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. Terms with a longer write-up link to their own page.
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.
Appreciation
How much a property's value goes up over time, usually shown as a percent per year. It's a guess about the future, so treat it as a bonus. Long-run US national averages are roughly 3 to 4% a year, and they vary a lot by market.
Break Even Ratio
This is the share of your rent that goes to costs and loan payments. At 85%, rent can only fall about 15% before you stop covering your costs. Lower is safer. Many lenders want to see it 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.
CapEx Reserve
Money set aside for the big, expensive stuff: a new roof, a new HVAC system, a new water heater. Different from regular maintenance, which covers small routine repairs. Both matter, they are not the same pool of money.
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.
Cash to Close
The full amount you actually need on closing day: your down payment plus closing costs. Rehab and reserves come on top of that, so budget for them separately.
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.
County Unemployment Rate
The share of people out of work in the property's county. A rate meaningfully above the national average is worth understanding before counting on steady rent, since it points to a shakier local job market.
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. Many lenders want at least 1.0 to 1.25. Below 1.0, expect a bigger down payment and a higher rate, if you can get approved at all.
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.
Equity
The part of a property you actually own outright: its value minus whatever you still owe on the loan. Grows over time from two things combined: paying down the loan, and the property going up in value.
Estoppel Certificate
A signed statement from a current tenant confirming the real rent, deposit, and lease terms. Used when buying a property that already has a tenant in it, so you're not just trusting what the seller claims.
FIRPTA
A US rule for foreign owners who sell US property. The buyer holds back part of the sale price and sends it to the IRS as a prepayment of your tax. You can get some of it back when you file a US return.
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.
Foreign National Loan
A mortgage for someone who isn't a US citizen or resident and has no US credit history. Expect a bigger down payment and a higher rate than a US buyer would get. Many are DSCR loans, so the rent qualifies the deal and your foreign income doesn't come into it.
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.
HOA Rental Restrictions
Rules some HOAs set on renting out a unit: a cap on how many units can be non-owner-occupied, a required board approval, sometimes a minimum lease length. Worth checking before you buy, a property can be legal to buy and against the rules to rent out.
House Hacking
Buying a small multi-unit property (2-4 units), living in one unit, and renting out the rest. Often qualifies for the same low-down-payment financing as buying a regular home to live in, even though part of it is a rental.
Interest Rate
The yearly cost of borrowing money, shown as a percent of the loan. A lower rate means a lower monthly payment on the same loan amount.
ITIN
An Individual Taxpayer Identification Number. The IRS issues it to people who need to file US taxes but can't get a Social Security Number, like a Canadian who owns a US rental. Foreign owners usually need one to file a US return on the rent.
Landlord Insurance
Insurance made for rental homes. It usually costs more than a normal homeowner's policy.
Loan Paydown
The part of each mortgage payment that reduces what you owe, rather than paying interest. Every payment builds a little more equity this way, even before the property's value changes at all.
Loan Term
How many years you have to pay off the loan. A 30-year term means lower monthly payments than a 15-year term on the same loan amount, but more interest paid overall.
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.
Population Growth
How much a county's population has changed over the last several years. A shrinking population is a real warning sign, it usually means shrinking long-term rental demand.
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 Estimate
A computer-generated guess at what a property would rent for, based on real comparable rentals nearby. Not a guarantee, a starting point worth sanity-checking against actual comps before you rely on it.
Rent Growth
How much rent on a property is assumed to go up each year, usually shown as a percent. Like appreciation, it is a forward-looking assumption, not a fact, most long-run US averages run around 3% a year.
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.
Total Return
The full picture of what you made on a property over time: cash flow collected plus equity gained, both from loan paydown and from appreciation. Cash-on-cash return alone only counts the first piece.
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.
WDO (Wood-Destroying Organism) Inspection
A specialist inspection for termites and other wood-damaging pests, usually separate from a general home inspection, not automatically included in it.