Arvin Samadabadi

July 25, 2023

Mastering Real Estate Jargon in 2023: A Must-Know Glossary

Updated: Jun 23

Terms Every Real Estate Investor Should Know

Cap Rate (Capitalization Rate): The ratio of Net Operating Income (NOI) to the property asset value. It is used to estimate the investor's potential return on investment in real estate  NOI

(Net Operating Income): The income generated by a property after operating expenses but before mortgage payments, tenant improvements, and leasing commissions

IRR (Internal Rate of Return): A metric used in capital budgeting to estimate the profitability of potential investments. It is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zeroCoC (Cash on Cash Return): Cash on Cash Return is a measure of the annual return on an investment relative to the amount of cash invested.   Cash on Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested  

UYOC (Unlevered Yield on Cost): The annual net operating income produced by an asset, divided by the total cost of the asset. It does not consider the effects of borrowing or financing  

ROI (Return on Investment): A ratio between the net profit and cost of the investment, as a percentage of the total cost of investment  

LTV (Loan to Value): A ratio used by lenders to calculate the loan size compared to the value of property  

DCR (Debt Coverage Ratio): A measure of the cash flow available to pay current debt obligations.  

GRM (Gross Rent Multiplier): A figure used in real estate to indicate the ratio of a property's price to its gross rental income

CRE (Commercial Real Estate): Real estate intended for use by for-profit businesses, like office buildings, shopping centers, service businesses, and apartment complexes  

REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate. REITs pool the capital of numerous investors to purchase a portfolio of properties, which individual investors might not be able to afford alone

FMV (Fair Market Value): The price a specific property, asset, or business would sell for on the open market in its current condition  

OPEX (Operating Expenses): Expenses associated with the day-to-day operations of a business. In real estate, these could include costs for property management, maintenance, insurance, property taxes, utilities, etc

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