setting a ceiling on the interest rate a borrower will pay on a floating-rate loan. It’s an insurance policy to discontinue the blood leaking from the borrower’s flesh.
Internal Rate of Return (IRR)
The internal rate of return is the discount rate at which the net present value of the cash flow equals zero. It includes net cash flow during the holding period, a return of equity, and a return on equity during the holding period. IRR incorporates the concept of the time value of money, meaning a dollar is worth more today than a dollar received in the future. It is cumulative, and the interest compounds.
Internal Rate of Return (IRR) Hurdle
An IRR hurdle in a waterfall structure is a predefined internal rate of return (IRR) that an investment must achieve before profits are shared between the limited partners (LPs) and the general partner (GP) in a particular way. It essentially sets performance benchmarks for distributing returns.
Internal Revenue Service (IRS)
The Internal Revenue Service is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax law.
Investment Tranches
In finance, a tranche refers to a segment or portion of a larger financial product, such as a loan, bond, or security. The term is derived from the French word for “slice.” Tranches are created to differentiate these portions based on characteristics such as risk level, maturity date, and yield (interest rate).
Investment Vehicle
An investment vehicle is a product or account that lets you buy and sell securities to build wealth. Investment vehicles can include stocks, bonds, mutual funds, exchange-traded funds, real estate, and annuities.
J-Curve
A visual representation of a typical pattern of investment returns (an initial dip followed by a significant upward trend) that mirrors the letter “J” when graphed. It describes the trajectory where returns on a multifamily property investment initially experience a period of negative or low returns before entering a phase of rapid growth and value creation.
Joint Lease
A type of lease most common for those living with roommates wherein each party on the lease is responsible for contributing toward rent and adhering to the lease terms.
Lead
An individual or company showing interest in another’s products or services.
Lease Renewal Rate
This metric determines the percentage of residents who renew their leases at the end of their original lease term/agreement. To measure a property’s lease renewal rate, simply divide the total number of residents who renewed their lease by the number of leases expiring, then multiply that figure by 100. For example, if 50/75 residents renewed their leases during a given period, the lease renewal rate would be (50/75) x 100 = 66.667%.
Lease Structure
Cited terms and conditions of a rental agreement.
Lease Term
Cited terms and conditions of a rental agreement.
Leasing Consultant
A leasing consultant is a real estate professional who handles all tenant-facing aspects of renting a property, from advertising and showing units to processing applications and managing lease agreements.
Lender
In the context of real estate, a multifamily lender is an institution, such as a bank, GSE or life insurance company, that provides loans specifically for properties with multiple dwelling units, like apartment buildings, townhomes, or condos.
Let
In property, “let” can have multiple meanings:
Leverage
Leverage in real estate is the use of borrowed money or other financial instruments to increase the potential return on an investment.
Levied
Imposed ( tax, fee, fine, etc.).
Lien
A legal claim to a debtor’s property or assets, often used as collateral for a loan.
Life Insurance Companies (LifeCos)
LifeCos have a long history of lending money to commercial real estate (“CRE”). These companies offer loans for multifamily properties and commercial real estate investments. They generally provide long-term loans with competitive interest rates but conservative leverage.
Like-Kind
The term like-kind property refers to two real estate assets of a similar nature regardless of grade or quality that can be exchanged without incurring any tax liability. The Internal Revenue Code (IRC) defines a like-kind property as any held for investment, trade, or business purposes under Section 1031, making them a 1031 exchange. This means both properties involved in the exchange must be for business or investment purposes. Personal residences, therefore, do not qualify as like-kind properties.
Limited Liability Company (LLC)
In real estate, an LLC (Limited Liability Company) is a business structure commonly used by investors to own and manage multifamily properties. It functions as a separate legal entity, meaning the LLC is the owner of the property, not the individuals who formed it.
Limited Partner (LP)
A limited partnership is an investment structure where investors pool money to invest in real estate. These investors are called limited partners and don’t participate in day-to-day management.
Limited Partnership Agreement (LPA)
A legally binding agreement that outlines the rights, responsibilities, and obligations of the general partner and limited partners in a limited partnership, including how profits and losses are shared, management fees, decision-making processes, dispute resolution mechanisms, and the terms for dissolution. It serves as the governing document for the investment entity, which is structured as a limited partnership.
Liquid(ity)
How efficiently a property can be sold at or close to market value. Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself. Consequently, the availability of cash to make such conversions is the biggest influence on whether a market can move efficiently. The more liquid an asset is, the easier and more efficient it is to turn it back into cash. Less liquid assets take more time and may have a higher cost.
Loan Constant
In real estate, a loan constant, also known as a mortgage constant, is a percentage that compares the annual debt service of a fixed-rate loan to the total loan amount. It’s calculated by dividing the annual debt service by the total loan amount. For example, if a loan has a $1,000,000 balance and annual payments of $85,972 in principal and interest, the loan constant would be 8.6% ($85,972 / $1,000,000 = 8.5972%).
Loan Maturity
The maturity date of a loan is the date on which the loan becomes due and must be paid in full. Terms can be short-, medium-, or long-term loans, ranging from less than two years to upwards of 30 years in the case of home mortgage loans.
Loan Term
A loan term in real estate is the length of time a borrower has to repay a loan. The borrower and lender agree on the loan term when the mortgage is taken out. The term affects the monthly payment amount and the total interest paid over the life of the loan.
Loan-to-value
A loan-to-value (LTV) ratio is the percentage of the first mortgage on a property divided by its value. Lenders use LTV ratios to assess the risk of a loan. A first mortgage of $6,500,000 on a market value of $10,000,000 represents a 65% LTV ratio.
Long-term Lease
A rental agreement that extends for a period of time longer than a typical short-term lease, often several years, providing stability and predictability for both landlords and tenants
Loss to Lease (LTL)
The difference between the current market rent and existing in-place rent a resident pays for the unit in an apartment community. For example, the market rent is $1,200/unit/month, while the current leased rent is $1,000/unit/month. This math results in a loss to lease of $200/unit/month or $2,400 annually, which is deducted from gross potential rent.
Macroeconomics
The study of large-scale or general economic factors, such as interest rates, national productivity, and inflation behavior.
Market Differentiation
In multifamily real estate this is a marketing strategy distinguishing a company’s products, properties, or services from competitors.
Market Value
Market value refers to the price a property would likely fetch in a competitive and open market, considering a willing buyer and a willing seller acting prudently and knowledgeably.
Mezzanine Debt
This is a hybrid of debt and equity, often unsecured or subordinated to senior debt, typically used to reduce a borrower’s equity requirement. It may carry a higher interest rate than senior debt and sometimes includes equity conversion features, such as warrants. Its security is often a pledge of equity interests in the property-owning entity. It takes precedence over preferred and common equity.
Mid-Rise
Apartments set at a height between garden-style and high-rise, typically five to twelve stories. These apartments offer amenities and may have recreational green spaces (park, picnic area, etc.).
Middle Class
A socioeconomic classification of households earning between two-thirds and double the median U.S. household income. This status can differ depending on geographic area.
Millage Rate
A millage rate is the rate at which property taxes are levied on property. A mill is 1/1000 of a dollar. The millage rate times the taxable value (per thousand) is your tax obligation. Example: Taxable Value ($150,000)/1,000 X Millage Rate (21.4772)= Tax Obligation $3,247.13.
Mortgage
A mortgage is a loan secured by real estate, such as a home or land. It’s the most common way to finance real estate.
Multifamily Syndication
Multifamily syndication is a real estate deal where multiple investors pool their money to buy a property, usually an apartment building, condo, or townhouse. The investors are led by a general partner, also known as a sponsor, who is responsible for finding the property, managing the transaction, and managing the property after the purchase.
National Multifamily Housing Council (NMHC)
Based in Washington, D.C., this active public policy group and nonprofit provides a leadership and advocacy forum that promotes thriving rental housing communities for all.
Natural Appreciation
The increased value of a property over time due to factors like inflation and demand for housing, heavily driven by population or economic growth in desirable markets.
NAV Calculation
Represents the net asset value of an investment fund and is calculated using the total value of assets minus its liabilities.
Negative Cash Flow
Occurs when expenses surpass generated income.
Negative Leverage
It’s the opposite of positive leverage. Negative leverage is when the current cap rate is lower than the mortgage’s interest rate. In this scenario, it’s not favorable to borrow, and it will generate a lower return for investors.
Net Operating Income (NOI)
Net operating income (NOI) is a valuation method that real estate professionals use to determine the profitability of an income-generating property. It’s calculated by subtracting a property’s operating expenses from its revenue and is usually included on the property’s cash flow and income statements. It does not include annual debt service. Simply put, NOI is a pre-tax measurement of income based on the sum of revenues minus operating expenses (revenue – operating expenses = NOI).
Net Returns
The actual profit from an investment after fees, taxes, inflation, and other expenses are deducted.
Net-Seller Scenario
Generally refers to a situation where a seller aims to receive a specific minimum amount from the sale of their property, after deducting all expenses related to the sale.
Net Worth
The total wealth of an individual, company, or household, relative to financial assets and liabilities. It is calculated by subtracting what you owe (liabilities) from what you own (assets).
New Lease Trade-Outs
New lease trade-out is a real estate metric that measures the change in rent when a new resident moves into a unit that was previously occupied. It’s calculated by dividing the total of all new lease rents by the total of all in-place rents during a specific period. This metric can indicate whether new leases are being signed at higher or lower rates than existing leases, which can be a sign of a strong market or improved property value, or lower demand or increased competition, respectively.
Non-Controllable Operating Expenses
Non-controllable operating expenses in real estate are essential but unavoidable costs that are generally not within the direct control of the property owner or manager. These costs can vary significantly and include:
Non-Marketable Security
A financial instrument not traded on a public exchange representing an investment and having monetary value.
Non-Recourse Loan/Financing
A non-recourse loan permits the lender to seize only the collateral specified in the loan agreement, even if its value does not cover the entire debt. However, these loans typically come with “bad boy” carve-outs, which are loan provisions that hold a borrower personally liable for specific actions that damage the property or loan. These actions are often considered “”bad”” or “”dishonest.” Examples include fraud, theft, falsifying financial information, etc. These acts trigger recourse to the borrower.
Non-Revenue Units
Residential units within an apartment community that do not generate rental income for the property owner. These units can include model and employee units and are not available for rent to the public.
Non-Traded REIT
Investments in real estate that are not listed on public exchanges. They are a type of real estate investment that is a cross between private and publicly traded REITs
Occupancy Rate
The percentage of occupied units in a property relative to the total number of units available.
Offering Memorandum (OM)
An OM is a key tool for real estate companies to generate interest and convey their professional approach. It helps potential buyers and investors evaluate the property’s financial performance, market potential, and suitability for their investment goals. The OM also protects the sponsor from potential liability and can help narrow down the pool of bidders.
Office
Refers to commercial properties designed primarily for professional, white-collar operations.
Ongoing Costs
Recurring payments such as taxes, insurance, and a mortgage that maintains the property.
Operating Expenses (OpEx)
The regular costs of running and maintaining a rental property every day. These expenses help keep the property in good shape, attract and keep tenants/residents, and ensure that the investment yields a profit.
Operating Income
A property’s total income after accounting for vacancies and credit losses but before deducting operating expenses.
Operational Efficiencies
Actionable steps taken to mitigate increased labor, maintenance, and operation costs and improve operations; strategies to optimize the use of resources and make rent growth consistent with competition and lessen expenses, including but not limited to strategic hiring, effective data use, labor optimization, and economical building and tech.
Opportunistic Investments
Opportunistic investments involve the greatest risk and are the least predictable. They typically involve ground-up development or or require extensive renovation. Additionally, they are likely to yield the highest returns.
Opportunity Funds
Real estate debt funds are investment vehicles that pool money from investors to lend on real estate projects looking to achieve opportunistic returns, hence the term “opportunity.” Investors receive interest payments on the loans, which results in a much higher interest rate for the potential reward.
Outsourcing
To contract work or obtain something from an outside supplier.
Oversupply
Oversupply refers to a situation where the number of available rental units exceeds the demand for them, leading to slower rental rates and potentially lower occupancy rates.
Owner-Occupied
A property status signaling that the owner of the property resides there or occupies the space.
Owner-Operator
In real estate, an owner-operator is someone who is responsible for finding, closing, and managing deals. They may also be responsible for hiring and overseeing a property management firm, and executing the business plan. Their expertise can have a direct impact on the success of a deal.
Paper Losses
Refers to the decrease in the estimated value of an asset post-acquisition. It’s a loss that exists “on paper” since it is just an estimation.
Pari-Passu
This term is Latin and means “on equal footing” and refers to when multiple parties have equal rights to assets or payments. Pari passu is used to describe how profits are distributed among investors based on their percentage of the initial investment. It can also be called pro rata.
Partnership Taxation
This operates on a “pass-through” or “flow-through” system, where the business itself is not subject to income tax. Instead, the profits and losses of the partnership are “passed through” to the individual partners, who then report their share on their personal tax returns.
Passing
A gentle euphemism to convey the death of something or someone.
Passive Activity Loss (PAL)
A set of rules determining whether an investor can deduct tax losses from rental properties against other income like dividends, interest, etc.
Passive Income
Passive income in real estate is money earned from investments and rental properties without much ongoing effort.
Passive Investor
In real estate, this refers to limited partners whose liability is limited to the amount of their investment in the company. They do not actively participate in renovation, construction, property management, or acquisition labor.
Pass-Through
Refers to the income and expenses being handled for tax purposes; the way specific property costs are passed on to limited partners (LPs).
Periodic Lease (Month-to-Month)
A rolling contract/rental agreement that can automatically renew weekly, monthly, quarterly, or annually.
Permanent Loan
In real estate, a permanent loan is a mortgage loan that’s secured by a property after construction is complete. It’s often used for commercial real estate and typically has a term of at least five years and some amortization. Permanent loans are usually considered garden variety loans with no special risks, so they often have the lowest interest rates.
Portfolio
A real estate portfolio is a collection of properties that are owned for investment purposes. The goal is to generate income and wealth over time.
Positive Cash Flow
Occurs when the income generated from the property exceeds the total expenses.
Positive Leverage
Positive leverage in real estate is when the return on a property investment is higher than the cost of financing the property. For example, a property costs $1 million to purchase and generates $80,000 in NOI, representing a cap rate of 8% ($80,000/$1,000,000). The deal has positive leverage if the property is financed with a 6% interest rate on the first mortgage. When the asset’s cap rate exceeds the interest rate on its debt service, it is favorable to borrow and will generate a higher return for investors than acquiring the asset on an all-cash basis.
Precious Metals
Rare, naturally occurring metals that have a high economic value due to their scarcity, industrial uses, and role as a store of value (e.g., gold).
Preferred Equity
Preferred equity is a type of financing that developers and sponsors use to raise capital for real estate projects. It’s a common financing option for commercial real estate investments and private equity funds. Preferred equity investors are paid out before common equity investors, which means they have a better chance of receiving returns. Preferred equity is subordinate to debt but senior to common equity.
Preferred Return
The minimum return that investors receive on their invested capital before the general partner or sponsor can participate in the profits of an investment. It’s a profit distribution model that prioritizes profits for one class of equity over another until a certain rate of return is reached, as defined in the LPA or operating agreement.
Premiums
The additional cost an investor pays for a product above its intrinsic value.
Primary Market
A primary market is a major metropolitan area with a large population (often exceeding 5 million), a strong economy, and a high concentration of businesses.
Principal
The original amount of money borrowed, invested, or deposited. It is the starting point for calculating interest and returns.
Private Equity
A private equity real estate fund is a professionally managed fund that invests in real estate. Unlike REITs, private equity real estate investments require substantial capital and may only be available to high-net-worth (HNW) individuals or accredited investors.
Private Investors
Private real estate investing is directly investing in real estate properties rather than buying shares in a real estate investment trust (REIT) or investing in a private equity fund.
Private Placement Deal
A detailed legal disclosure document outlining the terms of a private offering, the obligations of all parties involved, the risks of investment, the sponsor’s experience, the property’s details, financial projections, and other material information necessary for investors to make an informed decision. It is intended to satisfy disclosure requirements under applicable securities laws.
Private Placement Memorandum (PPM)
A legal document outlining investor obligations in private offerings and detailing a company’s finances, strategies, and investment criteria.
Profit Margin
A financial ratio illustrating the percentage of sales kept as profit after subtracting expenses.
Profitability
The relationship between profits (money) earned relative to the amount invested.
Pro Forma
In real estate, a pro forma (sometimes proforma) is a projection of a property’s income and expenses, also known as a cash flow projection. It’s a simplified version of a property’s income and cash flow statements, often used for modeling and valuation purposes. Pro formas can help determine a property’s anticipated monthly cash flow, expenses, and expected return on investment (ROI). They can also help prospective buyers understand their potential returns.
Promote
This term in real estate refers to a percentage of the profits from a real estate investment paid to the sponsor or manager of the deal, essentially acting as a bonus for their expertise in finding and managing the property. It is only earned if the project exceeds the preferred return threshold and is also known as “carried interest” or a “cash flow/residual split.”
Property Management/Manager
A person in this position ensures their apartment community generates adequate cash flow through resident satisfaction, collecting rent, marketing the property, handling property income and expenses, coordinating repairs/maintenance, understanding landlord/resident laws and regulations, overseeing evictions, and scheduling/conducting inspections.
Property Tax
A levied tax measured as a percentage of the property’s value.
Public Equity
Public equity refers to ownership in companies whose shares are traded on public stock exchanges like the NYSE or NASDAQ. It represents a stake in a company that is available for anyone to buy and sell on the open market.
Purchase-Rehab Loan
Also known as a renovation loan, this debt combines acquisition and renovation/repair costs into a single loan.
Qualified Purchaser
A qualified purchaser, also known as a qualified investor, is an individual or entity with an investment portfolio valued at over $5 million or $25 million, respectively.
Real Estate Exchange-Traded Fund (ETF)
An investment that exposes investors to various real estate assets. ETFs are traded on stock exchanges and can be passively managed.
Real Estate Investment Fund (REIF)
This investment combines capital to purchase, manage, and sell real estate.
Real Estate Investment Trust (REIT)
A real estate investment trust (REIT) is a corporation, trust, or association that invests directly in income-producing real estate and is traded like a stock. REITs pay out regular dividends, while real estate funds provide value through appreciation. Since REITs are listed and traded on major stock exchanges, they tend to be more liquid than mutual fund shares, which can only be redeemed at the end of the trading day when the net asset value (NAV) is settled. However, not all REITS are publicly traded. Some REITS are non-traded REITs or non-exchange traded REITs, and they are not liquid.
Real Estate Mutual Fund
Funds where the products include REITs, real estate stocks, and/or indexes.
Real Estate Private Equity (REPE) Fund
A real estate deal where multiple investors pool their money to purchase, develop, operate, value-add, and sell property to generate returns for investors. The investors are led by a general partner, also known as a sponsor, responsible for finding the property, managing the transaction, and managing the property after the purchase.
Realized Gains
The company’s total profit when an investment is sold for a higher price than purchased.
Recourse Loan
A recourse loan allows a lender to pursue additional assets when a borrower defaults on a loan if the debt’s balance surpasses the collateral’s value. The borrower is typically personally liable for a portion or the entire loan amount.
Refinance
Replacing an existing mortgage on a property with a new one to improve the terms of the original loan, whether it be the interest rate or the loan term itself.
Regional Banks
Most regional banks allocate a certain percentage of their balance sheets to real estate loans. It’s a diversification game and a smart one. Like LifeCos, these banks are conservative in the LTV and DSCR ratios. They typically require some portion of personal recourse.
Registered Investment Advisors (RIAs)
Persons or entities that manage investment portfolios and expertly advise clients on financial matters. RIAs must uphold fiduciary obligations to their clients and register with the Securities and Exchange Commission (SEC). This means they must legally act in their client’s best financial interests.
Regulatory Risk
Arises from zoning laws, resident rights, building codes, and environmental regulations, potentially leading to fines, legal issues, and costly renovations if not adhered to.
Renewal Trade-Outs
A renewal trade-out is the difference between the monthly rent of a renewed lease and the previous lease for the same unit. This trade-out can be an increase or decrease in rent.
Renewal(s)
An agreement between landlord and tenant/resident to extend a lease for another term.
Renovation
Restoring a property to good condition without significant structural/integral changes. The renovations can be both the exterior or interior of a the property.
Rent
A resident or tenant’s regular payment to a landlord for using their property or land.
Rent Roll
A detailed report outlining the income from each unit/resident at a property. This report can include base rent, ancillary income, and concessions.
Rent-to-Own Agreement
Also known as a lease option, this is a binding agreement between the renter (resident) and owner in which, at the end of a set period of time, the resident may purchase the unit/property.
Rental Growth Rate
This measures the frequency of rent price changes over a specific period. So, ((Current Average Rent – Previous Average Rent) / Previous Average Rent) x 100% = Rental Growth Rate.
Rental History
A high-level overview of a resident’s or property’s past rental record.
Rental Revenue
The actual rental income that the landlord collects. The calculation subtracts the vacant units, concessions, credit loss, and non-revenue units from the gross potential revenue.
Repairs & Maintenance (R&M) Expenses
R&M stands for repairs and maintenance, which are expenses that a business or property owner incurs to keep an asset in its current condition. R&M expenses are necessary for a business to continue operating and are usually expensed in the year they are incurred. They are different from capital expenditures, which can significantly increase a property’s value.
Repositioning
A strategic approach that involves transforming an existing property to enhance its appeal, increase its value, and attract a different or more desirable resident base or buyer.
Reserves
In real estate, reserves are funds set aside to cover future costs and financial obligations, especially those that are unexpected. Reserves can be used for a variety of purposes, including:
See Capital Reserves
Resident
A resident refers to an individual who lives in one of the multiple housing units within a property, such as an apartment or condo, that is part of a larger complex.
Resident Retention Rate
Resident retention measures the percentage of current tenants who choose to renew their leases, signifying the ability of a property management or ownership group to retain residents.
Resident Screening
Resident screening is the process property managers and landlords use to evaluate potential tenants, assessing their financial stability, rental history, and background to determine their suitability for renting a property.
Residential Property
Any piece of real estate zoned specifically for living purposes. Multifamily real estate consists of residential properties with two to four housing units.
Residual Cap Rate
Residual cap rate is the term used to refer to the cap rate that an investment property commands upon sale. It is calculated as the estimated net operating income in the final year of the holding period divided by the then current market value of the property. A residual cap rate is usually estimated based on the cap rates achieved in the sales of similar properties. A higher residual cap rate can indicate more conservative underwriting, where cash flow is more important than the asset value at sale.
Residual Value
Residual or exit value in real estate is a metric that measures the value of land or buildings at the end of the holding period.
Retail
Retail commercial real estate encompasses properties such as shopping centers, standalone stores, restaurants, and other venues that focus on selling goods and services directly to consumers.
Return of Capital (ROC)
This refers to a distribution paid to an investor that represents a recovery of a portion of their original principal investment, as opposed to earnings or capital gains. As such, it is not treated as taxable income.
Return on Cost
An important metric when evaluating a potential property renovation based on the incremental dollars invested in a project. For example, an owner is considering renovating a 300-unit apartment building for $7,500/Unit. That’s $2.25 million in construction costs. However, it achieves $125/unit per month more in rent, resulting in additional annual rental revenue of $450,000—a 20% Return on Cost (Unlevered). A 15-25% return on cost is a good rule of thumb. A return on cost less than 15% can be precarious and not accretive to the deal.
Return(s)
Profit(s) from an investment.
Revenue
Substantial income, especially that of a company or organization. In multifamily real estate, this is income generated by a property, such as rent, parking fees, or laundry services.
Risk Management
Real estate risk management is a strategy to avoid risks in real estate investments by using best practices. It can include strategies like portfolio diversification and keeping up with market trends.
Risk-Adjusted Return
Risk-adjusted return is a metric used in real estate to measure an investment’s profitability by considering both the return and the risk of producing that return. It’s a key concept that helps investors determine if an investment fits their risk tolerance.
Scalability
Strategically expanding your multifamily portfolio by acquiring more properties, increasing the number of units within existing properties, or systematically growing your overall investment to achieve larger financial returns over time.
Schedule K-1
An IRS tax form (1065) reporting income, contributions, withdrawals, deductions, losses, etc., related to each partner in an investment deal.
S Corporation
A tax designation that allows a corporation or LLC to pass through profits and losses to its shareholders (or members) without being subject to corporate income tax.
SEC
The U.S. Securities and Exchange Commission (SEC) is a U.S. government agency that regulates the securities industry, including real estate, protects investors, promotes fair dealing, and prevents fraud.
Secured Overnight Financing Rate (SOFR)
The secured overnight financing rate is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
Securities
A financial instrument that represents an investment and has monetary value.
Sequence-of-Return (Risk)
Represents the danger that the order of returns, especially negative ones occurring early in retirement, can dramatically impact how long retirement savings last.
Self-Directed Individual Retirement Account (SDIRA)
A self-directed individual retirement account (SDIRA) that holds real estate is called a real estate IRA. It allows you to use retirement funds to invest in real estate in a tax-advantaged way. With a real estate IRA, you can directly buy, sell, and find real estate assets in your account, unlike with a regular IRA.
With an SDIRA, the account owns the property, not you personally, and all related income and expenses must go through the account.
Senior Debt
The primary loan on a property (usually a first mortgage). It has the highest priority for repayment over subordinate debt and equity in the event of a sale, refinancing, or foreclosure. A first lien on the property typically secures it.
Shareholder
An individual or entity with, minimally, one share of a company’s stock.
Sharpe Ratio
A mathematical formula showing the measured performance of an asset or portfolio relative to their assumed risk. It is calculated by subtracting the risk-free rate from the expected returns of an asset, then dividing that by the standard deviation of excess returns.
Short-term Lease
A rental agreement lasting 6 months or less.
Shovel Ready
In real estate, “shovel ready” is a term used to describe a commercial site or construction project that is ready to begin construction quickly. A “shovel ready” site is usually entitled or permitted, has completed all front-end planning, and is compliant with local, state, and federal regulations.
Single-Family Home
A detached residential property that is designed for a single household or family.
Single-Family Office (SFO)
A Single Family Office is a private organization dedicated to managing the financial, legal, and administrative affairs of one high net-worth family. The primary objective of an SFO is to centralize the management of the family’s wealth and provide tailored services to meet their specific needs and preferences.
Smart Technology
Computing and telecommunication software that enables devices to communicate/work with other networked tech.
Smile States
The “smile states” are a region in the United States that includes the Sun Belt, which stretches from the US Southwest through Texas, Florida, and the Carolinas. The term refers to the shape the region would make if you drew a line from northern California, through the bottom third of the country, and back up to Virginia and Maryland.
Sponsor
See General Partner.
Stabilized Cash Flow
Projected cash flow once a property has reached its full potential in terms of occupancy and income.
Stabilized Occupancy Rate
The point at which occupancy is consistent and reflects the market.
Stabilized Yield on Cost
Stabilized yields, or running yields, are used to show the ongoing performance of a property as asset management initiatives take place. Stabilized Yield on Cost uses the net operating income (“NOI”) once the asset has become stabilized, when all the asset management initiatives have been achieved. For example, an owner acquires an asset for $100 million with $5 million in NOI. That’s a 5% cap rate. However, the owner takes the NOI from $5 million to $7.5 million – a 7.5% stabilized on cost when the market cap rate is 5.75%. It’s widely considered a critical metric in real estate valuation and will quickly turn negative leverage into positive leverage.
Sticky
In real estate investing, “sticky” refers to a characteristic (such as pricing, rent, or demand) that tends to remain stable and resistant to sudden drops, even during economic downturns or market volatility.
Stock Market (S&P 500)
A stock index that tracks the performance of 500 of the largest companies in the United States.
Streamline
It refers to simplifying or optimizing processes and procedures to improve efficiency and reduce costs, such as streamlining property management, communication, or tenant/resident application processes.
Sublease Agreement
A contract where the original tenant (“sublessor”) leases their rental property or part of it to a new tenant (“sublessee”) for a specified period, while the original tenant remains responsible for the original lease obligations to the landlord.
Submarket
A submarket refers to a smaller, distinct geographic area within a larger market, such as a neighborhood or suburb, that exhibits unique characteristics and trend.
Suburb(an)
Suburban real estate refers to apartment buildings or complexes located in the outskirts of a city, designed to house multiple families or households in separate units. These properties often offer larger spaces, green areas, and a more family-friendly environment compared to urban multifamily housing.
Sun Belt
The Sun Belt is a region in the United States that includes 15–18 states in the southern and western parts of the country:
Supply and Demand
Supply within multifamily real estate represents the total number of deliveries, or completed properties, available. Demand is the total number of people desiring to occupy the property.
Supply-Demand Imbalance
Refers to markets with a demand for apartment communities but not enough apartment supply to provide them.
Syndicator
Typically, a sponsor (sometimes called a syndicator) scouts for prospects, raises capital, and manages the assets, while passive investors deliver much of the equity for the syndicate. Each investor owns a share of the property proportionate to their investment and receives a share of the income and profits generated.
T12
A T12, or Trailing 12 Months, is a financial statement that summarizes a property’s income and expenses over the previous 12 months. It’s used to assess a property’s financial performance and potential for returns on investment.
Tailwind
Positive external factors or conditions that help increase growth or cause optimal effects on profits and revenue.
Tangible Asset
A physical item that can be seen and touched, such as land or a building.
Taxable Income
A mandatory financial charge or levy imposed on money, property, or services earned through labor, investments, and other means.
Tax Cuts and Jobs Act of 2017 (TCJA)
The unofficial name for the large set of changes to the Revenue Code of 1986, TCJA was signed into law by President Trump in 2017. TCJA made many large changes across multiple areas of the tax code, including, most infamously, reducing the corporate tax rate, increasing the standard deduction, and increasing the applicable exclusion amounts for estate taxes.
Tenant
Also known as a “lessee,” someone who rents a property from a landlord or “lessor” through a legally binding contract called a lease. Tenant is the correct term for industrial and retail property lease agreements, whereas resident is the preferred term for someone taking up residence or living on a property.
Tertiary Market
Tertiary markets are smaller metropolitan areas with less institutional investment activity and thinner capital markets.
Third-Party
This term refers to an individual or entity involved in a transaction but not directly a buyer or seller, such as an escrow company, property manager, or a party providing a report like an appraisal.
Total Operating Expenses
See Controllable / Non-Controllable Operating Expenses
Track Record
A collection of past achievements, successes, or failures that can be used to judge what someone or something is likely to do in the future. In multifamily real estate, a track record can refer to an account of the owner/operator’s due diligence and investment history.
Transitional Asset
A transitional asset in real estate is a property with the goal of changing its current use. This can happen when zoning is changed, allowing a property to be used for a different purpose than it was previously. For example, a residential property might be rezoned for multi-family use, or land used for multi-family could be changed to retail or office space.
Triple Net Lease (NNN)
A specific lease agreement for commercial properties wherein the tenant is assigned sole responsibility for property taxes, building maintenance, insurance, and other expenses in addition to base rent. Such an agreement can provide steady revenue for owners.
Trust
A legally binding contract between a grantor, trustee, and beneficiary in which a grantor and trustee hold and/or manage assets on behalf of a beneficiary.
Unit Turnover
In multifamily real estate, this is the rate at which residents/tenants leave a property and are replaced. It can be costly if not managed appropriately.
See Resident Retention Rate.
Ultra-High-Net-Worth (UHNW) Individuals
An ultra-high-net-worth individual is a person with a net worth over $30M, which includes the value of their primary residence. The ultra wealthy allocate their money across a variety of assets, with one major category being primary and secondary homes
Umbrella Insurance
Additional liability coverage insuring beyond the property owner’s established plan, protecting them against vandalism, invasion of privacy, libel, slander, injuries caused to others, and damages to other people’s property.
Underwriting
A risk assessment process to determine potential returns on an investment. Specifically, underwriting among real estate investors encompasses rigorous explorations of the quality and quantity of a product from a financial perspective. Almost all of the aforementioned terms are used in underwriting to identify risk-adjusted returns on a property. This underwriting process includes dissecting the current rent roll for actual revenue and operating statements to identify trends and make educated assumptions going forward.
Unit Starts
In contrast to new deliveries where units are coming online and ready to lease, construction starts have yet to begin for a variety of reasons such as permitting issues and ground-up developments that don’t pecil due to higher construction costs where rents won’t justify the development project.
Unrelated Business Income Tax (UBIT)
In real estate investing, UBIT stands for Unrelated Business Income Tax, which is a tax on income from a business that is not related to a tax-exempt organization’s primary purpose. UBIT applies when a tax-exempt entity, such as an IRA, invests in a trade or business that is not related to its tax-exempt purpose, or uses debt to generate income. UBIT can apply to real estate investing in a few ways, including:
Urban Core
The urban core is a centralized geographic area away from rural regions; “urban” can relate to or be a characteristic of a town or city.
U.S. Securities and Exchange Commission
A U.S. government agency that regulates the securities industry, including real estate, protects investors, promotes fair dealing, and prevents fraud.
Utilities
Services (such as light, power, or water) a public entity provides.
Utility Reimbursement
The difference between the utility allowance for a unit and the total amount paid by the resident. When the allowance is higher, the resident receives a reimbursement.
Valuation
The process of determining the economic value of a property at a specific point in time.
Value-Add Investments
Value-add real estate investing is a strategy where an investor buys a property that has potential but isn’t operating at its full potential. The investor then makes improvements to the property to increase its value and cash flow, and then sells it for a higher valuation.
Value-Add Strategy
Upgrading amenities and improving operational efficiencies to enhance returns.
Vendor
A person or business that sells products or services to consumers or other businesses.
Vertical Integration
Vertical integration in real estate is when a company manages multiple stages of the real estate process, from acquisition to property management. This can include land acquisition, construction, property management, and financing.
Voting Rights
In a private placement deal, these are nonuniversal, uniquely measured provisions of the operating agreement that can give investors control over some decision-making aspects in a fund.
Waterfall and Promote Structure
The waterfall and promote structure in multifamily real estate refers to the arrangement of parties (i.e., investors, LPs, GPs) in their specific payout (return of capital) order. The waterfall and promote structure in multifamily real estate represents a payment model for distributing profits from an investment.
Weatherizing
This process protects properties from elements like wind, rain, and extreme temperatures.
White Paper
A white paper is a research-based document that describes a problem and a proposed solution, and is often used to persuade readers. White papers can be used for a variety of purposes, including:
Working Class
A socioeconomic ranking codified by employment status, labor, and skill. In real estate, working-class neighborhoods are characterized by residence size, average salary (specific to a geographic area), and property class.
Write Off
A business expense that reduces taxable income on a company’s income statement.
Yield Maintenance
Like defeasance, yield maintenance is a prepayment penalty that protects lenders from losing interest income. The borrower pays the yield maintenance fee in addition to the present value of the remaining loan payments.
