Glossary

Absorption Rate – The rate at which available rental units are leased in a specific market during a given period. A high absorption rate indicates strong rental demand.

Accredited Investor – An individual or entity that meets specific financial criteria set by the SEC, allowing them to invest in private real estate syndications. Generally, an accredited investor must have an annual income of $200,000 or more as an individual or $300,000 or more as a married couple for the last two years, or a net worth of $1 million or more, excluding their primary residence.

Amortization – The process of gradually paying off a loan through scheduled payments of principal and interest over a set period.

Appreciation – The increase in a property’s value over time due to market conditions, improvements, or increased demand.

Asset Management – The strategic oversight of an investment property, including financial performance tracking, optimizing operations, and implementing value-add strategies.

Basis Points – A unit of measurement in finance used to describe interest rate changes. One hundred basis points equal one percent.

Breakeven Occupancy – The minimum occupancy rate required for a property’s revenue to cover its operating expenses and debt payments.

Bridge Loan – A short-term loan used to finance a property before securing permanent financing or before repositioning a property. Often used in value-add multifamily deals.

BRRRR Strategy – A real estate investment strategy that stands for Buy, Rehab, Rent, Refinance, Repeat. This method allows investors to recycle capital into multiple deals.

Cap Rate (Capitalization Rate) – A measure of a property's return based on its net operating income divided by its purchase price. It helps investors compare different properties' profitability. The formula is Cap Rate = Net Operating Income ÷ Purchase Price.

Cash Flow – The net income generated from a rental property after deducting operating expenses and debt service (mortgage payments).

Cash-on-Cash Return – A measure of annual return on the actual cash invested in a deal. The formula is Cash-on-Cash Return = (Annual Cash Flow ÷ Initial Cash Investment) × 100.

Class A/B/C/D Properties – A property classification system based on quality, age, and location. Class A properties are high-end, newer properties in prime locations. Class B properties are well-maintained, slightly older but still desirable. Class C properties are older and may need improvements, often located in working-class neighborhoods. Class D properties are distressed properties in low-income areas with high vacancy rates.

Cost Segregation – A tax strategy that accelerates depreciation by classifying parts of a property into shorter depreciation periods, reducing taxable income.

Debt Service Coverage Ratio – A key metric used by lenders to evaluate a property's ability to cover its debt payments. The formula is DSCR = Net Operating Income ÷ Debt Service (Loan Payments). A DSCR greater than 1.25 is typically preferred by lenders.

Depreciation – A tax deduction that allows investors to offset rental income by accounting for the property’s wear and tear over time.

Distributions – Payments made to investors from the profits of a real estate investment. In syndications, distributions are typically paid quarterly.

Equity – The difference between a property’s current market value and the outstanding loan balance. The formula is Equity = Property Value - Loan Balance.

Equity Multiple – A measure of how much an investor’s initial capital is multiplied over the course of an investment. The formula is Equity Multiple = Total Cash Distributions ÷ Initial Investment. An equity multiple of 2.0x means the investor has doubled their initial investment over the holding period.

Exit Strategy – The plan for selling or refinancing a property to return investor capital and profits. Common exit strategies include property sales, refinances, or 1031 exchanges.

General Partner (GP) – The sponsor or syndicator who manages the real estate investment, oversees operations, and makes strategic decisions. The GP is responsible for executing the business plan and maximizing investor returns.

Gross Rent Multiplier (GRM) – A valuation metric that compares a property’s price to its gross rental income. The formula is GRM = Property Price ÷ Gross Annual Rent. A lower GRM generally indicates a better investment opportunity.

Internal Rate of Return (IRR) – A key metric used to evaluate the profitability of an investment over time, factoring in cash flow, appreciation, and time value of money. A higher IRR indicates a more attractive investment opportunity.

Limited Partner (LP) – A passive investor in a real estate syndication who provides capital but does not participate in day-to-day management.

Loan-to-Value Ratio (LTV) – A measure of the loan amount compared to the property's value. The formula is LTV = Loan Amount ÷ Property Value. A lower LTV indicates lower risk for the lender.

Net Operating Income (NOI) – The total income generated by a property after deducting all operating expenses, but before mortgage payments. The formula is NOI = Gross Income - Operating Expenses.

Occupancy Rate – The percentage of rental units occupied by tenants at any given time. A high occupancy rate indicates strong rental demand.

Passive Income – Income generated from investments with minimal ongoing effort. Passive investors in real estate earn income through cash flow distributions from rental properties or syndications.

Preferred Return – A minimum return that must be paid to investors before the general partner receives a share of the profits. Preferred returns typically range from 6% to 8% annually.

Private Placement Memorandum (PPM) – A legal document provided to investors in a real estate syndication outlining the investment terms, risks, and structure.

Pro Forma – A financial projection that estimates future income, expenses, and returns based on assumptions about market conditions and property performance.

Recourse Loan – A type of loan where the borrower is personally liable for repayment beyond just the property’s value.

Refinancing – The process of replacing an existing loan with a new loan, often to secure better terms, lower interest rates, or pull out equity from a property.

Return on Investment (ROI) – A measure of investment profitability. The formula is ROI = (Net Profit ÷ Initial Investment) × 100.

Subscription Agreement – Defines investor contributions and expected returns.

Syndication – A group investment structure where multiple investors pool capital to acquire and operate a real estate property. The general partner manages the deal while limited partners provide funding.

Underwriting – The process of analyzing a real estate deal, including evaluating the financials, market conditions, and risks before making an investment decision.

Value-Add Strategy – A real estate investment approach that focuses on improving a property through renovations, operational efficiencies, or better management to increase cash flow and property value.

Vacancy Rate – The percentage of unoccupied rental units in a property or market. A lower vacancy rate indicates strong demand for rental housing.

1031 Exchange – A tax-deferral strategy that allows real estate investors to sell a property and reinvest the proceeds into another property of equal or greater value without paying capital gains taxes.