REIPRIME Logo
Intermediate terms

Essential Property Expense Terms

This curated collection includes key terms that might be helpful when exploring the true costs of real estate ownership beyond the mortgage. It focuses on identifying all the hidden and recurring expenses that can significantly impact a deal's profitability. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Repairs

Repairs in real estate refer to the work done to fix or restore a property to its original condition or to a functional state, addressing wear and tear, damage, or system failures.

Beginner3 min
2

Closing Costs

Closing costs are the various fees and expenses incurred by buyers and sellers at the end of a real estate transaction, covering services like loan origination, title insurance, appraisal, and legal fees.

Intermediate13-14 min
3

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
4

Pro Forma

A pro forma in real estate is a projected financial statement that estimates future income and expenses for a property or investment, used to evaluate its potential profitability and viability.

Intermediate14-15 min
5

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
6

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
7

Property Maintenance

Property maintenance involves the ongoing care, repair, and upkeep of real estate assets to preserve their value, functionality, and safety, ensuring long-term profitability and tenant satisfaction for investors.

Intermediate14-15 min
8

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
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

Property Management Fees

Property management fees are charges paid to a professional company for managing the daily operations of a rental property, covering services like tenant screening, rent collection, and maintenance, directly impacting an investor's profitability.

Intermediate13-14 min
11

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
12

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
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

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
15

PITI

PITI stands for Principal, Interest, Taxes, and Insurance, representing the four main components of a monthly mortgage payment for real estate investors and homeowners. It is a critical metric for budgeting, loan qualification, and assessing the true cost of property ownership.

Intermediate14-15 min
16

Operating Expense Ratio

The Operating Expense Ratio (OER) is a financial metric that measures a property's operational efficiency by comparing its total operating expenses to its gross operating income.

Intermediate13-14 min
17

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