Real estate glossary

40 terms in plain language. Every definition is written to be understood the first time, with links to the calculators where the term does real work.

Financing

Amortization: The schedule by which a loan is repaid in fixed payments, with the interest share shrinking and the principal share growing over time.
CLTV (Combined Loan-to-Value): All loans secured on a property divided by its value, including second mortgages and HELOCs.
Debt Service: The regular payments due on a loan, principal plus interest, usually measured annually in property analysis.
Debt-to-Income Ratio: Monthly debt payments divided by gross monthly income; lenders use caps on this ratio to size mortgages.
DTI: See Debt-to-Income Ratio.
Equity: The property's value minus everything owed on it, the owner's stake.
Fixed-Rate Mortgage: A loan whose interest rate, and therefore principal & interest payment, stays constant for the entire term.
HELOC: Home Equity Line of Credit, a revolving credit line secured by the equity in a property.
Interest Rate: The lender's charge for borrowing, expressed as a percentage of the outstanding balance per year.
LTV (Loan-to-Value): Loan amount divided by property value, expressed as a percentage, the core measure of lending risk.
Mortgage Insurance (PMI): Insurance protecting the lender when the down payment is small; typically required below 20% down on conventional loans, with rules varying by program.
PITI: Principal, Interest, Taxes and Insurance, the four components of a typical monthly housing payment.
Principal: The outstanding loan balance, the part of each payment that actually reduces it.
Refinance: Replacing an existing loan with a new one, typically to change rate, term or to extract equity.

Valuation

Appraisal: A professional estimate of a property's market value, typically required by lenders before approving a mortgage.
Cap Rate: Net operating income divided by property value, expressed as a percentage, the unleveraged annual return of a building.
Effective Gross Income: Scheduled rent minus vacancy and credit losses, the income a property actually expects to collect.
Net Operating Income (NOI): Property income after operating expenses and before debt service, taxes and capital expenditures, the foundation metric of income property.
Price per Square Foot: Price divided by floor area, the quickest normalization for comparing properties of different sizes.
Valuation: The process of estimating a property's worth, via comparable sales, income capitalization, or replacement cost.

Investing

Appreciation: The increase in a property's value over time; the opposite of depreciation.
ARV (After-Repair Value): The projected market value of a property once renovation is complete, the anchor for rehab loans and BRRRR refinances.
Break-Even Point: The level of occupancy or sales at which income exactly covers costs, below it a property loses money, above it every unit adds profit.
BRRRR: Buy, Rehab, Rent, Refinance, Repeat, a strategy that recycles capital by refinancing renovated properties at their post-repair value.
CAGR: Compound annual growth rate, the constant yearly rate that connects a starting value to an ending value over a period.
Cash Flow: The money remaining each month after a property pays all operating expenses and debt service.
Cash-on-Cash Return: Annual pre-tax cash flow divided by the total cash you invested, expressed as a percentage.
Depreciation: In accounting: the gradual write-down of a building's value over its useful life for tax purposes. Not a cash cost, and distinct from market value changes.
Gross Yield: Annual rent divided by property cost, before any expenses.
Holding Costs: The costs of owning a property during a project, loan interest, taxes, insurance, utilities, regardless of progress.
Leverage: Using borrowed money to control a larger asset; amplifies both returns and losses.
Net Yield: Net operating income divided by property cost, rental yield that accounts for expenses.
Operating Expenses: The recurring costs of running a property, taxes, insurance, maintenance, management, excluding loan payments.
Rental Yield: Annual rent as a percentage of property cost; gross yield ignores expenses, net yield includes them.
ROI: Return on investment, profit divided by the capital invested, expressed as a percentage. In real estate, specify which profit and which capital.
Vacancy Rate: The share of potential rental income lost to unoccupied time, an assumption every rental analysis must make explicitly.

Buying

Closing Costs: The fees and charges paid at the completion of a purchase, legal, title, registration and lender fees vary by jurisdiction.
Down Payment: The portion of the purchase price paid upfront in cash; the remainder is financed.
Escrow: An arrangement where a neutral third party holds funds or documents during a transaction; in mortgages, also the account collecting taxes and insurance monthly.
Pre-Approval: A lender's documented estimate of what you can borrow, based on verified income and credit, stronger than a pre-qualification and still not a guarantee.