Glossary

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 hard money lender is a private individual or company that offers loans secured by real estate. These loans are typically short-term and have higher interest rates compared to traditional bank loans. Hard money lending is often used by real estate investors, especially for flipping properties or funding construction projects, as they provide quick access to capital.

A multifamily investor focuses on purchasing and managing properties that house multiple separate residential units, such as apartment buildings, duplexes, triplexes, and other multifamily dwellings. This investment strategy offers a way to generate income through rental payments and can be a profitable avenue for both seasoned and novice investors.

A private lender is an individual or organization that provides loans to borrowers without going through traditional financial institutions like banks. These lenders can offer various types of loans, including personal loans, real estate loans, and business loans. They often cater to borrowers who may have difficulty obtaining financing from conventional sources due to credit issues, unique financial situations, or the need for fast funding.

A traditional lender typically refers to established financial institutions such as banks, credit unions, and mortgage companies that provide various types of loans, including mortgages, personal loans, and auto loans. These lenders usually follow standardized lending practices, adhere to regulatory requirements, and offer loans based on the borrower’s creditworthiness and financial history.

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.

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.

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.

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

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.

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.

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

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

A closing agent is a crucial professional involved in real estate transactions, responsible for facilitating the closing process when property ownership is transferred from the seller to the buyer. They ensure that all legal, financial, and administrative requirements are met to finalize the sale or purchase of a property. The closing agent typically works with various parties, including buyers, sellers, lenders, and title companies, to ensure a smooth transaction.

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.

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.

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.

A contractor is a professional or business entity hired to perform specific tasks or provide services for a client, typically on a temporary or project basis. Contractors are often employed in fields such as construction, home improvement, technology, and consulting. They can be independent contractors (self-employed individuals) or companies that provide specialized services. In most cases, contractors are not employees of the hiring company but rather work under a contract agreement outlining the terms, scope, and payment for the work to be done.

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.

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.

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.

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.

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.

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.

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.

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 house flipper is an investor or entrepreneur who purchases real estate properties, usually at a lower price, with the goal of renovating and reselling them at a profit. House flipping involves buying distressed properties, improving them through renovations, and selling them at a higher market value. The success of house flipping largely depends on the investor’s ability to manage renovation costs, timing, and understanding market demand.

A way of generating rental income from your home is either through buying a multifamily property and renting out the units you don’t live in or renting 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.

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

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.

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 passive investor is someone who invests capital in assets, projects, or businesses with minimal involvement in day-to-day management or decision-making. The goal of passive investing is to generate steady returns over time with limited active effort, relying on the management expertise of others to grow the investment. Passive investors typically focus on long-term wealth accumulation through diversified portfolios, which can include stocks, bonds, real estate, or other assets.

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.

A property manager is a professional or company responsible for overseeing and managing real estate properties on behalf of the owner. Property managers handle the day-to-day operations, maintenance, and financial management of residential, commercial, or rental properties. Their primary role is to ensure that the property is well-maintained, that tenants are satisfied, and that the property generates income for the owner.

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 realtor is a licensed real estate professional who is a member of the National Association of Realtors (NAR) in the United States. The term is often used interchangeably with real estate agent, but not all real estate agents are realtors. A realtor follows a strict code of ethics and has access to a range of resources and networks provided by NAR, which helps them represent clients more effectively in the buying, selling, or renting of properties.

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.

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.)

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

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 syndicator is an individual or entity that forms and manages an investment syndicate—a group of investors who pool their capital to invest in larger projects or assets that would be difficult to acquire individually. Syndication is commonly used in real estate, venture capital, and private equity, where significant capital is required to make investments. The syndicator is responsible for finding the investment opportunities, structuring the deal, managing the asset, and ensuring the syndicate’s success.

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.

A title attorney is a legal professional who specializes in real estate law and is primarily responsible for ensuring that the title to a property is valid and free of issues that could affect its transfer. They play a crucial role in real estate transactions, particularly during the closing process, by conducting title searches, addressing title issues, and providing legal advice related to property ownership. Title attorneys often work alongside real estate agents, closing agents, and mortgage lenders to facilitate smooth property transfers.

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.