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Intermediate terms

Essential Rental Property Basics Terms

This curated collection includes key terms that might be helpful when exploring rental property investments. It covers foundational financial metrics, operational concepts, and strategic approaches. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

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
2

Tenant Screening

Tenant screening is the process landlords use to evaluate potential renters, assessing their reliability, financial stability, and past rental behavior to minimize risks and ensure a good fit for the property.

Beginner15-18 min
3

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
4

BRRRR Method

The BRRRR Method is an advanced real estate investment strategy (Buy, Rehab, Rent, Refinance, Repeat) designed to build a scalable rental property portfolio by leveraging forced appreciation to recycle initial capital for subsequent investments.

Advanced14-15 min
5

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
6

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
7

Property Management

Property management is the professional oversight and operation of real estate, typically rental properties, on behalf of an owner, handling tasks from tenant acquisition to maintenance and financial reporting.

Beginner11-12 min
8

Lease Agreement

A legally binding contract between a landlord and a tenant that outlines the terms and conditions of renting a property, including rent, duration, and responsibilities.

Beginner18-20 min
9

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
10

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
11

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
12

Gross Potential Income

Gross Potential Income (GPI) is the maximum possible revenue a rental property could generate if all units were fully occupied at market rent, including all other income sources, before accounting for expenses.

Beginner13-14 min
13

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min
14

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
15

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
16

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
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
18

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