Rental Property Investing Glossary
Simple, plain English definitions. No jargon. These are the same terms we use in the app, written out in full here.
1% Rule
A quick way to check a deal. Take the monthly rent. If it is at least 1% of the price, the deal might be worth a closer look. It is not exact. It is just a fast first check, not real math.
Break Even Ratio
This shows how far your rent could drop before you stop covering your costs. Lower is safer. Most lenders want to see this under 85%.
Cap Rate
Net income for the year divided by the price. This number does not change based on your loan. It helps you compare deals side by side, even if the buyers used different loans.
Cash Flow
The money left over each month after you pay all expenses and your mortgage. Positive cash flow means money in your pocket. Negative means you are paying out of pocket every month.
Cash-on-Cash Return
The yearly cash you get back divided by the cash you put in. If you put down $20,000 and you get $2,000 a year in profit, that is a 10% cash-on-cash return. It does not count if the home goes up in value.
Cash Purchase
Buying a property with no loan at all. No monthly mortgage payment. You need more money up front, but you save on interest.
Closing Costs
Fees you pay when you buy a home. This can include lender fees, title fees, and other charges. Usually 2% to 5% of the price.
Conventional Loan
A normal bank loan. The bank looks at your income and credit score. It usually has the best rate, but it takes longer to get approved and needs more paperwork.
Days on Market
How many days a home has been listed for sale. A home listed for a long time may mean the price is too high, or something is wrong with it.
Debt Yield
Net income divided by the loan amount. Lenders use this to check how safe the loan is. Most want to see 8% to 10% or higher.
DSCR (Debt Service Coverage Ratio)
This tells a lender if the property makes enough money to cover the loan payment. Below about 1.2, it gets harder to qualify for financing.
DSCR Loan
A loan based on the property's rent, not your personal income. Good for investors who do not want to show pay stubs. The rate is usually a bit higher than a conventional loan.
Down Payment
The cash you pay up front when you buy a home. The rest of the price comes from your loan.
Flood Zone
An area at risk of flooding. If a home is in a high risk flood zone, you may be required to buy flood insurance. This adds to your monthly cost.
Gross Rent Multiplier
Price divided by the yearly rent. Lower is usually better. It is a fast way to compare homes before you run the full numbers.
Hard Money Loan
A short term loan from a private lender. It comes with a high interest rate. It is fast to get, and it works best for a quick flip, not a long term rental.
HOA Fee
A monthly fee paid to a homeowners association. This pays for shared things like landscaping or a pool. It lowers your monthly cash flow.
Landlord Insurance
Insurance made for rental homes. It usually costs more than a normal homeowner's policy.
Maintenance Costs
Money set aside each month for repairs. Older homes usually need more of this.
Management Fee
What you pay a property manager to run the rental for you. Usually 8% to 10% of the rent. Set this to 0% if you plan to manage it yourself.
NOI (Net Operating Income)
Yearly rent minus your operating costs (tax, insurance, vacancy, maintenance, management). This is the number before your mortgage payment comes out.
Property Tax Rate
The yearly tax you pay, shown as a percent of the home price. This changes a lot from state to state.
Rent-to-Price Ratio
Monthly rent divided by price. This is the number behind the 1% Rule.
Seller Financing
The seller acts as the bank. You pay them directly instead of a bank. This can help when a normal loan will not work.
Vacancy Rate
The percent of rent you lose when the unit sits empty between tenants. A normal estimate is 5% to 8% of rent.
Walk Score
A score from 0 to 100 that shows how walkable a neighborhood is. Higher means more walkable.