A calculation to determine whether an investment property’s cash flow makes it a good buy. To run the 1% rule on a property, calculate 1% of the property’s purchase price to determine the minimum monthly rent to charge.

A tax break allows you to sell a business property or real estate held as an investment and swap it for a new one for the same purpose while deferring the capital gains tax on the sale.

In real estate, the 2% rule advises that for an investment property to have a positive cash flow, the monthly rent should be equal to or greater than two percent of the purchase price.

A smaller, independent residential dwelling unit located on the same lot as a stand-alone (i.e., detached) single-family home.

A type of real estate investor that is allowed to invest in riskier investments. The most common qualifications are having a $1M net worth or earning an income of $200,000 for 2 years in a row ($300,000 if married).

The total cost of buying an investment property, including mortgage loan fees, closing costs, inspection fees, etc.

Ad valorem is Latin for “according to value.” So, unlike excise or transactional taxes, where the tax amount or percentage is constant, ad valorem tax is proportional to the property’s assessed value.

A mortgage that does not have a fixed interest rate – that is, the interest rate fluctuates based on the benchmark interest rate.

Dwelling units that cost no more than 30% of an area’s median household income as determined by the federal government, local government, or a recognized national affordability index.

The value of a property after repairs and improvements have been made.

Amortization refers to the amount of principal and interest paid each month over the course of the loan. Even though the mortgage repayment amount is the same each month, the amount going towards the principal starts out small, with the majority of the payment going towards interest.

This is the amount an investor is allowed to deduct or write off in taxes every year based on the depreciation of a property. It includes costs related to improving a rental property and is often distributed over the “useful life” of a property rather than as one big lump sum.

The cost of credit is expressed as a yearly interest rate. It compares the costs of different loans, such as mortgages and other real estate loans.

This is the period of time that an investor anticipates holding each home before looking to liquidate the property. Financing terms are often matched to this hold period to optimize returns.

It is a unique number assigned to real property by the tax assessor of the property's jurisdiction.

The process of determining the value of a property through an independent survey is often required by a lender in order to ensure the money being borrowed is a fair amount for the property.

The appraised value of a property is determined by an independent survey conducted by a lender and is useful in determining how much money can be borrowed for its purchase and under what terms.

A measure of the estimated increase in value of an asset over a certain time frame.

A financing arrangement in which a buyer assumes the mortgage of the seller after paying the difference between the home price and the mortgage balance.

Investment properties in the real estate market are divided into four classifications (A, B, C, and D) based on value, allowing investors to determine the value, risk, and profitability of a potential purchase. Class A properties are more expensive, in high-demand markets, and often newer builds.

A real estate professional’s opinion of a property’s value.

A real estate investing strategy. BRRRR is an acronym for Buy, Rehab, Rent, Refinance, Repeat. Using this method, Investors purchase properties that need renovations. They rehab them and rent them out. Then, after they’ve built up equity, they do a cash-out refinance to use their profit on another property.

Large, one-time expenses are undertaken to extend the life or add value to a real estate property. These include renovations and upgrades, as well as equipment or supply costs needed to make the improvements.

Capital gains refer to the profit earned from the sale of a real estate investment. The amount of tax paid on this profit is termed capital gains tax.

The cap rate is the NOI divided by the purchase price. The cap rate is an indicator of the risk and return of a property. It tells you the return on an investment before financing costs.

The amount of money moving in and out of a business, property, or other cash-generating asset.

The cash return on investment compared to the amount of cash invested. For example, an investment with cash distributions of $50 on a $1,000 investment has a 5% cash-on-cash return.

A type of new mortgage loan that enables homeowners to pull equity out of their homes.

A clear title is a property where there is no dispute over ownership and no lien from creditors.

One-off expenses paid by the buyer during the purchase of a property. These include application fees, appraisal costs, attorney fees, closing and courier fees, homeowners insurance, property taxes, mortgage insurance premiums, and underwriting fees.

An analysis was done to compare similar properties in the same market to understand the value of the property and the rent that can be charged.

Commercial real estate is the purchase and sale of commercial properties, such as office buildings, retail centers, industrial properties, or land to be developed into a commercial project in the future.

A ratio that shows how much of a property an investor owns versus how much is owed on the mortgage. This is an important measure of ownership of a property.

This ratio is used to measure a borrower’s ability to pay back the loan. It compares the monthly minimum debt payment to the borrower’s monthly income.

A financial metric that compares a company’s or individual’s total debt obligations to its income. Lenders use it to determine a borrower’s financial health.

The loss of value of a property over time due to wear and tear.

A property that has been subject to financial stress or has fallen into disrepair.

The process of investing in different investments to reduce a portfolio’s overall risk.

An investment strategy of buying a fixed dollar amount of a stock regularly, regardless of the price per share.

Financial assistance is provided by government agencies or private organizations to help first-time homebuyers.

The Effective Gross Income or EGI is the measure of the potential positive monthly cash flow a rental property can produce. It is the Potential Gross Rental Income (plus any other income) minus expenses and vacancy.

An escrow is a third-party financial account that holds funds, such as earnest money, or documents while the buyer and seller are in negotiations. For instance, when you buy a home, you’ll pay a down payment for the purchase, and this money will be held by an impartial third party until the contract is signed and the deal is closed.

A federal law was enacted to prevent misuse of consumer information.

The Fair Housing Act is a law that prohibits discrimination against people based on race, color, sexual orientation, nationality, religion, disability, and family by anyone who influences the decision-making process of buying, selling, renting, or financing of housing. This includes real estate brokers, landlords, and sellers.

A type of mortgage that has a set or a fixed interest rate that stays constant throughout the term of the loan. Since the mortgage amount remains the same through the term of the loan, a fixed-rate mortgage can help more accurately predict the return on an investment.

The process of buying a property, fixing it up or renovating it to increase its market value, and selling it for a profit.

The Fair Market Value of a property is what a property would reasonably sell for in the open market without undue pressure to complete a transaction. The FMV of a property allows buyers to ascertain whether they’re paying the right price and sellers to know if they’re leaving money on the table.

An investment structure in which multiple people or entities each buy a portion of a real estate investment, sharing both in the costs of purchase and upkeep as well as the profit.

This is a property that is being rented directly by the owner, without the involvement of a real estate management company.

This is a property that is being sold directly by an owner, without the involvement of a real estate agent or realtor.

The ratio of the price of a rental property to its gross rental income before expenses. The GRM is a metric that helps to calculate how many years it would take an investment to pay for itself based on the gross rental income received.

The total amount of money collected in rent plus fees, including parking fees, pet fees, advance rent, and others.

The total income generated by a property is divided by the price paid for the property plus any associated costs. Gross Rental Yield = (Monthly rent x 12) ÷ (Purchase price + closing costs).

A comprehensive examination of the condition of a property in which the physical structure of the home, such as the roof and the siding, as well as systems, such as plumbing, electrical, and heating and cooling (HVAC), are looked at to find any significant faults.

A type of contract that covers the service, repair, or replacement of major household appliances and home systems, including electrical, plumbing, heating, and air conditioning.

A way of generating rental income from your home, either through buying a multifamily property and renting out the units you don’t live in or rent out bedrooms, garages, attics, etc., in a house you already own.

A state of economic downturn in the real estate and housing market, which typically occurs when home prices drop for an extended period.

Real estate investments create passive income for the property owner.

A retirement account designed to encourage people to save for retirement.

This is the best measure of a property’s performance, used to measure an asset’s long-term profitability. It is defined as the point where the net value of the expenses equals the gross rental income.

At Arrived an IPO commonly refers to an ‘Individual Property Offering’ or an individual rental property.

Leverage is using a loan to invest in real estate. It has the effect of amplifying returns or losses.

The loan-to-value ratio is an important calculation to determine the amount of the loan compared to the value of the property. (LTV = Mortgage amount ÷ appraised property value or sale price).

A type of rental property where the tenant signs a lease for a longer-term period, typically a year.

The Management Fee is an operating expense paid to the operator to cover costs of managing the property operations, like annual accounting, audit, and tax filings.

A mixed-use building is a property that’s been zoned for both personal and commercial purposes, such as a family home where the ground floor is a convenience store.

A mortgage is the sum of money borrowed from a lender, such as a bank, to purchase a property. Though it can be higher, a mortgage is frequently given for up to 80% of the property’s value.

The value of a fund’s assets minus the value of its liabilities.

This is the Target Cash Flow that will be available to distribute to investors through dividend payments. Net Cash Flow = Rent Payments – Operating Expenses.

Net Operating Income (NOI) is the gross profit of a rental property. It’s calculated as gross rents – all expenses other than interest.

Operating Expenses include all of the anticipated costs for operating the rental property. Some expenses include Insurance, Property Tax, Vacancy, Maintenance, and Property Management.

The Internal Revenue Service (IRS) defines a qualified opportunity zone (QOZ) as ‘an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment’.

A variety of investments and assets.

A financial metric real estate investors use when evaluating investment properties, such as single-family rentals (SFRs). It is calculated by dividing the house price by the annual gross rental income it can generate.

A company that’s paid for by a landlord to oversee the day-to-day repairs, management, and administrative tasks on an investment property.

The legal contract that outlines all the terms and conditions of the sale of a property.

The IRS defines this as ‘the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts’

A Real Estate Investment Trust (REIT) is a type of company that is designed to invest in real estate. REITs get special tax advantages as long as they adhere to strict requirements.

An REO property is one that’s been foreclosed on by a bank that held the mortgage and that is now owned by that bank. REO properties are often resold below market value.

A type of real investment in which investors buy properties outside of their immediate geographical area. These properties are often managed by a property management company.

Income is generated from leasing out a property to tenants who pay to live in it for the term of the lease.

Rent to own is a combination of a rental and purchase agreement. With an RTO, the tenant’s monthly payment to the landlord is divided up in a way that part of it goes toward the monthly rent and the remainder towards the purchase price of the house as set out in the agreement. (Sometimes also referred to as Lease-to-Purchase.)

A measure of a company’s profit relative to its total assets.

The percentage of invested money that’s made back after subtracting all expenses and costs. (ROI = Investment Gain – Investment Cost) ÷ Investment Cost.

A type of loan functions similarly to a traditional mortgage in that homeowners borrow money against their home equity. They are called “reverse” mortgages because instead of the borrower making payments to the lender, the lender provides tax-free money to the borrower. The loan proceeds can pay for home repairs, health care bills, or other expenses.

Closing costs that the seller has agreed to pay.

The series LLC refers to the specific offering that is being put up for sale and that owns the property. Each property is purchased and placed in an LLC for liability and tax purposes.

A legal document that grants ownership of a property to the government when taxes on the property are unpaid for a certain period.

A legal claim against your property when you don’t pay your taxes to the government.

An annualized return for equity investments that includes cash distributions, appreciation, financing percent, and overall expenses.

Money that’s put aside by an investor to cover expenses if a rental property sits vacant for some time. For more information, click here.

Vacancy rate is the percentage of all units in a rental property portfolio that are vacant, that is, have no occupancy at any given time.

Furnished apartments, houses, or professionally managed resorts or complexes that are rented out, often to tourists, as an alternative to hotels. These short-term rental properties are stocked with basic amenities, and the stay is usually no more than 30 days.

A real estate investment strategy where a wholesaler gets a contract to sell a distressed property to an investor.

A wraparound mortgage is a secondary type of financing extended by the seller. The buyer agrees to take over the existing mortgage and adds the amount of money on top of it, usually the new purchase price. The wraparound mortgage becomes a second or third mortgage on the same property. It’s also known in the industry as a carry-back mortgage or a wrap loan.