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Real Estate Terms

How you Talk Says a lot about Your Knowledge

· Commercial RE,Multifamily,Investing,How To

Commercial real estate has its own language and knowing it is critical to your success. When you speak with people in the industry such as brokers, mortgage professionals and property managers you will hear a lot of different words thrown around. If you are new to the commercial real estate world these terms might be new to you. But make no mistake if you don't know what these things mean it will be hard to follow the conversation and you might be left in the dust by other professionals who fear you are too green to work with.

I have compiled a list of real estate terminology, with certain words specific to multifamily, I think are all important to know and understand. These words should become part of your regular vocabulary when speaking to those in the commercial real estate world, using them properly will give confidence to people you have not worked with and will help you to get farther with your relationships and therefore your business.


Absentee Landlord - 

An out of town owner. Many times these people may be more motivated to sell based on the additional headaches that can arise from being farther away from the property yet still managing it. Not to be confused with an out of state investor that has 3rd party management.

Accredited Investor -

An individual who has “earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and reasonably expects the same for the current year. Or has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

Acquisition Fee -

A fee charged by the syndicator to the investors, normally ~2-4% of the purchase price broken down by investment size, normally the larger the deal the smaller the fee. Money is typically used to cover many of the expenses at closing and is justified by the syndicator as it can take hundreds of hours to find one good deal and the syndicator has paid out of pocket for all costs up until this point.

Example - $10M purchase price and 2% acquisition fee = $200,000 total fee

Amortization Schedule -

The schedule of payments that is spread out across a period of time in order to service the loan debt.

Apartment / Location Class -

Refers to the quality of the property and location. Is quantified as A, B, C or D class. "A" being newer white collar luxury apartments with plenty of amenities and "D" being an older place is a worse side of town, many times this may be subsidized housing.

ARR (Annual Rate of Return) -

A metric used to quantify the return gained in a year.

ARR = Annual Total Profit or Loss / Initial Investment


Bad Debt -

Many times listed as a line item on a P&L, this is the money owed to property that is not collected from a former tenant, this can include rent, pet fees, etc.

Bonus Depreciation -

An optional part of cost segregation, essentially you get all of the depreciation up front.

Break Even Occupancy - 

The occupancy rate at which the property is still able to cover its expenses without dipping into reserves.


Call to Offers -

The final day that the broker allows offers to be placed on a certain property.

Cash Flow -

The amount of profit each month after all revenue is collected, all expenses are paid and reserves are set aside. In multifamily investing cash flow is a great way to increase your passive income and amass wealth over time.

Cap Rate (Capitalization Rate) -

This indicates the rate of return an investor can expect on a property and the potential ROI on the investment. It is calculated by dividing the NOI (net operating income) by the asset value and is expressed as a percentage. The capitalization rate indicates the property’s intrinsic, natural, and un-leveraged rate of return.

Cap Rate = NOI / Asset Market Value

Capital Expense - 

Money put towards a capital improvement such as the addition of permanent structural changes to a property that add to the property value. Examples include new appliances, new HVAC units, new roofs, new siding, apartment rehabs (not standard turns), etc.

Closing -

The transfer of ownership of a property.

Closing Costs -

Any cost that associated with the purchase of a property that is due at the closing. This

includes the down payment, insurance, taxes, lender costs, attorney fees in addition to other fees. Closing costs will generally run about 1/3 of the purchase price although this can vary greatly.

COC (Cash on Cash Return) -

Is the rate of return used in real estate transactions that calculates the cash income earned on the cash invested in a property. In many syndications and JVs (joint ventures) a good COC will be a selling point for investors, as with everything investors should always complete their due diligence and confirm.

COC = Annual Cash Flow (pre tax) / Cash Invested x 100%

Comps (comparables) -

This refers to both rental and sale comparables to the subject asset. This is a way for you to see how the asset stacks up against other comparable properties. Comparable can be a loose term but in general means that the asset is of similar size, vintage, quality and close in location (ideally under 3 miles) tp the subject property.

Cost Segregation -

Allocating a certain value to for things at 5 or 15 years, a technique used to improve taxes and the overall investment.

Concessions -

Used as ways to get new tenants into a property. Generally concessions are offered during large lease ups or when vacancy is higher then market standards and expectations. Concessions can include things such as a half month or month of free rent, a gift card to a local store or other things that may entice perspective tenants into the property.


Debt Service -

The cash that is required to cover the repayment of interest and principal

DCR (Debt Coverage Ratio) -

Also known as the debt service coverage ratio (DSCR), is the ratio between the operating income that is available to debt that services interest, principal and lease payments. The higher the ratio the better chances you have of receiving a loan.

DCR = NOI / Annual Debt Service

Depreciation -

The lowering of the value of an asset. Also used in terms of a depreciation schedule, normal depreciation occurs over 27.5 years but through different techniques (cost segregation and bonus depreciation) this can be sped up to improve investors tax scenarios.

Door - 

Lingo used by industry professionals to describe a unit. Equivalent to saying a unit or an apartment.

Due Diligence (DD) -

Completing your own research on a property and confirming all of the information given to you is correct. DD includes verifying rent rolls, P&L statements, taxes, insurance, visiting the property and understanding how it is currently being run.


Economic Occupancy -

Is the percentage of potential gross income that a property achieves in a given period. For instance if the total potential rent at a property in a month is $25,000 but only $22,000 was collected, than the economic occupancy for that month is 88.0%.

Economic Occupancy = Collected Monthly Rent / Gross Potential Monthly Rent x 100

EDR (Environmental Database Report) -

A high level report regarding the environmental risks affecting a target property. Many times some type of environmental report, such as Phase 1 or Phase 2 is required by the lender.

EMD (Ernest Money Deposit) -

Once an offer is accepted a deposit is made to the seller by the buyer to prove seriousness. Based on the contract this deposit can be refundable or non refundable. A higher EMD may help secure a potential property if it is a hot market or highly bid upon property.


Forced Appreciation -

Increased value of an asset based on the deliberate or accidental actions of the investor. Learn more here.


GP (General Partner) -

The general partner(s), some times called managing members are the active investors in the syndication. The GP or GPs are responsible for the management of the daily operations.

GSR (Gross Scheduled Rent) -

The annual income of a property if all rentable space were rented and all rent was collected.


IRR (Internal Rate of Return) -

A measure of an investment’s rate of return over the entire hold period. Basically it is the percentage of interest you earn on each dollar you have invested in a property.


LLC (Limited Liability Company) -

A business structure where the owners are not personally liable for the company's debts or liabilities. When entering a real estate transaction it is best to purchase your property or share of the property in an LLC in the state where the asset lies. Other options exist (s-corps, etc) but LLCs are commonly used in the real estate space.

Loss to Lease -

This is the difference between the market rent and the rent currently being charged in a specific unit.

LTV (Loan to Value) -

Used by lenders to express the ratio of the loan to the value of an asset. Banks and lenders use this to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. LTV varies based on asset type, asset class, location, experience, among other things.

LP (Limited Partner) - 

This partner or partners in the asset contribute a certain amount to be in the deal, they are only liable up to that amount in the event things go south. They do not have any management role like the GP does.


Manager Equity -

Same as the GP equity, this is the amount of equity the managing/GP team holds in the asset.

Market Appreciation -

The increasing value of a property based on the market. This value can increase or decrease (depreciation) very quickly and sometimes without warning. Learn more here.

Member Equity -

Same as LP equity, this is the amount of equity the limited partners hold in the asset.


NOI (Net Operating Income) -

Is a formula used in real estate use to calculate the profitability of a particular asset. NOI determines the revenue and profitability of invested real estate property after subtracting necessary operating expenses.

NOI = Gross Operating Income - Gross Operating Expenses


Occupancy -

The same as Physical Occupancy, see below.

Offering Memorandum -

A document put together by brokers to highlight a property. This document is used to sell the asset and generally contains a high level summery, demographics, construction information, the rent roll, profit and loss statement, proforma, photos, sale and rental comps, etc.

Origination Fee -

A fee charged by the lender in order to set up the loan. Although it varies, about 1% of the total loan is common.


Path of Progress -

The area of a city that is receiving increased economic development, improvements and future enlargement. This can be evaluated by using metrics such as sales comps, new development, school districts, retail outlets, crime reports, tax incentives, etc.

Per Door Price -

The price of an asset on a per unit basis.

Per Door Price = Asset Cost / # unit doors

Physical Occupancy - 

Many times just referred to as the "occupancy". The number of units that are occupied and leased up.

Physical Occupancy = # of occupied units / # of total units

PPM (Private Placement Memorandum) -

A document written up by the syndication attorney that allow syndicators the ability to raise capital by selling securities (a portion of the deal) to investors. It explains important information about the deal and the team who put the syndication together. It also maps out how the team expects to execute the business plan. Learn more here.

P&L (Profit and Loss) -

This document breaks down all of the income and all expenses line by line to show how much the asset it profiting or losing.

Preferred Return (Pref) -

Is a specific organization of profit distribution where profits are distributed to a certain class of equity before another until the specified rate of return on the initial investment is achieved. The pref is stated as a percentage, such as an 6% cumulative return on initial investment, however a pref can be written in the PPM in a variety of ways. The pref provides a level of comfort to investors since they will receive the preferred return prior to anyone else in the deal taking profit.

Proforma -

Is a document that calculates financial results using certain projections or presumptions. In real estate how proformas are calculated and the length of the proforma varies. 3 month, 6, month, 1 year and 5 year proformas are common. Reasonable projections are used for both income and expenses. When reading proformas remember that they can be very inaccurate and should be scrutinized as such.


Replacement Reserves -

Money set aside for capital expenses. Many times a lender will require a replacement reserve upfront for certain improvements to be made and will be returned to investors when proof of improvements are shown. Most lenders also take a certain amount monthly for reserves and place this in an account to increase their margin of safety.

RUBS (Ratio Utility Billing System) -

It essentially divides a utility bill among the tenants based on certain criteria. Different utility types can often influence the type of RUBS formula a property uses. This might be done when submeters are not at a property and the owner can, based on local laws implement the system.


S-Corp -

A type of corporation that meets specific Internal Revenue Code requirements. Sometimes used in place of an LLC. It gives a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership.

SDIRA (Self Directed Individual Retirement Account) -

A type of IRA retirement account used by individuals to invest in real estate. Learn more here.

Sophisticated Investor -

The SEC requires that these investors “have enough knowledge and experience in business matters to evaluate the risks and merits of an investment”.

Syndication -

When several investors get together to complete a real estate transaction. They all combine their skills, resources, and capital to purchase and manage a property they otherwise couldn't afford or have the know-how to run on their own. Learn more here.


Trading Per Door -

The price a property is going for on a per door/unit basis.

Turn -

Another word for cleaning up a unit prior to leasing it, not a full rehab. Many times a turn consists of cleaning the unit, paint, carpet cleaning, checking all life safety devices and making it look clean, neat and newer for perspective tenants.


Unit -

A single apartment, also known as a door.

Unit Mix -

The amount of each type of unit. This includes the number of bedrooms and bathrooms and can include different layouts. For instance (5) 1bed/1bath, (10) 2bed/1.5bath and (10) 2 bed/2bath units in a 25 unit building is the unit mix.


Vacancy Rate -

The amount of vacant / non leased units expressed as a percentage.

Value Add -

This is when there is potential to increase the value of the property because of certain management or operational problems and/or the property is in need of physical improvement. Learn more here.

Vintage -

The year the property was built.


Waterfall -

Is a legal term used in a PPM/operating agreement that describes how money from the investment is allocated - when it is paid, and to who it is paid in commercial real estate equity investments.

Whisper Price -

The price a broker expects the property to go for, expressed as a per door cost or total cost. You can ask a broker what the whisper price is when a property is on the market without a set asking price.


YOC (Year of Construction) -

The year a property is built, its vintage.


1031 Tax Deferred Exchange -

A section of the United States tax code that allows you to defer paying capital gains taxes when you sell an investment property. In order to comply you must reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value. Time limits include identifying 3 possible properties within 90 days and closing on at least one of the identified properties within 180 days of the sale of the original asset. This must be done through a qualified intermediary. Additional rules apply.