Real Estate Investing Glossary: 50+ Terms Explained | Lofty

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Real Estate Investing Glossary

Real estate investing terms, explained in plain English.

Plain-English definitions of the 51 terms real estate investors use most, each with the formula, a worked example, and answers to the questions investors actually ask.

Last reviewed July 14, 2026

Returns & Metrics

The numbers investors use to measure how much money a property makes, from cap rate and cash flow to IRR.

• Cap Rate
  Cap rate (capitalization rate) is a property’s annual net operating income divided by its price, showing the unleveraged yield it produces.
• Net Operating Income (NOI)
  Net operating income (NOI) is a property’s rental and other income minus operating expenses, before mortgage payments, capex, and income taxes.
• Cash-on-Cash Return
  Cash-on-cash return is a property’s annual pre-tax cash flow divided by the total cash invested, measuring the yield on your actual money in the deal.
• Internal Rate of Return (IRR)
  IRR is the annualized rate of return that accounts for every cash flow of an investment and the timing of each one, from purchase through sale.
• Equity Multiple
  Equity multiple is the total cash an investment returns divided by the total cash invested, e.g. a 2.0x multiple doubles your money over the hold.
• Cash Flow
  Cash flow is the money left from rental income each period after paying all operating expenses, reserves, and the mortgage.
• Appreciation
  Appreciation is the increase in a property’s value over time, driven by market forces or by improvements the owner makes.
• Gross Yield
  Gross yield is a property’s annual rent divided by its price, a quick screening ratio that ignores all expenses.
• 1% Rule
  The 1% rule is a screening guideline saying a rental’s monthly rent should be at least 1% of its purchase price to merit a closer look.
• 50% Rule
  The 50% rule estimates that operating expenses will consume about half of a rental’s gross rent over time, excluding the mortgage.

Financing & Loans

Mortgage and lending terms that determine what you can borrow, what it costs, and how the loan is repaid.

• Debt Service Coverage Ratio (DSCR)
  DSCR is net operating income divided by annual mortgage payments, showing how comfortably a property’s income covers its debt.
• Loan-to-Value Ratio (LTV)
  LTV is the loan amount divided by a property’s value, expressing how much of the asset is financed versus owned as equity.
• PITI
  PITI stands for principal, interest, taxes, and insurance, the four parts of a full monthly mortgage payment.
• Private Mortgage Insurance (PMI)
  PMI is insurance a borrower pays on conventional loans above 80% LTV; it protects the lender against default, not the borrower.
• Amortization
  Amortization is the scheduled repayment of a loan where each fixed payment covers interest plus a growing slice of principal until the balance hits zero.
• Points (Discount Points)
  Points are upfront fees paid to a lender, each equal to 1% of the loan amount, usually to buy a lower interest rate.
• Hard Money Loan
  A hard money loan is a short-term, asset-based loan from a private lender, used mainly by flippers, with high rates and fast, flexible approval.
• DSCR Loan
  A DSCR loan qualifies a rental property on its own rent-to-payment ratio instead of the borrower’s personal income, tax returns, or W-2s.
• Bridge Loan
  A bridge loan is short-term financing that covers the gap between buying one property and securing permanent financing or selling another.
• HELOC (Home Equity Line of Credit)
  A HELOC is a revolving credit line secured by home equity that lets you borrow, repay, and re-borrow as needed, paying interest only on what you use.
• Cash-Out Refinance
  A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash, converting home equity into spendable capital.

Operations & Management

The day-to-day costs and processes of owning and running a rental property.

• Vacancy Rate
  Vacancy rate is the share of time (or units) a rental sits empty and unpaid, subtracted from gross rent when underwriting income.
• Operating Expenses
  Operating expenses are the recurring costs of running a rental, taxes, insurance, management, maintenance, utilities, but not mortgage payments or capex.
• Capital Expenditures (CapEx)
  CapEx is spending on big-ticket items that extend a property’s life, roofs, HVAC, water heaters, renovations, budgeted via monthly reserves.
• Property Management Fee
  Property management fees are what managers charge to run a rental, typically 8-10% of collected rent plus leasing fees of half to one month’s rent.
• Turnkey Property
  A turnkey property is a fully renovated rental, often already tenanted and professionally managed, sold ready to produce income from day one.

Taxes & 1031 Exchanges

Tax rules that shape real estate returns, including depreciation, 1031 exchanges, and investor-specific taxes.

• Depreciation
  Depreciation is the annual tax deduction letting rental owners write off a building’s cost over 27.5 years, sheltering cash flow from income tax.
• Depreciation Recapture
  Depreciation recapture is the tax, up to 25%, on the depreciation deductions you took, due when a rental property is sold at a gain.
• 1031 Exchange
  A 1031 exchange lets investors sell one investment property and buy another while deferring capital gains tax and depreciation recapture.
• Boot
  Boot is any cash or non-like-kind value received in a 1031 exchange, cash out or debt reduction, and it is taxable even when the exchange succeeds.
• Qualified Intermediary (QI)
  A qualified intermediary is the independent third party that holds 1031 exchange proceeds and papers the swap; investors may never touch the funds.
• Cost Segregation
  Cost segregation is a study that reclassifies parts of a building into 5-, 7-, and 15-year property, front-loading depreciation deductions.
• Passive Activity Loss
  Passive activity losses are rental tax losses that generally offset only passive income, with a $25,000 allowance for moderate-income active landlords.
• Section 121 Exclusion
  The Section 121 exclusion lets homeowners exclude up to $250,000 ($500,000 married) of gain on a primary residence owned and lived in for 2 of 5 years.
• Net Investment Income Tax (NIIT)
  The NIIT is a 3.8% federal surtax on investment income, including rents and property gains, for taxpayers above $200,000/$250,000 MAGI.

Deal Structures & Strategies

Ways to own real estate and strategies for building a portfolio, from REITs and syndications to BRRRR and house hacking.

• REIT (Real Estate Investment Trust)
  A REIT is a company that owns income-producing real estate and must pay out at least 90% of taxable income to shareholders as dividends.
• Real Estate Syndication
  A syndication pools money from passive investors (LPs) under a sponsor (GP) who finds, finances, and operates a large property for shared profits.
• Fractional Ownership
  Fractional ownership lets multiple investors own shares of a single property, splitting its rental income and appreciation at low minimums.
• Tokenized Real Estate
  Tokenized real estate represents property ownership as blockchain tokens, enabling small minimums, fast settlement, and tradeable fractional shares.
• Real Estate Crowdfunding
  Real estate crowdfunding pools many small investors online to fund properties or loans, offering passive exposure from $10-$5,000 minimums.
• BRRRR
  BRRRR (Buy, Rehab, Rent, Refinance, Repeat) is a strategy for recycling one pot of capital into multiple rentals via cash-out refinancing.
• House Hacking
  House hacking means living in one unit of a property while renting the rest, using low-down-payment owner-occupant loans to start investing.
• Wholesaling
  Wholesaling is contracting to buy a property below market value, then assigning that contract to an end buyer for a fee without ever owning the home.

Valuation & Buying

How properties are priced and vetted, including comps, appraisals, and the rules of thumb flippers use.

• Gross Rent Multiplier (GRM)
  GRM is a property’s price divided by its gross annual rent, a quick screen for how expensive a rental is relative to its income.
• After-Repair Value (ARV)
  ARV is a property’s estimated market value after renovations, the anchor number for flip offers, BRRRR refinances, and rehab loans.
• 70% Rule
  The 70% rule caps a flipper’s offer at 70% of a property’s after-repair value minus repair costs, reserving 30% for costs and profit.
• Comps (Comparable Sales)
  Comps are recently sold similar properties nearby, used to estimate a home’s market value by comparison and adjustment.
• Appraisal
  An appraisal is a licensed appraiser’s formal opinion of a property’s market value, required by lenders before funding a mortgage.
• Escrow
  Escrow is a neutral third party holding funds and documents until a deal’s conditions are met, both in home sales and monthly tax/insurance accounts.
• Title Insurance
  Title insurance is a one-time-premium policy protecting against ownership defects, liens, fraud, errors, unknown heirs, discovered after purchase.
• Due Diligence
  Due diligence is the buyer’s investigation period, inspections, title review, lease audits, financial verification, before a purchase becomes binding.