47 of 47 terms
These metrics measure how well a property performs relative to its cost or the capital you put in. Cap rate and GRM are fast screening tools; cash-on-cash and IRR require full expense and financing modeling to be meaningful.
Also known as: after repair value
The estimated market value of a property after all planned renovations are completed.
Why it matters: ARV is the foundation of fix-and-flip and BRRRR analysis. Your maximum allowable offer and projected profit both depend on an accurate ARV.
Also known as: capitalization rate
Net Operating Income (NOI) divided by the property's current market value or purchase price, expressed as a percentage.
Why it matters: Cap rate measures a property's return independent of financing. A higher cap rate suggests more income relative to price. Typical residential range: 5–10%, varies by market.
Also known as: COC, cash on cash
Annual pre-tax cash flow divided by the total cash invested (down payment + closing costs + initial repairs).
Why it matters: Unlike cap rate, COC accounts for your actual financing terms. It tells you how much return you're earning on the dollars you physically put in.
The portion of the property's value that you own outright—market value minus the outstanding loan balance.
Why it matters: Equity is the wealth you build over time through appreciation and loan paydown. It determines how much you can pull out via refinance or sale.
Also known as: gross rent multiplier
Purchase price divided by annual gross rent. A quick screening metric—lower is generally better.
Why it matters: GRM gives a fast sanity check before diving into a full analysis. A GRM above 15–20 in most markets signals a potentially overpriced property.
Also known as: internal rate of return
The annualized discount rate that makes the Net Present Value of all cash flows (including a sale) equal to zero.
Why it matters: IRR accounts for the time value of money and includes the eventual sale, making it a more complete measure of total investment performance than COC or cap rate alone.
Total profit divided by total invested capital, expressed as a percentage. For real estate, often calculated including appreciation and equity paydown.
Why it matters: ROI gives a snapshot of overall profitability. Compare to other investment vehicles to assess opportunity cost.
Different strategies suit different capital positions, risk tolerances, and markets. Buy & Hold compounds wealth gradually through cash flow, appreciation, and equity paydown. Fix & Flip and BRRRR target faster capital recycling with higher execution risk.
Also known as: buy rehab rent refinance repeat
Buy, Rehab, Rent, Refinance, Repeat. Buy a distressed property, renovate it, rent it, refinance based on the new appraised value, and pull equity out to repeat.
Why it matters: BRRRR lets investors recycle capital across multiple deals. Success depends on keeping rehab costs and ARV accurate so the refinance returns meaningful cash.
Acquiring a rental property and holding it long-term for cash flow, appreciation, and equity paydown.
Why it matters: Buy-and-hold builds wealth gradually through multiple streams: monthly cash flow, loan paydown, and market appreciation. Patience and accurate underwriting are essential.
Also known as: fix and flip, flip
Buy a property below market value, renovate it, and sell it for a profit—typically within 6–12 months.
Why it matters: Key metrics are ARV, renovation cost, holding costs, and selling costs. Small errors in any of these can eliminate your profit margin.
Also known as: house hacking
Living in one unit of a multi-family property while renting out the other units to offset or eliminate your housing cost.
Why it matters: House hacking is one of the lowest-barrier entry points to real estate investing. Rental income offsets the mortgage, and owner-occupied financing terms (lower down payment, better rate) apply.
Also known as: short-term rental, STR, Airbnb, VRBO
Renting a property on a nightly or weekly basis via platforms like Airbnb or VRBO instead of a traditional long-term lease.
Why it matters: Gross revenue can be significantly higher than long-term rents, but occupancy rates, management costs, and local regulations vary widely—underwrite conservatively.
Every reliable pro forma starts here. Sellers routinely understate vacancy and operating expenses — verify each line against actual market data before modeling returns or making an offer.
Also known as: CapEx, capital expenditures, reserves
Monthly savings set aside for large, infrequent expenses: roof, HVAC, plumbing, appliances. Often 5–10% of gross rent.
Why it matters: Investors who skip capital reserves face sudden large cash calls. Steady reserves prevent surprises from turning profitable rentals into emergencies.
Monthly rental income minus ALL expenses—including mortgage principal and interest, taxes, insurance, maintenance, vacancy allowance, and property management.
Why it matters: Positive monthly cash flow means the property pays you. Negative means you're subsidizing it. Seller pro formas routinely overstate cash flow; verify with real data.
Total rental income collected before any deductions for vacancy, operating expenses, or debt service.
Why it matters: Gross rent is the starting point of income analysis. All other income metrics derive from it.
Also known as: net operating income
Gross rental income minus operating expenses (taxes, insurance, maintenance, management, vacancies). Does NOT include mortgage payments.
Why it matters: NOI is the income the property generates before debt service. It's used to calculate cap rate and DSCR, and is the benchmark lenders use.
All recurring costs of owning and maintaining the property—property taxes, insurance, maintenance, management, utilities, HOA—excluding mortgage payments.
Why it matters: Operating expenses are frequently underestimated in seller pro formas. Verify each line item against actual market rates.
The fee paid to a property manager, typically 8–12% of collected rent plus leasing fees.
Why it matters: Many self-managing investors omit this from their analysis. Include it even if you self-manage—it represents the cost if you ever hire out.
Also known as: vacancy
The percentage of time or units that are unoccupied. Often expressed as a monthly cost: vacancy rate × gross rent.
Why it matters: A 1% understatement in vacancy can cost $1,000+/year on a typical rental. Seller pro formas often use 5% when actual market vacancy is 10–15%.
Debt terms directly determine your monthly cash flow, the lenders that will approve you, and your exit options. Always model at least two rate scenarios (current rate and current +1%) when evaluating leveraged deals.
The process of paying off a loan through regular fixed payments. Each payment covers both interest and principal, with the interest portion decreasing over time.
Why it matters: Amortization builds equity automatically with each payment. Understanding the schedule helps you see when you'll have enough equity to refinance.
Fees paid at settlement—origination fees, title insurance, appraisal, transfer taxes, attorney fees. Typically 2–5% of purchase price.
Why it matters: Closing costs are real cash out of pocket and must be included in your total cash invested calculation for accurate COC and IRR.
Also known as: debt service coverage ratio
NOI divided by annual debt payments (principal + interest). Lenders typically require 1.25+.
Why it matters: DSCR below 1.0 means the property's income doesn't cover its debt. Most lenders require 1.20–1.25 as a minimum for investment property loans.
The cash you pay upfront toward the purchase price. Investment properties typically require 20–25% down.
Why it matters: A larger down payment means a smaller loan, lower monthly payment, and better cash flow—but also more cash tied up in the deal.
Also known as: hard money, bridge loan
Short-term, asset-based financing from private lenders—typically used for fix-and-flip or BRRRR acquisition/rehab. Higher rates and fees; faster to close.
Why it matters: Hard money enables quick closings on deals that traditional lenders won't touch. The high cost of capital means deals must be profitable enough to absorb the fees.
The annual cost of borrowing, expressed as a percentage of the loan principal.
Why it matters: A 1% change in interest rate can shift monthly payment by hundreds of dollars on a typical investment property loan—directly affecting cash flow.
Also known as: loan to value, LTV
The loan amount divided by the property's appraised value, expressed as a percentage.
Why it matters: LTV determines your down payment requirement and whether PMI is required. Lenders typically require 75–80% LTV max for investment properties.
Also known as: private mortgage insurance
Insurance required by lenders when LTV exceeds 80%. Protects the lender, not the borrower.
Why it matters: PMI adds $50–$200+/month to your payment. It can typically be cancelled once LTV drops below 80% through paydown or appreciation.
Also known as: refi, cash-out refinance
Replacing an existing mortgage with a new loan, typically to access equity (cash-out refi) or obtain a lower interest rate.
Why it matters: In BRRRR and value-add strategies, the refinance is the moment of capital recycling. Accurate ARV and timing are critical to ensure the refi returns meaningful cash.
These heuristics eliminate bad deals quickly — they do not confirm good ones. A deal that passes the 1% rule or 70% rule still requires full underwriting before you make an offer. Use them as a first filter, not a final decision.
Also known as: one percent rule, 1% test
A screening heuristic: monthly rent should be at least 1% of the purchase price. A $150,000 property should rent for $1,500/month.
Why it matters: The 1% rule is a quick filter, not a full analysis. Properties that pass may still have negative cash flow after all expenses; use it to eliminate obvious duds.
Also known as: fifty percent rule
Operating expenses (excluding mortgage) are estimated at 50% of gross rent. Cash flow equals the remaining 50% minus the mortgage payment.
Why it matters: The 50% rule is a rough screening tool. Actual expense ratios vary by property age, market, and management style—always underwrite with real numbers.
Also known as: seventy percent rule, 70% rule
Fix-and-flip heuristic: maximum offer = 70% of ARV minus estimated repair costs.
Why it matters: The 30% buffer is designed to cover holding costs, selling costs, carrying costs, and profit margin. Paying more compresses your margin of safety.
Also known as: break even occupancy
The minimum occupancy rate required for the property to cover all expenses including debt service.
Why it matters: Break-even occupancy shows your margin of safety. If break-even is 85% and the market vacancy is 10%, you're comfortable. If it's 95%, you have little room for error.
Use these frameworks to pressure-test every assumption in a seller pro forma. Good deals survive scrutiny on ARV accuracy, realistic rehab scope, conservative vacancy, and achievable hold timelines.
Ongoing costs during a renovation or vacancy period: mortgage interest, taxes, insurance, utilities. Accrues monthly until the property is rented or sold.
Why it matters: Fix-and-flip projects routinely take longer than planned. Each extra month of holding costs reduces profit. Model a realistic timeline.
Also known as: MAO, max offer
The highest price an investor can pay for a property and still achieve their minimum required return.
Why it matters: MAO creates a disciplined acquisition ceiling. Without it, deal excitement can push you into overpaying and destroying your return.
Also known as: phased pro forma
A financial model where inputs or financing change at defined points in time—useful for BRRRR refinances, ADU completions, house-hack transitions, and value-add rent ramp-ups.
Why it matters: Single-phase models miss how real deals evolve. A multi-phase model shows the actual cash flow trajectory across the hold period, including refinance impacts and rent step-ups.
Also known as: proforma
A projected financial model showing estimated income, expenses, and returns for a property.
Why it matters: Seller pro formas are frequently built to sell the deal, not to inform the buyer. They understate vacancy, skip capital reserves, and use rosy rent growth. Verify every assumption.
Also known as: renovation costs, repair costs
The estimated total cost of repairs, improvements, and updates required to stabilize or improve the property.
Why it matters: Rehab cost overruns are the #1 killer of fix-and-flip and BRRRR deals. Get contractor bids before closing; add a 10–20% contingency.
Anchoring your inputs in real market data is the difference between investing and speculating. Always use closed comparable sales — not active listings or automated estimates — for ARV and rental rate.
Government-collected data on population, income, vacancy rates, owner/renter ratios, and demographics at the ZIP code or tract level.
Why it matters: Census data gives you actual vacancy rates—not seller estimates. Verify occupancy assumptions before you commit to a deal.
Also known as: comparables, rental comps, sales comps
Recently sold or rented properties similar in size, condition, location, and features—used to estimate market value or rental rate.
Why it matters: Comps anchor your underwriting in reality. Without them, you're relying on the seller's optimistic assumptions or your own guesses.
Also known as: fair market rent
The rent a property would command if leased today at arm's length in the current market.
Why it matters: Properties with in-place rents below market rent offer upside; above-market rent may signal future vacancy risk. Always compare to actual rental comps.
Also known as: distressed seller
A property owner with an urgent reason to sell—financial distress, tax liens, absentee ownership, pre-foreclosure, estate situations—often willing to negotiate below market.
Why it matters: Motivation drives discount. Understanding why someone is selling is as important as what they're selling.
Also known as: off market, pocket listing
A property available for purchase that is not listed on the MLS. Off-market deals typically involve less competition and more negotiating room.
Why it matters: Off-market deals are where individual investors can gain an edge over retail buyers. Finding motivated sellers before they list is a distinct sourcing strategy.
Also known as: rent appreciation
The annual percentage increase in rents in a given market. Historical rates from census and market data are more reliable than projections.
Why it matters: Many pro formas assume 3–5% annual rent growth. Census data often shows 1–2%. Over a 10-year hold, that difference compounds dramatically.
Tax benefits can significantly improve after-tax returns, but the rules are complex, change with legislation, and vary by investor classification and entity structure. These definitions are for educational purposes only. Consult a licensed CPA or real estate attorney before structuring any transaction around tax strategy.
Also known as: like-kind exchange, Section 1031
A tax-deferral strategy allowing investors to sell one investment property and reinvest the proceeds into a like-kind property without immediate capital gains tax.
Why it matters: A 1031 exchange defers—not eliminates—capital gains tax. Used strategically, it lets you compound returns without a tax drag at each sale.
Also known as: capital gains
Tax owed on the profit from selling an investment property. Long-term rates (held 1+ year) are typically 0%, 15%, or 20% depending on income.
Why it matters: Capital gains tax is a real exit cost that must be modeled in your total return calculation. A 1031 exchange can defer this obligation.
An IRS non-cash deduction that lets residential property owners write off the building's value (not land) over 27.5 years.
Why it matters: Depreciation can offset rental income dollar-for-dollar, significantly reducing your taxable income—even on a cash-flow-positive property. Consult a CPA.
Also known as: PAL, passive activity loss
Losses from rental real estate that can offset passive income. High-income earners may be subject to PAL limitations; real estate professionals are exempt.
Why it matters: If you can deduct rental losses against ordinary income, real estate's after-tax return can be substantially higher than the gross numbers suggest.
These free calculators are a starting point. Temelios pulls real comps, census data, and AI analysis so you can verify every assumption before you commit.
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