Real Estate Glossary

A comprehensive reference of real estate terminology covering investment analysis, financing structures, property types, legal concepts, and market fundamentals. Essential knowledge for investors, agents, and property professionals.

Fundamental Real Estate Concepts and Property Types

Residential Real Estate

Property developed as places for people to live, including single-family houses and multi-family apartment buildings.

Single-Family Home

A detached dwelling built for and occupied by one related group of people.

Multi-Family Property

A building with at least two distinct units designed for separate family occupancy.

Condominium

An individually owned unit within a larger building, typically managed by a homeowners association.

Townhome

A narrow, multi-floor residence sharing walls with adjacent properties but maintaining separate entrances.

Commercial Real Estate

Property designed to generate income through business operations.

Industrial Property

Property used for manufacturing, production, storage, and distribution of goods.

Retail Property

Commercial spaces used for selling goods and services, ranging from standalone buildings to large shopping centers.

Hotel Property

Commercial property offering lodging and related services, often with brand affiliations.

Self-Storage Facility

A specialized commercial property providing rentable storage units.

Investment Property

Real estate purchased to generate income through rent or resale, not for primary residence.

Class A/B/C Properties

Quality classifications of commercial properties based on condition, location, and tenants.

Duplex

A residential building containing exactly two separate housing units, often side-by-side or stacked.

Triplex

A residential building containing exactly three separate housing units.

Quadplex

A residential building containing exactly four separate housing units, also known as a fourplex.

Mobile Home Park

A specialized residential community where mobile homes or manufactured homes are placed on rented lots.

Vacant Land

Undeveloped property without permanent structures, often purchased for future development or investment.

Financing and Mortgage Terminology

Mortgage

A long-term loan secured by real estate, repaid in monthly installments.

Commercial Mortgage

A loan used to finance income-producing commercial property.

Adjustable-Rate Mortgage (ARM)

A mortgage with interest rates that change over time, often starting lower.

Fixed-Rate Mortgage

A mortgage with a constant interest rate for the entire term.

Conventional Mortgage

A standard mortgage not insured or guaranteed by the government.

Down Payment

Initial cash investment made toward purchasing a property.

Loan-to-Value Ratio (LTV)

Ratio of loan amount to appraised value of property.

Debt Coverage Ratio (DCR or DSCR)

Measures a property’s ability to cover debt using net operating income.

Debt Service

The total amount paid toward principal and interest on a loan.

Private Mortgage Insurance (PMI)

Insurance protecting lenders when down payments are below 20%.

Construction Loan

Short-term financing for building projects, paid in installments.

Bridge Loan

Temporary financing during property transitions or renovations.

Refinancing

Replacing an existing loan with a new one for better terms or equity access.

Amortization

The process of paying off a loan over time through regular payments.

Loan Term

The duration for repaying a mortgage, typically 15-30 years.

Investment Analysis and Financial Metrics

Capitalization Rate (Cap Rate)

Calculated by dividing net operating income by the property's purchase price or value to estimate return.

Cash Flow

Net income after all expenses are deducted from rental income.

Gross Rental Income (GRI)

Total rental income before any expenses.

Net Operating Income (NOI)

Gross income minus operating expenses, excluding financing costs.

Effective Gross Income (EGI)

Income after accounting for vacancies and credit losses.

Cash-on-Cash Return

Annual cash income divided by the total cash invested.

Internal Rate of Return (IRR)

Annualized effective compounded return rate.

Return on Investment (ROI)

Ratio of net profit to total investment cost.

Return on Equity (ROE)

Net income divided by equity in the property.

Equity Multiple

Total cash returned divided by total equity invested.

Compound Annual Growth Rate (CAGR)

Mean annual growth rate over a specified time longer than one year.

1% Rule

Suggests monthly rent should be at least 1% of the property’s purchase price.

2% Rule

A more aggressive version of the 1% rule, aiming for higher returns.

50% Rule

Estimates operating expenses will consume 50% of gross income.

65% Rule

Used in flipping, suggests purchase price should be no more than 65% of ARV minus repairs.

70% Rule

Similar to 65% rule, slightly less conservative.

Gross Rent Multiplier (GRM)

Property price divided by annual gross rental income.

Rent-to-Value Ratio (RTV)

Monthly rent divided by purchase price.

Break-Even Ratio (BER)

Operating expenses plus debt service divided by gross income.

Property Management and Operations

Property Management

Overseeing property operations and maintenance to maximize value.

Common Area Maintenance (CAM)

Charges to tenants for shared space maintenance costs.

Lease Agreement

Legal contract between landlord and tenant outlining rental terms.

Gross Lease

Lease where landlord pays most property expenses.

Net Lease

Lease where tenant pays a portion of property expenses.

Triple Net Lease (NNN)

Tenant pays property taxes, insurance, and maintenance costs.

Vacancy Rate

Percentage of unoccupied rental units in a property.

Occupancy Rate

Percentage of occupied units in a rental property.

Operating Expenses (OpEx)

Costs of operating and maintaining a property.

Capital Expenditures (CapEx)

Funds used to upgrade or maintain physical assets.

Capital Reserves

Money set aside for future capital expenditures.

Tenant Improvements (TI)

Modifications made to rental space to suit tenant needs.

Property Taxes

Taxes based on assessed value of property.

Assessment

Valuation of property for tax purposes.

Millage Rate

Tax rate applied per $1,000 of assessed value.

Ad Valorem Tax

Tax based on assessed value of property.

Rent Roll

A detailed report listing all tenants, their rental rates, lease terms, and payment status for a property.

Proforma

A projected financial statement showing expected income and expenses for a real estate investment.

Turnover

The process of preparing a rental unit for a new tenant after the previous tenant moves out, including cleaning, repairs, and improvements.

Investment Structures and Entity Formation

Entity

Legal structure used to hold real estate (LLC, partnership, trust, etc.).

Real Estate Syndicate

Group of investors pooling funds for property investment.

Delaware Statutory Trust (DST)

Entity allowing fractional ownership for 1031 exchanges.

Tenancy in Common (TIC)

Ownership structure with multiple investors sharing title.

General Partner (GP)

Investor responsible for managing real estate investments.

Limited Partner (LP)

Investor contributing capital with limited liability.

Real Estate Investment Trust (REIT)

Company owning or financing income-producing real estate.

Self-Directed IRA (SDIRA)

Retirement account allowing real estate and alternative investments.

Private Equity Fund

Pooled investment vehicle for acquiring real estate assets.

Preferred Equity

Investment type receiving cash flow priority over common equity.

Preferred Return

Minimum return investors receive before sponsor profits.

Pari Passu

Equal treatment of investors or creditors.

Capital Stack

Structure of financing, including equity and various debt types.

Tax and Accounting Considerations

Capital Gains

Profit from the sale of an asset.

Capital Gains Tax

Tax on profits from asset sales.

Depreciation

Deduction for wear and tear on property over time.

Depreciation Period

Time frame over which depreciation is calculated.

1031 Exchange

Tax-deferred exchange of like-kind investment properties.

Cost Basis

Original property cost plus improvements, used for tax calculation.

Tax Certificate

Instrument securing delinquent taxes purchased by investors.

Tax Deed

Title granted to investor when tax certificate is not redeemed.

Operating Expense Deduction

Tax deduction for property operational costs.

Interest Deduction

Deduction for mortgage interest paid.

Professional Fee Deduction

Deduction for legal, management, and accounting fees.

Market Analysis and Valuation

Fair Market Value

Price agreed upon by a willing buyer and seller.

Appraisal

Independent professional evaluation of property value.

After Repair Value (ARV)

Estimated property value after renovations.

Comparables (Comps)

Similar properties used to determine market value.

Absorption Rate

Rate at which properties are sold in a given market.

Supply and Demand

Market dynamics influencing property prices.

Highest and Best Use

Most profitable legal use of a property.

Economic Obsolescence

Loss of value from external economic factors.

Functional Obsolescence

Loss of value due to outdated design or layout.

Real Estate Investment Strategies

BRRRR

Buy, Rehab, Rent, Refinance, Repeat - A real estate investment strategy where investors purchase distressed properties, renovate them, rent them out, refinance to pull out capital, and repeat the process.

Wholesaling

A real estate investment strategy where an investor contracts a property with a seller and assigns that contract to an end buyer for a fee, without actually purchasing the property.

Fix and Flip

A real estate investment strategy involving purchasing distressed properties, renovating them, and selling them quickly for a profit.

Buy and Hold

A long-term real estate investment strategy where investors purchase properties to rent them out and hold for appreciation over time.

House Hacking

A real estate investment strategy where an investor lives in one unit of a multi-family property while renting out the other units to offset mortgage costs.

Bird Dog

A person who finds and identifies potential real estate investment opportunities for investors in exchange for a finder's fee, without actually purchasing or contracting the properties themselves.

Property Scout

Similar to a bird dog, a person who searches for and identifies potential real estate deals for investors, often focusing on specific criteria or geographic areas.

Driving for Dollars

A real estate investment strategy where investors physically drive through neighborhoods to identify distressed or potentially profitable properties, often looking for signs like overgrown yards, boarded windows, or 'For Rent' signs.

Skip Trace

The process of locating contact information for property owners, particularly absentee owners or those who are difficult to reach, using public records, databases, and investigative techniques to find phone numbers, addresses, and other contact details for potential real estate deals.

REO (Real Estate Owned)

Properties owned by banks or lenders after unsuccessful foreclosure auctions, typically sold at below-market prices and representing investment opportunities for buyers willing to purchase properties that may need repairs or have title issues.

Zombie Property

A property that has been abandoned by the homeowner during the foreclosure process but has not yet been repossessed by the lender, often becoming vacant, deteriorated, and a potential investment opportunity for buyers willing to navigate complex title and legal issues.

Financing Structures and Investment Vehicles

Hard Money Loan

Short-term real estate loan typically used for renovations.

Portfolio Lender

Lender that retains loans in-house, offering flexibility.

CRE CLO

Commercial real estate loan package sold to investors.

Cross-Collateralization

Using multiple assets to secure a single loan.

Mezzanine Financing

Hybrid of debt and equity financing, subordinate to senior debt.

Joint Venture

Partnership of two or more parties in a real estate investment.

Master Lease

Lease agreement for entire property with sublease rights.

Sale-Leaseback

Seller becomes tenant after selling property.

Ground Lease

Tenant leases land to develop and operate improvements.

Build-to-Suit

Custom-built property constructed to tenant specifications.

Creative Financing

Alternative financing methods that go beyond traditional bank loans, including seller financing, lease options, subject-to deals, and other innovative structures to acquire real estate with little or no money down.

Subject To

A real estate acquisition method where the buyer takes control of a property and makes payments on the existing mortgage, but the original loan remains in the seller's name. The buyer does not formally assume the mortgage liability.

Seller Financing

A real estate transaction where the property seller acts as the lender, allowing the buyer to make payments directly to the seller instead of obtaining a traditional mortgage.

Lease Option

A contract giving a tenant the right to purchase the rental property at a predetermined price within a specified time period.

Assumable Mortgage

A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan terms.

Wrap-around Mortgage

A financing arrangement where a new mortgage wraps around an existing mortgage, with the new lender making payments on the original loan.