1% rule
A screening shortcut: monthly rent should equal at least 1% of the purchase price plus rehab. A $150,000 all-in property would need roughly $1,500 in monthly rent to pass. Investors use it as a fast first-glance filter to reject obvious losers, not as a buy signal — it ignores taxes, insurance, and financing, so it breaks down in high-cost markets.
50% rule
A rule of thumb estimating that operating expenses — taxes, insurance, maintenance, vacancy, management, and capex — consume roughly 50% of gross rent over time, excluding the mortgage. On $1,400 rent, expect about $700 toward expenses before debt service. Investors use it to sanity-check pro formas that assume unrealistically low costs, though the actual ratio varies widely by property age and location.
70% rule
A flip and BRRRR guideline: pay no more than 70% of the after-repair value minus estimated rehab. On a $200,000 ARV with $30,000 in repairs, the maximum offer is about $110,000. The 30% spread is meant to absorb closing costs, holding costs, and profit. Investors treat it as a starting ceiling, then tighten it in slower or thinner-margin markets.
1031 exchange
A tax-deferred exchange that lets an investor sell one investment property and roll the full proceeds into another like-kind property without recognizing capital gain that year. Strict clocks apply — 45 days to identify replacements, 180 days to close — and a qualified intermediary must hold the money in between. It defers tax rather than erasing it, and state treatment varies, so consult a tax professional.
Absentee owner
A property owner whose mailing address on the tax roll differs from the property address — an out-of-state landlord, an heir, or someone who moved and kept the house. Absentee owners are a staple of off-market lead lists because distance weakens attachment and makes deferred maintenance, vacancy, and tenant trouble more likely to end in a sale. Absentee status is a signal, not motivation on its own.
Appraisal contingency
A clause that lets a buyer cancel or renegotiate if the lender’s appraisal lands below the contract price. It keeps the buyer from having to cover the gap in cash and is standard in financed residential deals. Cash and hard-money buyers often waive it to win, and BRRRR investors care far more about the refinance appraisal than the purchase one. Contract terms vary by state — have counsel review yours.
ARV (after repair value)
The estimated market value of a property once renovations are complete, based on comparable recently sold homes. If similar updated houses nearby sell for $220,000, that is your ARV. It anchors nearly every flip and BRRRR calculation — the 70% rule, maximum offer, and refinance loan amount all key off ARV, so an inflated estimate quietly destroys the entire deal.
Assignment of contract
Selling your position in a purchase contract to another buyer instead of closing on the property yourself. The contract transfers for an assignment fee and the end buyer closes directly with the seller. It is the core mechanic of wholesaling. Disclosure duties, licensing requirements, and whether assignments are restricted at all vary by state — several now regulate the practice, so consult an attorney first.
Break-even occupancy
The occupancy level at which rent exactly covers operating expenses plus debt service — the line between cash flow and a cash call. A fourplex that breaks even at 74% occupancy can lose a unit and survive; one that breaks even at 95% cannot. Lenders watch it on multifamily deals, and investors use it as a plain-language stress test on any rental carrying debt.
BRRRR
Buy, Rehab, Rent, Refinance, Repeat — a strategy for recycling one pool of capital across multiple rentals. You buy undervalued, renovate to force appreciation, rent it, then refinance to pull your original cash back out and roll it into the next deal. Done well, investors build a portfolio with little long-term money left in each property, though tight appraisals and rising rates can trap capital.
Capex (capital expenditures)
Money spent on big-ticket components that outlast a year — roof, HVAC, water heater, windows, siding, flooring, kitchens — as opposed to routine repairs. Capex does not show up every month, which is exactly why it wrecks projections: a rental can look profitable for three years and then hand you a $9,000 roof. Investors reserve for it monthly so the bill is funded before it arrives.
Cap rate
Capitalization rate — net operating income divided by purchase price, shown as a percent. A property with $12,000 NOI bought for $150,000 has an 8% cap rate. It measures unleveraged return and lets investors compare deals across markets on equal footing. Higher cap rates usually signal cheaper prices or higher risk; lower ones reflect appreciation-heavy metros where buyers accept thinner current income.
Cash-on-cash return
Annual pre-tax cash flow divided by the total cash you actually invested — down payment, closing costs, and rehab. If a deal throws off $3,600 a year on $40,000 invested, that is a 9% cash-on-cash return. Unlike cap rate, it accounts for financing, so it reflects what leverage does to your real return. It is the number most buy-and-hold investors optimize for.
Cash-out refinance
Replacing an existing mortgage with a larger new loan and taking the difference in cash, tapping built-up equity without selling. On a home worth $200,000 with a $100,000 balance, a 75% loan-to-value cash-out could free roughly $50,000. It is the Refinance step in BRRRR and a core way investors redeploy equity, but it raises the payment and usually requires a seasoning period first.
Code violation
A recorded citation from a city or county for a property that breaks building, zoning, health, or nuisance rules — overgrown lots, open structures, unpermitted work, failed inspections. Violations carry deadlines and escalating fines, and unresolved ones can become liens. For investors an active violation list is both a motivated-seller signal and a repair scope you inherit. Enforcement and lien rules vary widely by jurisdiction.
Debt yield
Net operating income divided by the loan amount — a lender’s view of its return if it had to take the property back tomorrow. Unlike DSCR, debt yield ignores the interest rate and the amortization schedule, so cheap money and a long term cannot flatter it. Commercial and portfolio lenders often want roughly 9–10% or better, though thresholds move with rates and asset class.
Depreciation
An annual paper deduction that writes off the cost of a rental building — never the land — over a fixed recovery period, currently 27.5 years for residential and 39 for most commercial property. It lowers taxable income without any cash leaving your pocket, which is how a rental can show positive cash flow and a tax loss in the same year. Tax rules change and state conformity varies; consult a tax professional.
Depreciation recapture
When you sell, the depreciation you claimed — or were entitled to claim — gets taxed back. For residential rentals, straight-line depreciation is generally recaptured as unrecaptured Section 1250 gain, taxed federally at a rate up to 25% rather than at the lower long-term capital gains rates. It applies whether or not you actually took the deduction. Rates and state treatment vary, so consult a tax professional.
Double close
Two back-to-back closings on the same property, usually the same day: you buy from the seller, then immediately sell to your end buyer. Wholesalers use it when they would rather not disclose their spread or when the contract cannot be assigned. It costs two sets of closing fees and requires transactional funding or your own cash. Whether it is permitted and how it must be disclosed varies by state — involve an attorney early.
Driving for dollars
Physically driving target neighborhoods to spot properties that look neglected — boarded windows, tarped roofs, piled-up mail, dead lawns, notices taped to the door — then researching ownership and reaching out. It is the oldest off-market method and still works, because a camera in a car sees condition that no data feed captures reliably. The cost is time; the payoff is leads nobody else is competing for.
DSCR (debt service coverage ratio)
A property's rental income divided by its full mortgage payment including taxes, insurance, and HOA. A 1.25 DSCR means rent covers 125% of the payment. It is the metric DSCR lenders actually underwrite: qualification is based on the property's numbers, not your W-2 or tax returns. Most lenders want at least 1.20, though some fund lower at a rate premium.
DTI (debt-to-income)
Your total monthly debt payments divided by gross monthly income — the core qualifier for conventional loans. A borrower paying $3,000 in debts on $8,000 income has a 37.5% DTI. Most conforming lenders cap it near 43–50%. Investors scaling past a few properties often hit this ceiling, which is why many pivot to DSCR loans that ignore personal DTI entirely.
Earnest money
The good-faith deposit a buyer puts up when a contract is signed, held by a neutral third party and credited toward the purchase at closing. It commonly runs about 1–3% of price, though investors sometimes offer far less on off-market deals and far more to win competitive ones. Whether it is refundable depends entirely on the contingencies and deadlines written into your contract, which vary by state.
Escrow
A neutral third party holding money or documents until both sides satisfy the conditions of a deal. In a purchase, an escrow or title agent holds the earnest money and disburses everything at closing. In a mortgage, an escrow account collects monthly amounts for property taxes and insurance and pays those bills when due. Who runs closings — title companies, escrow companies, or attorneys — varies by state.
FMR (fair market rent)
HUD's annual estimate of the rent for a modest unit in a metro area, typically set at the 40th percentile of local rents. It is the baseline for Section 8 Housing Choice Voucher subsidies, so it caps what a housing authority will pay by bedroom count. Investors targeting voucher tenants use FMR to gauge the reliable, government-backed rent a property can command.
GRM (gross rent multiplier)
Purchase price divided by gross annual rent — a one-line screen for how expensive a property is relative to the income it produces. A $180,000 house renting for $1,500 a month has a GRM of 10, and lower is cheaper. Because it ignores taxes, insurance, vacancy, and financing entirely, GRM is a sorting tool for long lists rather than a decision metric, best used to compare similar properties inside one market.
HAP contract
Housing Assistance Payments contract — the agreement between a landlord and the local housing authority that governs subsidy payments under Section 8. It commits the authority to deposit its share of rent each month, sets the tenant's portion, and binds the owner to program rules. For investors, it means part of the rent arrives reliably from the government rather than depending solely on the tenant.
Hard money
Short-term, asset-based financing from private lenders, secured by the property rather than your credit or income. Rates typically run 9–13% with 1–3 points, often interest-only for 6–18 months. Because it funds fast and can cover rehab, investors use hard money to buy and renovate distressed properties, then refinance into a cheaper long-term loan once the work is done and value is forced up.
HELOC (home equity line of credit)
A revolving credit line secured by the equity in a property you already own, drawn and repaid like a credit card. On a home with $150,000 in equity, a lender might extend a $120,000 line. Investors tap HELOCs to fund down payments, all-cash offers, or rehab, then repay as deals cash out — flexible leverage, though the rate usually floats.
HQS / NSPIRE inspection
The physical inspection a unit must pass before a housing authority will pay Section 8 subsidy. Housing Quality Standards (HQS) is the legacy checklist covering safety, utilities, and habitability; NSPIRE is HUD’s newer standard now replacing it, weighting resident health and safety more heavily. Investors renting to voucher tenants must pass this inspection initially and periodically, so budgeting for repairs keeps subsidy payments flowing.
LTV (loan-to-value)
The loan amount divided by the property's value or price. A $160,000 loan on a $200,000 home is 80% LTV. Lenders use it to gauge risk: lower LTV means more borrower equity and usually better rates. DSCR purchase loans typically cap around 75–80% LTV, while cash-out refinances are tighter, often 70–75%, limiting how much equity you can pull.
MAO (maximum allowable offer)
The highest price you can pay and still hit your target profit, most often derived from the 70% rule: ARV times 0.70 minus rehab. On a $200,000 ARV needing $30,000 in work, the MAO is about $110,000. Investors calculate it before negotiating so they have a hard walk-away number and never let a bidding war erase their margin.
NOI (net operating income)
Annual rental income minus all operating expenses, but before mortgage payments and income taxes. Rent of $18,000 with $6,000 in taxes, insurance, and upkeep yields $12,000 NOI. It isolates a property’s income-producing performance from how it is financed, which is why cap rate and commercial loan sizing both build on it. A higher NOI directly raises value in cap-rate pricing.
Operating expense ratio
Operating expenses divided by gross operating income, shown as a percent. It answers how much of every rent dollar is consumed before the mortgage. Single-family rentals commonly land somewhere around 35–45%, while older buildings, high-tax states, and small multifamily with owner-paid utilities run higher. Because it excludes debt service, it separates how well a property is run from how it was financed.
Passive activity loss
Rental losses are generally passive, and passive losses can usually only offset passive income. If your rentals throw off a $12,000 tax loss and you have no passive income, the loss is typically suspended and carried forward rather than deducted against wages. A limited special allowance exists for active participants under certain income thresholds, and it phases out. The rules are intricate — consult a tax professional.
Payment standard
The monthly subsidy cap a local housing authority sets for the Section 8 voucher program, usually between 90% and 110% of fair market rent by bedroom size. It determines the maximum the authority will count toward rent; anything above it the tenant pays. Investors check the payment standard, not just FMR, because it is the actual ceiling that decides the rent a voucher can support.
PITIA
Principal, Interest, Taxes, Insurance, and Association dues — the full monthly cost of owning a financed property. It is the complete payment lenders use as the denominator in DSCR, so leaving out taxes or HOA quietly overstates a deal. Investors underwrite to PITIA rather than just principal and interest to avoid buying a 'cash-flowing' rental that actually loses money each month.
Pre-foreclosure
The window after a borrower defaults and a public notice is filed but before the property sells at auction. The owner still holds title and can sell, reinstate, or negotiate. For investors it is the highest-intent lead type in public records and also the most crowded, because everyone receives the same notice. Timelines and reinstatement rights vary enormously — judicial states can run a year or more, non-judicial states a few months.
Price-to-rent ratio
Median home price divided by median annual rent for an area — a market-level gauge of whether buying is expensive relative to renting. Low ratios, roughly under 15, point to cash-flow markets; high ratios, over 20, usually mean appreciation-led markets where rents cannot support prices. Investors use it to decide where to look before underwriting a single property. It is a screening lens for markets, not a verdict on any one house.
Probate sale
A sale of real estate from the estate of someone who has died, handled by an executor or personal representative, often under court supervision. Heirs frequently live elsewhere, do not want the property, and value speed and simplicity over the last few thousand dollars. Procedures — whether court confirmation is required, how notice works, how long it takes — vary substantially by state, so work with a probate attorney.
Pro forma
A projected income and expense statement for a property — what it should do, not what it has done. Every listing packet has one and most are optimistic: market rents on tenants paying under market, no capex line, vacancy at 3%, management at zero because the owner does it. Investors rebuild it from their own assumptions before making an offer. The seller’s version is a marketing document; yours is an underwriting document.
Real estate professional status
A federal tax classification that, when genuinely met, can let rental losses offset ordinary income instead of being suspended as passive. It generally requires more than 750 hours in real property trades or businesses and more than half of all your personal services in those activities, plus material participation in the rentals themselves. It is heavily scrutinized and demands contemporaneous records — consult a tax professional.
Rent reasonableness
A Section 8 requirement that a voucher unit's rent be comparable to similar unassisted rentals nearby — the housing authority will not approve rent above what the open market bears, even when it sits under fair market rent. It stops landlords from overcharging simply because the government is paying. Investors should pull local comps before setting a voucher rent, since an unreasonable ask gets rejected.
Rent roll
A unit-by-unit schedule of who rents what, for how much, on what lease term, with deposits and move-in dates. It is the most useful document in a multifamily package because it shows the gap between what the property collects today and what the market would pay. Ask for it early, then verify it against leases and bank deposits. A projection is an argument; a rent roll is evidence.
REO (real estate owned)
Property a lender took back because it did not sell at the foreclosure auction, now held on the institution’s books and usually listed with an agent. REO generally comes with clean title and vacant possession, but it is sold as-is, often with addenda that shift risk to the buyer, and the seller moves on committee time rather than deal time.
SAFMR (small area fair market rent)
Fair market rent calculated by ZIP code instead of across an entire metro. It raises subsidy caps in higher-rent neighborhoods and lowers them in cheaper ones, better matching real local rents. In SAFMR areas, investors can often command higher voucher rents in stronger ZIPs than a metro-wide FMR would allow, making location analysis sharper for Section 8 strategy.
Seasoning
The minimum time you must own a property — or hold a mortgage — before a lender will let you refinance at its new appraised value or pull cash out. Cash-out seasoning commonly runs 6 to 12 months. It matters most in BRRRR: buy too well and you may still have to wait before the refinance frees your capital, so investors plan holding costs around the seasoning window.
Seller financing
An arrangement where the property seller acts as the bank, letting the buyer make payments directly to them instead of getting a traditional mortgage. Terms — rate, down payment, length — are negotiated between the two parties. Investors use it to buy with less cash, weaker credit, or faster closings, and sellers use it to spread out taxes and earn interest, especially on free-and-clear properties.
Short sale
A sale where the lender agrees to accept less than the loan balance because the property is worth less than what is owed. The seller signs a contract, but the lender controls the outcome and can take months to answer. Junior lienholders, mortgage insurers, and loan investors may all get a say. Deficiency rules — whether the borrower still owes the shortfall afterward — vary by state.
Skip tracing
Finding current contact information for a property owner when the tax roll gives you only a name and a mailing address. Skip tracing matches public and commercial records to return phone numbers, emails, and relatives. It is how a driving-for-dollars list or an absentee-owner list becomes a callable list. Contact and consent rules vary by state and by channel — confirm what applies before you dial or text.
Subject-to
Buying a property 'subject to' the existing mortgage — you take ownership and make the payments, but the original loan stays in the seller's name. No new financing is originated, so you inherit the seller's rate, which is powerful when their loan sits far below current rates. Investors use it to acquire with little cash, but must weigh the lender's due-on-sale clause risk.
Tax deed
In tax-deed states, the county sells the property itself when taxes go unpaid long enough, and the winning bidder receives a deed rather than a lien. Sales are typically as-is, frequently sight-unseen, and final, sometimes with a statutory redemption period afterward. Title often needs a quiet-title action before it is insurable or resellable. Procedures vary dramatically by state and county — consult a local attorney.
Tax lien
In tax-lien states, the county sells the delinquent tax debt rather than the property. The investor pays the taxes and holds a lien that earns statutory interest until the owner redeems; if nobody redeems within the statutory period, the holder may be able to begin a process leading to the deed. Interest rates, bidding formats, and redemption periods vary by state — consult a local attorney.
Title insurance
A one-time-premium policy protecting against defects in a property’s ownership history — forged deeds, missed heirs, unpaid liens, recording errors. An owner’s policy covers you; a lender’s policy covers only the lender. Unlike most insurance it looks backward at what already happened rather than forward at future risk. Premiums, who customarily pays, and available endorsements vary by state — ask your closing agent.
Turnkey rental
A property sold already renovated, tenanted, and often paired with management — built for an investor who wants income without doing the work. The trade is simple: you pay retail or near it and give up the forced equity a BRRRR would create. Quality ranges from genuinely professional operations to lipstick rehabs sold at inflated prices to out-of-state buyers. Underwrite the seller as carefully as the property.
Umbrella policy
Liability coverage that sits above your landlord and personal policies and pays after those limits are exhausted, usually sold in million-dollar increments. Investors use it as comparatively inexpensive protection against the tail risk of a serious injury claim at a rental. It does not replace an entity or proper landlord coverage; it stacks on top. Availability, pricing, and exclusions vary by state and carrier — consult a licensed insurance professional.
Vacancy rate
The share of potential rental income lost to empty units over a period. On a single-family rental, one 45-day turnover is roughly a 12% vacancy year. Investors budget a vacancy allowance — often 5–8% in stable markets and more in soft ones or where turnover runs high — because a projection at zero vacancy is not a projection, it is a wish.
Wholesaling
Putting a property under contract below market and transferring that contract to an end buyer for a fee, without ever owning it. The wholesaler’s product is a deal rather than a house: the value is in finding the seller and pricing the property correctly. Several states now regulate or restrict the practice, and some require licensure for certain activity — consult an attorney before you start.
Wraparound mortgage
A form of seller financing where the seller keeps their existing loan and extends the buyer a new, larger loan that 'wraps around' it. The buyer pays the seller, who keeps paying the underlying mortgage and pockets the spread. Investors use wraps to buy or sell with flexible terms and built-in cash flow, though the underlying loan's due-on-sale clause adds risk if the lender calls it.