Real Estate Investment Definitions

Mortgage Return on Investment (ROI) is a measure of the profitability of a real estate investment when taking into account mortgage financing costs. It is calculated by subtracting the total cost of the loan from the total net income received from the property and dividing it by the total cost of the loan.

Cap rate (or capitalization rate) is a real estate investment metric used to evaluate the potential return of an investment property. It is calculated by dividing the net operating income of the property by the purchase price or current market value of the property.

Equity is the portion of a real estate investment that is owned by the investor. It is calculated as the difference between the current market value of the property and any outstanding mortgage debt or other liabilities related to the property.

Cash flow is the net income generated from a real estate investment after all expenses, such as mortgage payments, taxes, and insurance, are deducted. It is a measure of the profitability of an investment property.

Appreciation is an increase in the value of an investment property over time. It is typically measured by comparing the current market value of the property to the original purchase price.

Leverage is the use of borrowed funds to increase the potential return on an investment. It is commonly used in real estate investing to increase the potential return of an investment property.

Cash on Cash Return is a measure of the profitability of a real estate investment when taking into account all costs associated with the investment. It is calculated by dividing the annual net cash flow of the investment by the total cash invested in the property.

Amortization is the process of gradually paying off a debt over time. It is commonly used in mortgage financing to reduce the debt burden over the life of the loan.

Property tax is a tax levied on real estate investments. The amount of tax paid will depend on the location of the property and the local tax rate.

Debt-to-Income Ratio (DTI) is a measure of an investor’s ability to service their debt obligations. It is calculated by dividing total monthly debt payments by total monthly gross income.

Rent-to-Value Ratio (RTVR) is a measure of the potential return on an investment property. It is calculated by dividing the monthly rental income of the property by the current market value of the property.

Mortgage points are fees paid to the lender at the time of closing to lower the interest rate of the loan.

Depreciation is a decrease in the value of an investment property over time. It is measured by comparing the current market value of the property to the original purchase price.

Refinancing is the process of replacing an existing loan with a new loan with different terms. It is commonly used to lower the interest rate or total amount of the loan.

Private money lenders are individuals or companies that provide short-term loans to real estate investors. The loans are typically secured by the property being purchased and are based on the investor’s creditworthiness.

The purchase, renovation, and resale of a property for a quick profit.