Glossary
Plain-English definitions of the terms you’ll meet across the site.
2% Rule
A stricter screen: monthly rent at or above 2% of the purchase price.
50% Rule
A rough estimate that operating expenses eat about half of rental income.
65% Rule
A conservative flip screen: pay no more than 65% of ARV minus rehab.
70% Rule
A flip screen: pay no more than 70% of ARV minus rehab costs.
After-Repair Value (ARV)
What a property will be worth after all planned renovations are complete.
Break-Even Ratio (BER)
The occupancy level needed to cover expenses and debt.
Capitalization Rate (Cap Rate)
A property's yearly NOI divided by its price, shown as a percentage.
Cash Flow
The money left in your pocket after every bill, including the mortgage.
Cash-on-Cash Return (CoC)
Yearly cash flow divided by the cash you put into the deal.
Contingency
A reserve added to a rehab budget (often 10–15%) to cover surprises.
Debt Yield
A property's NOI divided by the loan amount.
Debt-Service Coverage Ratio (DSCR)
A rental property's income divided by its loan payment; lenders use it to qualify rental loans.
Depreciation
A tax deduction that spreads a property's cost over its useful life.
Depreciation Period
The number of years over which a property is depreciated.
Down Payment
The portion of the price you pay up front; the lender finances the rest.
Equity
The portion of a property's value you own outright — value minus what you owe.
Equity Multiple
Total dollars returned divided by total dollars invested.
Expenses Increase
The yearly rate at which operating costs are assumed to rise.
Gross Rent
All the rent a property collects before any expenses or vacancy.
Gross Rent Multiplier (GRM)
Price divided by yearly gross rent — a quick relative-value gauge.
Hard Money / Bridge Loan
Short-term, asset-based financing used for flips and rehabs — faster to fund, higher cost.
Holding Costs
The carrying costs you pay while rehabbing or waiting to sell.
Holding Period
How long you expect to own a property before selling.
Income Increase
The yearly rate at which rental income is assumed to grow.
Internal Rate of Return (IRR)
An annualized return that accounts for the timing of every cash flow.
Land Value
The value of the land alone, which is not depreciated.
Loan Amount
The amount your lender finances and you agree to repay.
Loan Interest
The cost of borrowing — the portion of a payment that is not principal.
Loan Payment
The recurring payment you make to repay a loan.
Loan-to-Cost (LTC)
The loan amount as a percentage of a project's total cost (purchase plus rehab).
Loan-to-Value Ratio (LTV)
The loan amount as a percentage of the property's value.
Market Value
What a property is actually worth today on the open market.
Monthly Carry (Holding Costs)
The monthly cost of holding a property during a project: taxes, insurance, utilities, and loan interest.
Net Operating Income (NOI)
Rental income left after operating expenses, before the mortgage.
Operating Expenses
The ongoing costs of running a rental, excluding the mortgage.
Operating Income
Rental income after subtracting vacancy, sometimes called effective gross income.
Other Income
Income from a rental beyond the rent itself.
Points
Upfront loan fees — each point equals 1% of the loan amount.
Private Mortgage Insurance (PMI)
Insurance some lenders require when the down payment is small.
Purchase Costs (Closing Costs)
The fees you pay to buy a property, on top of the price itself.
Purchase Price
The price you agree to pay the seller for a property.
Refinance Costs
The fees to replace one loan with another, similar to closing costs.
Rehab Cost Overrun
A buffer for rehab costs coming in higher than planned.
Rehab Costs
What you expect to spend fixing up a property after you buy it.
Rent-to-Value Ratio (RTV)
Monthly rent divided by price, the basis of the 1% and 2% rules.
Return on Equity (ROE)
Yearly cash flow measured against the equity you have in a property.
Return on Investment (ROI)
Total profit divided by the cash invested, over the life of a deal.
Scope of Work
A detailed list of all the work and costs in a renovation project.
Selling Costs
The fees you pay to sell a property.
The 1% Rule
A quick screen: monthly rent should be at least 1% of the purchase price.
Total Cash Invested
How much of your own money is actually tied up in a deal.
Total Cash Needed
All the cash it takes to buy and fix a property before it produces income.
Total Profit (Flip)
What you net on a flip after all costs are paid.
Total Profit (Rental)
Your full profit from a rental, including cash flow and sale proceeds.
Total Profit (Wholesale)
Your net profit from assigning a contract to another buyer.
Vacancy Allowance
The share of the year you assume a unit will sit empty.
Vacancy Expense
The rent you lose while a unit sits empty between tenants.
Value Appreciation
The yearly rate at which a property's value is assumed to rise.