A plain-English field guide
Getting into real estate? Start with the language. Browse practical definitions, see why each term matters, and keep building your money knowledge one idea at a time.
Back to today’s termShowing all 40 terms
Term 01
Paying down a loan through scheduled payments over time.
Amortization is the process of repaying a loan through scheduled payments over time, generally covering interest and principal according to the loan terms.
Why it matters
A loan’s amortization schedule shows how payments are allocated over time. Review the full terms, including rate changes and any balloon payment.
Term 02
A professional opinion of a property’s value.
An appraisal is a professional opinion of a property’s value, often prepared for a lender or transaction.
Why it matters
An appraised value is an estimate, not a guarantee of the price a property will sell for.
Term 03
An increase in a property’s value over time.
Appreciation is an increase in a property’s estimated market value over time. It can result from market conditions, improvements, or other factors.
Why it matters
Appreciation is uncertain and can reverse. A plan should account for the possibility that values stay flat or decline.
Term 04
A large final payment due when a loan term ends.
A balloon payment is a large final payment due when a loan’s term ends, if the scheduled payments have not fully repaid the balance.
Why it matters
Plan for the due date and understand the risk of needing to refinance or sell to meet the obligation.
Term 05
Occupancy needed to cover specified costs and debt payments.
Break-even occupancy is the occupancy level needed for property income to cover specified expenses and debt payments.
Why it matters
The result depends on which expenses are included and the rent actually collected.
Term 06
Money available to buy, improve, or operate a property.
Capital is money available to purchase, improve, or operate a property. It may come from personal funds, partners, lenders, or other sources.
Why it matters
Know what funds are available and what obligations or terms come with them.
Term 07
Spending on major improvements or replacements.
Capital expenditures are spending on major property improvements or replacements, such as a new roof or HVAC system.
Why it matters
They can be significant and are generally considered separately from routine operating expenses.
Term 08
Annual NOI divided by property price or value.
The cap rate is calculated by dividing annual net operating income by a property’s price or value and expressing the result as a percentage.
Why it matters
It can help compare operating income with price, but it excludes financing and is not a promise of return.
Term 09
Money remaining after cash income and expenses.
Cash flow is money remaining after cash income and cash expenses are accounted for. Always state which expenses the calculation includes, such as operating costs, debt payments, and reserves.
Why it matters
It helps you evaluate whether a property may cover its costs, but the result depends on the expense categories, timing, vacancy, and other assumptions used.
Term 10
Annual pre-tax cash flow divided by total cash invested.
Cash-on-cash return is calculated by dividing annual cash flow before income taxes by the investor’s total cash invested, expressed as a percentage. State which expenses are included in cash flow.
Why it matters
It focuses on cash invested rather than the property’s full value. Results depend on assumptions and may not include every cost or future change.
Term 11
Expenses paid to complete a purchase or loan.
Closing costs are expenses paid to complete a property purchase or loan, such as title, appraisal, and lender fees.
Why it matters
Include them in your upfront budget; the specific charges vary by transaction and location.
Term 12
A shared-housing model with private bedrooms and shared common spaces.
Co-living generally describes a residential arrangement where people have private bedrooms or living areas and share spaces such as kitchens, living rooms, or amenities. Operators may offer furnished rooms, services, or flexible terms, but the details differ by property and agreement.
Why it matters
Co-living can involve different occupancy, zoning, building, fire-safety, fair-housing, landlord-tenant, and licensing considerations depending on location and operating model. Verify applicable requirements locally and have leases or operating agreements reviewed by qualified professionals; this is general education, not legal advice.
Term 13
Required principal and interest payments over a period.
Debt service is the required principal and interest payments on a loan over a given period.
Why it matters
It is a key input in evaluating the loan obligations a property’s income may need to cover.
Term 14
NOI divided by debt service.
DSCR is net operating income divided by debt service. For example, a ratio of 1.25 means $1.25 of NOI for every $1 of debt payments.
Why it matters
Lenders may use DSCR to assess whether property income can support a loan. Confirm how the lender defines NOI and debt service.
Term 15
A legal document used to transfer ownership of real property.
A deed is a legal document used to transfer an interest in real property from one party to another. Recording requirements and deed types depend on local law.
Why it matters
Review the deed and ensure it is properly prepared and recorded. For a specific transaction, consult a qualified real-estate attorney or title professional.
Term 16
Accounting or tax allocation of a building’s cost over time.
For accounting or tax purposes, depreciation is allocating a building’s cost over time; it does not necessarily mean its market value has fallen.
Why it matters
Tax treatment depends on the property and applicable rules; consult a qualified tax professional.
Term 17
The portion of the purchase price paid upfront.
A down payment is the portion of the property’s purchase price that the buyer pays upfront rather than borrowing.
Why it matters
It affects how much you need to borrow. Budget separately for closing costs, repairs, and reserves.
Term 18
Checking the details before committing to a deal.
Due diligence is investigating a property’s condition, finances, title, and other risks before completing a purchase; it may include inspections, title review, financial records, leases, zoning, and local rules.
Why it matters
It helps you understand risks and obligations before you commit. The right checks depend on the property and may require qualified legal, tax, or inspection professionals.
Term 19
Market value minus the debt owed on the property.
Property equity is the property’s estimated current market value minus the outstanding balances of debt secured by it.
Why it matters
Equity can change as the loan is paid down or the property value changes. It is not the same as cash you can access immediately.
Term 20
A legal process a lender may use to recover a debt secured by property.
Foreclosure is a legal process through which a lender or other lienholder may seek to recover an unpaid debt secured by real estate. The process and protections vary by jurisdiction and loan.
Why it matters
A missed payment does not always mean immediate foreclosure. If you are at risk, contact your loan servicer promptly and seek help from a qualified housing counselor or attorney.
Term 21
Price compared with gross rental income.
GRM is commonly calculated by dividing a property’s price by its gross scheduled annual rent. It does not subtract operating expenses.
Why it matters
GRM can be a quick screening comparison, but it leaves out expenses, vacancies, and financing, so it is not a full profitability measure.
Term 22
Total rent earned before expenses are deducted.
Gross rental income is the total rent earned or expected before operating expenses and other costs are deducted.
Why it matters
Distinguish scheduled rent from rent actually collected, and account for vacancy and nonpayment.
Term 23
The cost of borrowing money.
Interest is the cost charged for borrowing money, usually calculated according to a stated rate and loan terms.
Why it matters
Compare the rate, whether it can change, fees, and total repayment—not only the initial payment.
Term 24
A lease paired with an option to buy the property under agreed terms.
A lease option is an arrangement where a tenant rents a property and receives the option—but not an obligation—to purchase it under terms set out in an agreement. The agreement may specify an option fee, purchase price or pricing method, deadline, and how rent or fees are treated. Lease-option terms and legal effects vary by jurisdiction and contract.
Why it matters
The tenant may lose fees or other amounts if they do not exercise the option, and both parties need to understand deadlines, maintenance duties, default terms, and how the purchase would be completed. Have the agreement reviewed by a qualified local real-estate attorney before signing; this definition is educational, not legal advice.
Term 25
Using borrowed money to help buy an asset.
In real estate, leverage usually means using a mortgage or other borrowing to purchase a property with less than the full purchase price in cash.
Why it matters
Borrowing can magnify gains and losses. Payments, interest costs, and the risk of being unable to meet loan terms matter as much as the potential upside.
Term 26
How quickly an asset can be converted to cash without substantial loss.
Liquidity describes how quickly an asset can be converted to cash without a substantial loss in value.
Why it matters
Real estate can take time and costs to sell, so property value is not the same as immediately available cash.
Term 27
Loan amount divided by the total project cost, expressed as a percentage.
Loan-to-cost (LTC) is generally calculated by dividing the loan amount by the total cost of acquiring or completing a real-estate project, then expressing the result as a percentage. The definition of project cost can vary by lender.
Why it matters
Lenders may use LTC when evaluating acquisition or construction financing. Confirm which costs are included, since LTC and loan-to-value (LTV) use different denominators.
Term 28
Loan amount divided by property value, expressed as a percentage.
Loan-to-value (LTV) is the loan amount divided by a property’s value, expressed as a percentage. Lenders may use an appraised value or purchase price under their own rules.
Why it matters
Lenders often use LTV when assessing a loan. A lower LTV generally means more of the property cost is covered by the buyer’s equity, but lender rules vary.
Term 29
A loan secured by real estate.
A mortgage is a loan secured by real estate, with the property serving as collateral under the loan agreement.
Why it matters
Review repayment duties, rate terms, and what happens if the borrower does not meet the agreement.
Term 30
Property income minus operating expenses, before debt payments.
NOI is property income minus operating expenses, before debt payments, income taxes, depreciation, and capital expenditures.
Why it matters
It is commonly used to discuss a property’s operating performance. Confirm the income and expense categories included in any calculation.
Term 31
Ongoing costs of running a property.
Operating expenses are costs of running a property, such as insurance, property taxes, management, owner-paid utilities, and routine maintenance.
Why it matters
Careful expense estimates make income calculations more realistic. Major renovations and mortgage payments are usually treated separately in common NOI calculations.
Term 32
Upfront fees paid to a lender, commonly based on a percentage of the loan amount.
Mortgage points are upfront fees paid to a lender, often calculated as a percentage of the loan amount. A point commonly represents 1% of the loan amount, but ask the lender to state the exact cost and terms.
Why it matters
Points may be used in different ways, including to pay for a lower interest rate. Compare the upfront fee with the payment difference over the time you expect to hold the loan; fees and break-even periods vary.
Term 33
The outstanding loan balance, excluding interest.
Principal is the amount borrowed that remains unpaid, excluding interest and other charges.
Why it matters
Loan payments may be applied to both principal and interest according to the loan terms.
Term 34
Replacing an existing loan with a new loan.
Refinancing is replacing an existing loan with a new loan, often with different terms, costs, or repayment timing.
Why it matters
Compare closing costs and total borrowing cost, and check whether the new loan changes risk or payment obligations.
Term 35
Money set aside for future repairs, vacancies, or other costs.
Reserves are funds set aside to help cover future repairs, vacancies, or other property costs.
Why it matters
Setting aside reserves can help prepare for irregular expenses; the amount needed depends on the property and situation.
Term 36
Investment profit relative to investment cost.
ROI is a measure of investment profit relative to investment cost. State the time period and what counts as profit and cost.
Why it matters
ROI calculations can differ. Check the assumptions, timeframe, fees, taxes, and risks before comparing results.
Term 37
Buying a property while the seller’s mortgage remains in place.
A “subject to” purchase is a real-estate transaction in which the buyer takes ownership subject to the seller’s existing mortgage, which remains in the seller’s name. The buyer may agree to make payments, but generally does not become the borrower on that loan unless the lender formally approves an assumption or other change.
Why it matters
The seller may remain liable for the debt, and the loan may contain a due-on-sale clause that could allow the lender to demand repayment after a transfer. Ownership transfer, payment servicing, insurance, taxes, and foreclosure risks require careful review. Rules and outcomes vary; consult a qualified local real-estate attorney and the lender before considering this structure.
Term 38
The legal ownership rights and interests in a property.
Title refers to the legal ownership rights and interests in real property. A title search examines public records for ownership history, liens, and other possible claims or restrictions.
Why it matters
A title search and title insurance may help identify or address certain issues, but they do not eliminate every risk. Coverage and exclusions vary by policy.
Term 39
An insurance policy that may protect against certain title-related losses.
A title insurance policy may protect the insured against certain covered losses arising from title defects or claims, subject to the policy’s terms, exclusions, and limits. Owner’s and lender’s policies generally protect different parties.
Why it matters
Coverage is not the same as a title search or guarantee that no title issue exists. Review the policy and exceptions with a qualified title professional or attorney.
Term 40
The percentage of rentable space or units that are unoccupied.
A vacancy rate is the percentage of rentable space or units that are unoccupied during a specified period.
Why it matters
A rental plan that assumes every unit is occupied all the time can overstate income. Local conditions and turnover affect vacancy.
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These definitions are for general education and are not financial, legal, tax, or investment advice. Terms and calculations can vary by lender, market, and transaction. Do your own research and consult qualified professionals before making decisions.