It measures how quickly properties are sold or leased in the specific area during a given time period.
Absorption Rate = (Number of Homes Sold in Period)÷ (Total Number of Available Homes) x 100


The original cost of a property plus capital improvements, minus depreciation and casualty losses. Used to calculate capital gains when selling.

Estimated property value after the completion of all repairs and renovations (future or current purchase) or market value of property today (previous purchase).

ARV = As-Is Value + Value Added from Improvements

The process of paying off a loan over time through monthly payments, and with each payment, the amount of the principal gets reduced.

Monthly Payment = Principal × [Monthly Interest Rate × (1 + Monthly Interest Rate)^Number of Payments] ÷ [(1 + Monthly Interest Rate)^Number of Payments - 1]

The total amount of money (principal + interest) you are required to pay on a loan in one year.
Annual Debt Service = Monthly Mortgage Payment x 12


The increase in a property’s value compared to the day bought in relation to market value or improvements. Main component for ROI.
Appreciation = Current Market Value - Original Purchase Price


The value of a property without any updates, repairs, or improvements. No change in value.

A large lump-sum payment due at the end of a loan term, following a series of regular, relatively small monthly payments.

Balloon Payment = Original Loan Amount - Total Principal Paid During Loan Term

A unit of measurement which is used for interest rates and other percentages. 
Basis Points = Percentage x 100

A short-term loan to fill the financial gap, such as between buying a new property and selling an existing one, or until permanent financing is secured.

A real estate strategy comes from the abbreviation of Buy, Rehab, Rent, Refinance and Repeat. 

B: Buy (an undervalued property)

R: Rehab (renovate the undervalued property)

R: Rent (bring tenants in to get cash)

R: Refinance (get a new loan from the increased value of the property to pull the cash out)

R: Repeat (use the refinance cash to buy the next property)

A long-term investment strategy, also defined as a wealth-building strategy. Investors buy properties to rent out and hold them for extended periods to benefit from cash flow, appreciation, equity buildup, and tax advantages. The property is likely to be kept or passed to heirs.

A metric used to estimate and compare the rate of return on rental properties, especially commercial properties, without considering financing. Calculated as Net Operating Income (NOI) divided by property value.
Cap Rate (%) = (NOI ÷ Property Value) × 100


The term refers to major improvements and replacements, including roofs, HVAC systems, and appliances, to maintain or improve long-term property value.
Annual CapEx Reserve = Total Replacement Costs ÷ Average Lifespan


The taxable profit when you sell your property, calculated as net selling price minus adjusted (cost) basis.
Capital Gain = Net Selling Price - Adjusted (Cost) Basis


Cash flow is the net amount of money generated by a property investment. Positive cash flow means income exceeds expenses; negative cash flow means expenses exceed income.

Cash-on-Cash ROI measures the return on your initial cash investment based on the annual cash flow.
Cash on Cash = (Annual Cash Flow ÷ Total Cash Invested) × 100


The required payment to the lender, including both principal and interest. Generally expressed as monthly or yearly.

A measurement of a property’s ability to cover its debt payments. It answers whether the property brings enough income to cover its mortgage obligations.
DSCR = NOI ÷ Annual Debt Service

The realistic total income of a property after accounting for vacancy and credit losses, plus other income. No optimistic projections,  only what the property actually generates.
EGI = Gross Potential Income - Vacancy & Credit Losses + Other Income


The portion of a property that one owns. It is the difference between the market value of the property and the outstanding mortgage balance.
Equity = Current Market Value - Outstanding Loan Balance


The actual worth of a property in a normal sale between a buyer and seller, both having reasonable knowledge of the facts and both willing to transact.

An investment strategy that involves buying undervalued properties, renovating them, and selling them at a higher price. The aim is to generate quick profits.

The total income of a property before deducting operating expenses such as taxes, insurance, maintenance, and management fees.

GOI includes: Rent, Parking Fees, Laundry and Pet Fees

The term refers to the ideal income if everything was perfect on the market and the conditions of the property.

‘Ideal’ income means, fully occupied without collection losses, having the current market rent rates and no gap during vacancies.

A short-term and expensive loan secured by real estate. The property serves as collateral for the loan. Interest rates are higher and approvals are faster than traditional bank loans.

The expenses of owning or holding a property including monthly mortgage payment, taxes, insurance, utilities, HOA fees, and other expenses.

Monthly Holding Costs = Mortgage Payment + Property Taxes + Insurance + Utilities + Maintenance + HOA Fees + Other Expenses
Total Holding Costs = Monthly Holding Costs × Number of Months Held

A property which is purchased for the purpose of generating income by renting or leasing. Basically an investment property.

The annual percentage return on a real estate investment over its holding period, including all income, expenses, financing and eventual sale. It reflects the time value of money. 

The final IRR is determined by investment performance, which is influenced by market conditions.

The owner of a property (can be a person or an entity) who leases or rents the property to tenants in exchange for rent.

A binding legal contract between a landlord and tenant regarding occupancy of the property, including terms such as rent amount, lease duration, and responsibilities of both sides.

The selling price of a property on the market between a willing buyer and willing seller, where free will—no pressure on either side—is essential.

A property that combines different purposes, such as residential homes or flats and retail spaces. Basically, one development serves multiple uses.

The income remaining after subtracting operating expenses from Gross Operating Income, but before mortgage payments. This metric is used for measuring a property’s operating performance.

NOI = Gross Operating Income - Operating Expenses

The value remaining after subtracting all debts from your total assets. For real estate, this includes your equity in properties.

Net Worth = Total Assets - Total Debts

The term refers to the percentage of rental units (such as rooms, flats) which are being occupied by tenants.

Occupancy Rate = (Occupied Units ÷ Total Units) × 100

The regular ongoing costs to manage a property, including taxes, insurance, maintenance, and cleaning. Mortgage payments are not included.

Operating Expenses = Taxes + Insurance + Maintenance + Management + Utilities + Other

A real estate portfolio is a collection of property investments owned by a person or company. These diversified holdings typically have various sectors, including residential, retail, industrial, and mixed-use properties.

Property management involves the professional oversight and operation of real estate on behalf of an owner. This includes a broad range of responsibilities such as tenant relations, facility maintenance, legal compliance, tax administration, and fulfilling of the property’s operational requirements.

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate.

ROI (Return on Investment) is the percentage return on an investment, calculated as profit divided by total investment. For real estate, total ROI combines cash flow, appreciation, principal paydown, tax savings, and sweat equity (if applicable).