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Intermediate terms

Essential Property Analysis Rules Terms

This curated collection includes key terms that might be helpful when exploring simple property analysis rules and quick vetting methods. It focuses on practical rules of thumb and metrics used by investors to efficiently assess a property's potential. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Gross Monthly Rent

Gross Monthly Rent is the total amount of rent collected or scheduled to be collected from a property in a single month, before any operating expenses or mortgage payments are deducted.

Beginner13-14 min
2

Rehab Costs

Rehab costs are all expenses incurred to repair, renovate, or improve a real estate property, directly impacting its value and investment profitability.

Intermediate11-12 min
3

Rental Property

A rental property is real estate purchased with the intent to generate income through tenant rent payments and potential property value appreciation.

Beginner13-14 min
4

Quick Analysis

Quick analysis is a rapid, high-level evaluation of a potential real estate investment property to quickly determine if it's worth pursuing with more detailed due diligence.

Beginner15-18 min
5

After Repair Value

After Repair Value (ARV) is the estimated market value of a property after all planned renovations and improvements have been completed, crucial for assessing investment profitability.

Intermediate15-18 min
6

Due Diligence

Due diligence is the critical process of investigating and verifying all material facts about a property and its financials before a real estate acquisition, aiming to identify risks and ensure an informed investment decision.

Intermediate14-15 min
7

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
8

Real Estate Investment Strategy

A real estate investment strategy is a structured plan outlining an investor's approach to acquiring, managing, and disposing of properties to achieve specific financial objectives, considering risk tolerance and market conditions.

Intermediate11-12 min
9

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
10

The 50% Rule

A quick screening tool for real estate investors that estimates operating expenses (excluding mortgage principal and interest) to be 50% of the gross rental income, helping to quickly assess a property's potential profitability.

Beginner14-15 min
11

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
12

Maximum Purchase Price

The maximum purchase price is the highest amount an investor can pay for a property while still meeting their desired financial objectives and investment criteria, considering all costs and financing.

Intermediate14-15 min
13

Holding Costs

Holding costs are the recurring expenses associated with owning a real estate property, such as property taxes, insurance, utilities, and mortgage interest, incurred from acquisition until sale or consistent income generation.

Intermediate14-15 min
14

Purchase Price

The purchase price is the total amount of money a buyer agrees to pay a seller for a property, representing the agreed-upon value before additional closing costs.

Beginner15-18 min
15

Maximum Allowable Offer

The Maximum Allowable Offer (MAO) is the highest price a real estate investor can pay for a property while still achieving their target profit after all projected costs.

Intermediate11-12 min
16

Investment Criteria

Investment criteria are a set of predefined standards and metrics that real estate investors use to evaluate potential properties, ensuring alignment with their financial goals, risk tolerance, and investment strategy.

Intermediate12-13 min
17

Property Management Fee

A property management fee is the cost paid to a professional property manager for overseeing and handling the daily operations of a rental property, directly impacting an investor's cash flow and profitability.

Beginner12-13 min
18

Vacancy Rate

The vacancy rate is the percentage of all available rental units in a property or market that are currently unoccupied or not generating income, serving as a key indicator of a property's financial health and market demand.

Beginner13-14 min
19

The 70% Rule

The 70% Rule is a real estate investment guideline stating that a fix-and-flip investor should pay no more than 70% of a property's After Repair Value (ARV) minus the estimated repair costs, ensuring a sufficient profit margin.

Intermediate12-13 min
20

Property Vetting

Property vetting is the systematic process of thoroughly researching and evaluating a potential real estate investment to assess its risks, potential returns, and overall suitability before making a purchase decision.

Beginner15-18 min
21

1% Rule

The 1% Rule is a real estate investing guideline stating that a rental property's gross monthly rent should be at least 1% of its purchase price, used for quick initial screening of potential investments.

Beginner12-13 min
22

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
23

Maintenance Costs

Maintenance costs are the ongoing expenses required to keep a real estate property in good repair, functional, and habitable, directly impacting an investor's profitability and cash flow.

Beginner12-13 min
24

Fix-and-Flip

Fix-and-flip is a real estate investment strategy where an investor buys an undervalued property, renovates it to increase its value, and then sells it quickly for a profit.

Beginner11-12 min
25

Property Insurance

Property insurance provides financial protection against physical damage to real estate assets and liability for injuries on the property, crucial for safeguarding real estate investments.

Beginner15-18 min
26

Gross Rent Multiplier

The Gross Rent Multiplier (GRM) is a real estate valuation metric that compares a property's purchase price to its gross annual rental income, used for quick initial screening of residential income properties.

Intermediate10-11 min
27

Property Taxes

Property taxes are recurring taxes levied by local governments on real estate, based on its assessed value, to fund public services and infrastructure.

Beginner12-13 min
28

Comparable Sales

Comparable Sales (Comps) are recently sold properties similar in characteristics to a subject property, used to estimate its fair market value.

Intermediate12-13 min
29

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
30

Rule of Thumb

A rule of thumb in real estate investing is a simple, practical guideline used for quick, preliminary assessments of a property's potential, helping investors efficiently screen deals before conducting detailed analysis.

Beginner11-12 min
31

Property Analysis

Property analysis is the systematic process of evaluating a real estate asset's potential value, profitability, and risks by examining market, financial, physical, and legal factors to guide investment decisions.

Intermediate15-18 min
32

Effective Gross Income

Effective Gross Income (EGI) is a realistic measure of a property's total potential revenue, calculated by subtracting estimated vacancy and credit losses from its Potential Gross Income (PGI). It provides a more accurate picture of a property's income-generating capability for financial analysis.

Intermediate12-13 min