If you’re reading this, you’re probably new to the real estate world – or maybe you just want to expand on what you already know! As in any new endeavor, it’s a good idea to educate yourself on common terminology used in the industry. Learn the real estate lingo and acronyms, so you can talk the talk.
Below is a snippet of some of the commonly used terms and acronyms for both traditional and various investment avenues in real estate. You may find us referring to these periodically on this blog and encourage you to take advantage of this freebie downloadable PDF with a more extensive list of close to 100 terms to know!
Our suggestion if you are new to real estate investing (REI): print it out and tape it to your mirror so you can read through the list each morning. Before you know it, you’ll be talking like a real estate pro.
Real Estate Lingo and Acronyms 101
A temporary agreement or partnership made for the purpose of acquiring and managing a large apartment transaction, from purchase to sale. This arrangement is usually between general partners (active investors) and limited partners (passive investors). Both parties share in risks and returns as well as profit at the sale. Modified definition from Joe Fairless’s book on Apartment Syndications.
The increase in value of a property or asset over a period of time. Distressed properties have a depressed value, but this can be changed by value-add improvements, which bring a property up to market standards.
ARV = After Repair Value
The assumed value of a house after all repairs are made to bring it up to market standards.
A strategy used in real estate to recycle money through real estate. The acronym stands for Buy, Renovate/Rehab, Rent, Refinance, and Repeat. One must be sure to account for refinancing costs during initial underwriting.
Capital Expenditures (CapEx)
The cost of goods or services used to upgrade or repair a property which are an expense of the income of the property.
Capitalization rate is calculated by dividing a property’s net operating income (NOI) by current market value.
Cap Rate = NOI / Current Market Value
The revenue left over after all expenses for the property, which include:
- Operating Expenses (taxes, repairs, vacancies, insurance, HOA fees)
- Debt Services (mortgage payment)
- Asset Management Fee (for syndication investments)
Cash-on-cash Return (CoC return)
A percentage rate of return, based on cash flow and equity investment. To calculate CoC, divide cashflow by initial equity investment. For example. If the cash flow of an apartment complex is $146,457 and the initial equity investment was $1,673,980, the property provides a 8.7% CoC return.
The decrease in value of a property over time due to damage, wear, or age.
Net Operating Income (NOI)
Calculated by subtracting the property’s operating expenses from its revenue.
RR (Real Estate Revenue) – OE (Operating Expenses) = NOI
Don’t forget, to access the complete list of real estate terminology, download this freebie
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For those of you who don’t have time to learn all this stuff, but the idea of getting into investing sounds good, hop on over to our “Partner with Us” page to find out what that might look like. It’s probably going to be a better ROI than your savings account is getting you!
Until next time…
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