Investment Financing Glossary


Appreciation refers to the increase in the value of a property over time. Appreciation can be caused by a number of things including inflation, the increase in demand or a decrease in the supply of properties. Appreciation can also take into account added value as a result of property improvements (such as upgrading a kitchen, adding a room or a pool, etc.).

Appreciation is usually projected as a percentage of the property’s value over the course of a year.

Appreciation is usually projected as a percentage of the property’s value over the course of a year.

Break-Even Ratio (BER)

BER is a ratio some lenders calculate to gauge the proportion between the money going out to the money coming so they can estimate how vulnerable a property is to defaulting on its debt if rental income declines. BER reveals the percent of income consumed by the estimated expenses.

  • (Operating Expense + Debt Service)
  • ÷ Gross Operating Income
  • = Break-Even Ratio

BER results:

  • Less than 100% – expenses consuming less than available income
  • Greater than 100% – expenses consuming more than available income

Bridge Loan

A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short term, up to one year, with relatively high-interest rates and are usually backed by some form of collateral such as real estate or inventory.

Cap Rate

This popular return expresses the ratio between a rental property’s value and its net operating income. The cap rate formula commonly serves two useful real estate investing purposes: To calculate a property’s cap rate, or by transposing the formula, to calculate a property’s reasonable estimate of value.

  • Net Operating Income
  • ÷ Market Value
  • = Cap Rate


  • Net Operating Income
  • ÷ Cap rate
  • = Market Value

Cash on Cash Return (CoC)

CoC is the ratio between a property’s cash flow in a given year and the amount of initial capital investment required to make the acquisition (e.g., mortgage down payment and closing costs). Most investors usually look at cash-on-cash as it relates to cash flow before taxes during the first year of ownership.

  • Cash Flow Before Taxes
  • ÷ Initial Capital Investment
  • = Cash on Cash Return

Cash Flow Before Tax (CFBT)

CFBT is the number of dollars a property generates in a given year after all expenses but in turn still subject to the real estate investor’s income tax liability.

  • Net Operating Income
  • less Debt Service
  • less Capital Expenditures
  • = Cash Flow Before Tax

Cash Flow Property

A cash flow property is an investment property that generates a surplus of money each month after all expenses have been paid. Cash flow properties are highly sought after by investors.

Cash on Cash Return

Cash on cash return refers the annual cash return of a property divided by the amount of cash invested. When a property is purchased outright (no leverage), this is also referred to as the property’s cap rate.
When a property is purchased using leverage, this number differs from the property’s overall return, as it does not include the equity gained by the principal portion of the mortgage payment.

Debt Coverage Ratio (DCR)

DCR is a ratio that expresses the number of times annual net operating income exceeds debt service (i.e., total loan payment, including both principal and interest).

Net Operating Income
÷ Debt Service
= Debt Coverage Ratio
DCR results:

Less than 1.0 – not enough NOI to cover the debt
Exactly 1.0 – just enough NOI to cover the debt
Greater than 1.0 – more than enough NOI to cover the debt

Gross Operating Income (GOI)

GOI is gross scheduled income less vacancy and credit loss plus income derived from other sources such as coin-operated laundry facilities. Consider GOI as the amount of rental income the real estate investor actually collects to service the rental property.

  • Gross Scheduled Income
  • less Vacancy and Credit Loss
  • plus Other Income
  • = Gross Operating Income

Gross Rent Multiplier (GRM)

GRM is a simple method used by analysts to determine a rental income property’s market value based upon its gross scheduled income. You would first calculate the GRM using the market value at which other properties sold, and then apply that GRM to determine the market value for your own property.

  • Market Value
  • ÷ Gross Scheduled Income
  • = Gross Rent Multiplier


  • Gross Scheduled Income
  • x Gross Rent Multiplier
  • = Market Value

Gross Scheduled Income (GSI)

GSI is the annual rental income a property would generate if 100% of all space were rented and all rents collected. If vacant units do exist at the time of your real estate analysis then include them at their reasonable market rent.

Rental Income (actual)
plus Vacant Units (at market rent)
= Gross Scheduled Income

Leverage Return

A leveraged return is the return calculated on an investment that takes advantage of a mortgage. It is calculated by subtracting the expenses incurred by the property (including the interest payment on the mortgage) from the income produced by the property and dividing that by the initial investment amount.
Calculation: Income – expenses (including interest payment) / initial investment amount

This differs from the cash on cash return because it includes the principal pay down as part of the return.

While slightly riskier, using leverage is advantageous to investors as it provides higher returns, enables them to diversify across multiple properties. For example, an investor can purchase one property for $100,000. The same investor can get four properties of $100,000 each, by putting down $25,000 on each property.

Loan to Value (LTV)

LTV measures what percentage of a property’s appraised value or selling price (whichever is less) is attributable to financing. A higher LTV benefits real estate investors with greater leverage, whereas lenders regard a higher LTV as a greater financial risk.

  • Loan Amount
  • ÷ Lesser of Appraised Value or Selling Price
  • = Loan to Value

Net Operating Income (NOI)

NOI is a property’s income after being reduced by vacancy and credit loss and all operating expenses. NOI is one of the most important calculations to any real estate investment because it represents the income stream that subsequently determines the property’s market value – that is, the price a real estate investor is willing to pay for that income stream.

  • Gross Operating Income
  • less Operating Expenses
  • = Net Operating Income

Operating Expenses

Operating expenses include those costs associated with keeping a property operational and in service. These include property taxes, insurance, utilities, and routine maintenance. They do not include payments made for mortgages, capital expenditures or income taxes.

Operating Expenses Ratio (OER)

OER expresses the ratio (as a percentage) between a real estate investment’s total operating expenses dollar amount to its gross operating income dollar amount.

  • Operating Expenses
  • ÷ Gross Operating Income
  • = Operating Expense Ratio

Single Family Rentals (SFRs)

A single family rental, or SFR is a free-standing residential property designed to house one family that was purchased by an investor and rented to a tenant. SFRs are defined in opposition to a multi-family property, though properties up to a fourplex are sometimes classified as SFRs as well. Properties with more than four units are defined as multi-family properties. Single family properties generally appeal to families, so from an investment perspective, can be seen as more stable. Families tend to want to stay in one place for longer, especially when they have children. HomeUnion offers fully managed SFRs investments across a wide variety of markets in the US.

Single family properties generally appeal to families, so from an investment perspective, can be seen as more stable. Families tend to want to stay in one place for longer, especially when they have children. HomeUnion offers fully managed SFRs investments across a wide variety of markets in the US.

Turn Key Property (TKP)

A turnkey property, or TKP is a property that has been purchased, rehabbed and rented to a tenant and is now for sale to another investor. Turnkey properties usually cash flow from the moment the investor purchases it since the property is already rented.

Vacancy Provision

The money that investors set aside to prepare for future vacancy is called a vacancy provision. It is a percentage of the monthly rent. The average vacancy provision is 6% for vacancy and 6% for maintenance.

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