Real Estate Investing Terms Glossary

Market Context

Deal Analysis Terms

• ARV (After-Repair Value): What the property will be worth after renovation, based on comparable sales. The foundation of every flip and BRRRR analysis.
• MAO (Max Allowable Offer): The most you can pay and still profit: ARV times 0.70 minus rehab estimate. Going above this number compresses or eliminates margin.
• Rehab estimate: Total cost to renovate the property to sellable or rentable condition. Must be verified by a contractor before going under contract.
• Assignment fee: The profit a wholesaler collects by assigning a purchase contract to an end buyer. Buyer MAO minus wholesaler contract price.
• Holding costs: Monthly cost of owning a property while not generating income — interest, insurance, utilities, and taxes during a flip or vacancy period.

Rental and Cash Flow Terms

• NOI (Net Operating Income): Gross rent minus operating expenses, excluding debt service. The foundation of commercial and rental property valuation.
• Cap rate: NOI divided by purchase price. A market-standard measure of investment yield. Higher cap rate equals higher yield and typically higher risk.
• Cash-on-cash return (CoC): Annual cash flow divided by total cash invested. Measures actual return on your out-of-pocket capital.
• DSCR (Debt Service Coverage Ratio): Monthly rent divided by PITI. Lenders require 1.20–1.25x to qualify for DSCR loans.
• GRM (Gross Rent Multiplier): Purchase price divided by annual gross rent. A quick filter — lower is better. Most investors target below 10.

Financing Terms

• LTV (Loan-to-Value): Loan amount divided by property value. Hard money typically lends at 65–75% LTV on ARV.
• Points: Upfront loan fees equal to 1% of the loan amount each. Hard money lenders typically charge 2–3 points.
• Seasoning: How long a lender requires you to own a property before allowing a cash-out refinance based on appraised value rather than purchase price.
• Draw schedule: The process by which a hard money lender releases rehab funds in stages as work is completed and inspected.

Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.