## About Lofty

Lofty is a fractional U.S. real estate investing platform where visitors can browse property shares, learn about rental property investing, review calculators and guides, and access support for marketplace orders and account activity.

## 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.