Intermediate terms

Essential Net Worth & Financial Position Terms

This curated collection includes key terms that might be helpful when exploring your personal financial health, focusing on assets and liabilities. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

Loan-to-Value Ratio

The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.

Intermediate14-15 min

Mortgage

A mortgage is a loan obtained from a lender to purchase real estate, where the property itself serves as collateral for the debt. Borrowers make regular payments, including principal and interest, over a set period until the loan is fully repaid.

Beginner15-18 min

Personal Financial Statement

A Personal Financial Statement (PFS) is a document that summarizes an individual's financial position at a specific point in time, detailing assets, liabilities, and net worth. It is a critical tool for real estate investors seeking financing or evaluating their financial health.

Intermediate5 min

Operating Expenses

Operating expenses are the ongoing costs of running and maintaining a real estate investment property, excluding mortgage principal and interest payments, and capital expenditures.

Beginner13-14 min

Asset Allocation

Asset allocation is an investment strategy that distributes capital across different asset classes, property types, and investment vehicles to manage risk and optimize returns according to an investor's financial goals and risk tolerance.

Intermediate5 min

Liability

A liability is a financial obligation or debt owed by an individual or entity to another, representing claims against assets that must be settled in the future.

Intermediate11-12 min

Capital Expenditures

Capital Expenditures (CapEx) are significant funds spent by a real estate investor to acquire, upgrade, or extend the useful life of a property, rather than for routine maintenance or operating expenses. These investments enhance the property's value and are typically depreciated over time for tax purposes.

Intermediate14-15 min

Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's or individual's financial health at a specific point in time, detailing assets, liabilities, and owner's equity.

Intermediate4-5 min

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min

Capitalization Rate

The Capitalization Rate (Cap Rate) is a real estate valuation metric used to estimate the potential rate of return on an investment property, calculated by dividing its Net Operating Income (NOI) by its current market value.

Intermediate14-15 min

Leverage

Leverage in real estate is the use of borrowed capital, typically through mortgages, to finance property purchases and amplify potential investment returns.

Intermediate15-18 min

Capital Gains Tax

Capital Gains Tax is a tax on the profit realized from the sale of a non-inventory asset, such as real estate, calculated as the difference between the selling price and the adjusted cost basis.

Intermediate13-14 min

Net Worth

Net worth is a measure of your financial health, calculated by subtracting your total liabilities (what you owe) from your total assets (what you own). It provides a snapshot of your financial standing at a specific point in time.

Beginner4-5 min

Debt Service

Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.

Beginner11-12 min

Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.

Advanced15-18 min

Net Operating Income

Net Operating Income (NOI) is a key real estate metric representing a property's annual income after deducting all operating expenses, but before accounting for debt service, income taxes, and capital expenditures.

Intermediate11-12 min

Appreciation

Appreciation in real estate is the increase in a property's market value over time, leading to a profit for the owner when sold or refinanced. It is driven by market forces, economic growth, and property improvements.

Beginner12-13 min

Equity

Equity in real estate is the portion of a property's value that an owner truly owns, free and clear of any outstanding debts or liens. It is calculated as the property's current market value minus the total amount owed on any mortgages or loans.

Beginner12-13 min

Refinancing

Refinancing is the process of replacing an existing mortgage or loan with a new one, often to secure better terms, lower interest rates, or access built-up property equity.

Intermediate15-18 min

Return on Investment

Return on Investment (ROI) is a financial metric that measures the profitability of an investment by comparing the net profit to the initial cost, expressed as a percentage.

Beginner13-14 min

Cash-on-Cash Return

Cash-on-Cash Return (CoC) is a real estate investment metric that calculates the annual pre-tax cash flow generated by a property as a percentage of the total cash an investor has invested.

Intermediate15-18 min