Cap Rate (Capitalization Rate)
A valuation metric expressing NOI as a percentage of purchase price or value.
Example$500,000 NOI ÷ $10,000,000 price = 5.0% cap rate.
NOI (Net Operating Income)
Income after operating expenses but before debt service and capital expenditures.
Example$1.2M income − $450k expenses = $750k NOI.
DSCR (Debt Service Coverage Ratio)
Measures ability to cover loan payments with NOI.
Example$750k NOI ÷ $600k debt = 1.25× DSCR.
Cash-on-Cash Return
Annual cash flow relative to actual cash invested.
Example$120k cash flow ÷ $1.2M invested = 10% CoC.
Value-Add
Strategy focused on improving income or operations to increase value.
ExampleRenovate units, raise rents, refinance post-stabilization.
Off-Market Deal
Privately marketed transaction not listed publicly.
ExampleQuiet sale to targeted investors without public listing.
Bridge Loan
Short-term financing for transitional properties.
Example24-month bridge during lease-up, followed by refinance.
Seller Financing (Seller Carry)
Seller provides part of the purchase financing.
ExampleSeller carries $2M note while buyer secures bank loan.
LTV (Loan-to-Value)
Loan amount relative to property value.
Example$7M loan on $10M value = 70% LTV.
LOI (Letter of Intent)
Non-binding outline of deal terms prior to contract.
ExamplePrice, timeline, contingencies agreed before PSA.
PSA (Purchase & Sale Agreement)
Legally binding contract governing the transaction.
ExampleDefines diligence period, EMD, closing date.
Earnest Money Deposit (EMD)
Good-faith deposit by buyer.
Example2–5% of purchase price, goes hard post-diligence.
Stabilized Asset
Property operating near market occupancy and income.
Example95% leased multifamily with consistent collections.
Underwriting
Financial and risk analysis of a property.
ExampleAdjusting rents, vacancy, expenses to lender standards.
1031 Exchange
Tax-deferred reinvestment of investment property proceeds.
ExampleSell apartment → buy larger asset within IRS timelines.
Gross Rent Multiplier (GRM)
Price divided by gross rental income.
Example$8M price ÷ $1M rent = 8.0 GRM.
Triple Net Lease (NNN)
Tenant pays taxes, insurance, and maintenance.
ExampleSingle-tenant retail with long-term NNN lease.
Tenant Credit
Financial strength of tenant.
ExampleNational tenant reduces lender risk.
Market Rent
Rent achievable under current market conditions.
ExampleCurrent rents $200 below market → upside.
Vacancy Rate
Percentage of unoccupied space.
Example10 vacant units out of 100 = 10% vacancy.
Absorption
Rate at which space is leased in a market.
ExampleStrong absorption supports rent growth.
Equity
Investor capital invested in the deal.
Example$3M equity + $7M debt = $10M purchase.
Recourse Loan
Loan personally guaranteed by borrower.
ExampleBank requires guarantor on office loan.
Non-Recourse Loan
Loan secured primarily by property.
ExampleAgency multifamily loan with carve-outs.
Exit Strategy
Planned method of realizing returns.
ExampleSell after 5-year value-add execution.
Hold Period
Length of time investor owns the asset.
Example3–7 years typical for value-add.
Basis
Total cost invested in property.
ExamplePurchase + rehab + fees.
Preferred Return
Minimum return paid to investors before profit splits.
Example8% pref before GP participation.
Capital Stack
Combination of debt and equity in a deal.
ExampleSenior loan + mezz + equity.
Due Diligence
Investigation period after contract execution.
ExampleInspect financials, leases, condition before EMD hard.
