If you want to dominate in multifamily commercial real estate, you need to speak the language. So, I gathered the most important terms you’ll come across and put them all in one place for you… 

Today, I’m going to share one of the most comprehensive resources you’ll ever get for understanding multifamily real estate investment opportunities.

But before I do that, let me take you back in time so you understand how much of a game-changer a list like this can be…


Over 30 years ago, when I started out in the industry, I had to learn the ropes through trial and error. No one was there to point me in the right direction. And I certainly didn’t have a dictionary, glossary, or anything similar to help me understand all these new terms.

Fast-forward three decades and dozens of deals later, and now I can share all the knowledge I gained with you.

If you’ve ever asked yourself:

  • What’s the difference between Gross Scheduled Income (GSI) and Gross Operating Income (GOI)?
  • How is Debt Coverage Ratio (DCR) calculated?
  • Why are some multi-family buildings considered “residential” and others “commercial”?
  • Where does a 1031 Exchange get its name from?
  • What makes an investor accredited or non-accredited?

… Then this is the ultimate guide for you.

I hope you find these multifamily real estate definitions as useful as I did while putting the collection together. 

In fact, I’d consider printing this guide and keeping it close to you so you’re never at a loss when talking real estate investment strategy.

Here they are…

ALL the Terms You Need in Multifamily Commercial Real Estate, in Alphabetical Order



This is a metric representing the rate of new units that are successfully leased throughout a specific timeframe.

To calculate absorption rate, divide the actual number of units leased by the total number of units available over the targeted period. 

If the result is over 20%, it generally means it’s a hot market for selling. In contrast, rates below 15% point to a buyer’s market. 


The U.S. Securities and Exchange Commission (SEC) identifies the following financial criteria for qualifying as an individual accredited investor:

  • Amassing more than $1 million in net worth, which does not include a primary residence
  • Generating annual income of more than $200,000 individually or $300,000 alongside a spouse or partner. This yearly income requirement must be met for each of the previous two years prior to accreditation. Additionally, the individual should expect — to the best of their abilities — the same income for the current year.

Professionally, an accredited investor must check off one of these boxes:

  • Series 7 general securities representative license holder
  • Series 65 investment adviser representative license holder
  • Series 82 private securities offerings representative license holder
  • General partner (GP), executive officer, or director of the organization selling the securities
  • “Knowledgeable employees” of a private fund
  • “Family client” of a “family office” who meets the criteria for accredited investments


In a condominium building, which is a structure containing five or more units, each rental unit is regarded as an apartment.

In my experience, the key to succeeding in multifamily commercial real estate is a high quantity of apartments. 

The bigger the number of units, the greater the cash flow. 


In the real estate industry, appreciation refers to growth in value of a property over a period of time. 

Factors that can influence appreciation include:

  • Inflation
  • Supply and demand
  • Location
  • Market changes
  • Migration

Apartments, for example, are hard assets that have proven to appreciate over time. 

As rents rise across the country, so does the appreciation associated with multifamily commercial real estate. 



In the world of investing, basis points are an interest rate change metric for notes and bonds.

One basis point translates to one hundredth of one percent and can be visualized in multiple ways:

  • 0.01%
  • 0.0001
  • 0.01/100
  • 1/100th of 1%



The budget dedicated to upgrading physical assets to improve value and longevity is known as capital expenditure. 

If certain expenses aren’t typical or recurring for operations, they fall under this category. Some examples of CapEx include:

  • Upgrading the building’s gym
  • Installing a new complex-wide system
  • Adding a new parking lot 

While repairs are expensed within the same year, capital expenditures depreciate over time for the assets involved.


The expected return on a property if paid cash with no debt is the capitalization rate — also known as cap rate. 

For instance, let’s say you pay $1,000,000 cash for a property at a 6.5% cap rate. As an investor, it would pay you $65,000/year (6.5%) for your investment before increasing rents or improving operations by reducing expenses. 

The formula to calculate cap rate is net operating income (NOI) divided by the price paid.


The capital stack is the total amount of resources used to finance a property investment. 

In this context, the resources involved are equity and debt, specifically:

  • Senior debt
  • Mezzanine debt
  • Preferred equity
  • Common equity

For multifamily commercial real estate investors, capital stack serves as a powerful tool for risk assessment. 


Also known as cash flow, cash on cash (COC) is the subtraction of total expenses from the total income of an investment. 

Essentially, after all debts and operations are taken care of, COC is the free-flowing cash that can be distributed to investors. 

For me, cash flow is the #1 calculation when evaluating a deal. 

This figure has helped me dominate in any market conditions — even when the economy was at its worst. The cash flow of apartments helps protect against the devaluation of cash. 

For a deal to be worthwhile, it has to generate positive cash flow every month. 



In multifamily real estate, the commercial broker helps clients sell, buy, rent, or lease properties.

If there’s anything I recommend from experience, it’s to always use a commercial broker on every deal. 

A broker creates a buffer between you and the seller. This person helps you secure the deal. When all is said and done, the broker is your friend in this game. And it’s well worth the commission they get paid.


A concession can be a discount, benefit, or other financial incentive offered by a property owner to promote a lease.

Common examples of concessions include:

  • Preferential rent
  • Relocation allowance
  • Waiving fees for storage, parking, laundry, etc.


According to the U.S. Bureau of Labor Statistics, Consumer Price Index (CPI) is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

In the context of multifamily commercial real estate, CPI can influence the increase or decrease of rents in some cases. 


A frequently offered bond type in America, Commercial Mortgage-Backed Securities (CMBS) are backed by multifamily and commercial mortgages.


A core investment refers to high-end real estate asset that is located in an accessible and desirable submarket. 

Qualities of a core investment include:

  • Highest rents in the submarket
  • Little short-term investment
  • Lowest risks
  • Stable returns on investment



In real estate, the Debt Coverage Ratio (DCR) will help you understand both the profitability of a deal and your odds of obtaining loans. The figure should be just as important to you as it is to the bank. 

The formula for DCR is this: divide Net Operating Income (NOI) by annual debt obligations.

Depending on the borrower and property class, DCR is usually around 1.10 to 1.25. 


The opposite of appreciation is depreciation. As such, depreciation refers to the decline in value of an asset over a period of time.

For example, while apartments appreciate, cash depreciates. 

But in real estate specifically, there’s another way you can look at depreciation. Here, it can also refer to the cost deduction of purchasing and upgrading a rental property.

When it comes to depreciating a property, it’s very important to study the Internal Revenue Service (IRS) materials on the topic. And, of course, to consult a tax professional.


A down payment is the amount used to fund the acquisition, less the debt.

In simple terms, it’s the initial payment you make when you purchase a property using credit.



To understand the importance of effective gross income, I recommend looking at it alongside gross rental income. 

First, gross rental income is the total possible income if each unit is rented out at the full price. Usually, the broker is the one who is interested in this number and uses it. 

On the other hand, effective gross income is the amount of rental income that is actually collected.


Commercial real estate investors use the equity multiple metric to determine return on investment (ROI). 

To calculate equity multiple, divide total cash distributions by total capital invested. 

In addition to identifying ROI, equity multiples can help you weigh your options when looking at a couple of deals at a time.


An Expense Ratio (ER) — also referred to as Operating Expense Ratio (OER) — is a metric to find out how much operations cost as opposed to the income the property generates. 

The formula for calculating an expense ratio is Total Operating Expense divided by Gross Operating Income (GOI).

The result will be a percentage, ideally a low one.



The Gross Operating Income (GOI) shows how much a multifamily commercial real estate property makes prior to operating costs and expenses. 

Start with Gross Potential Income (GPI). This is the amount the property would produce at 100% occupancy, with all tenants paying rent on time and at full price.

Of course, GPI will almost never reflect the building’s actual standing. So, you have to make some estimations of losses, taking into account factors like market conditions, vacancies, and lack of rental payments. 

When you subtract these losses from your initial GPI, you will have a good picture of GOI.


The Gross Rent Multiplier (GRM) of a property is the purchase price divided by Gross Scheduled Income (GSI — defined below).

For real estate investors, GRM is a useful measurement to compare, assess, and decide whether or not a property is worth the investment. 


In multifamily real estate, Gross Scheduled Income (GSI) represents the maximum possible income generated by collecting rent over the course of a year.

The term is used interchangeably with GPI, also known as Gross Potential Income. Essentially, GSI/GPI shows the ideal (yet not realistic) amount an apartment complex would produce with a 0% vacancy rate and all rents paid. 



Encyclopedia Britannica defines inflation as “collective increases in the supply of money, in money incomes, or in prices.”

For investors in multifamily commercial real estate, inflation can provide opportunities for growth. 

In my case, apartments have protected me from inflation while appreciating as assets and generating positive cash flow.


In an investing context, interest refers to a set amount of money paid on a regular basis at a specific rate, whether for using borrowed money or being late on debt repayments.

Here, you’ll also come across the term P&I, which stands for Principal and Interest. P&I shows both the principal (main loan paydown) and the interest paid to the lender for that loan.

Additionally, Interest Only (IO) loans are also relevant, which removes the principal from the equation. If you succeed in obtaining IO, you will be able to increase your cash flow.


Another measurement for determining a multifamily asset’s profitability is the Internal Rate of Return (IRR.)

In general, IRR can help predict the yearly ROI for a multifamily property. 

The exact formula for determining IRR can get complicated. But Investopedia breaks it down as “taking the difference between the current or expected future value and the original beginning value, divided by the original value, and multiplied by 100.”



The LTV (Loan to Value Ratio) is the proportion of a mortgage loan to the property’s value that is used as security. 

LTV is usually conveyed as a percentage. This ratio has an impact on loan qualifications as well as interest rates. 


In multifamily commercial real estate, leverage is the advantage an investor gets when adding debt to the return calculation. As a benefit, leverage should improve return on investment. 

I like to look at leverage as the ultimate multiplier. To help you get a better picture of how powerful leverage is, here’s a real estate riddle I often use:

If you and I buy a $20 million property with $5 million down and it cash flows at 10% a year, what did the property cost us?

The answer? Nothing. The $5 million less the cash flow of the 10%/year for 10 years ($500,000/year) means our original investment is returned in 10 years. Now, we literally own the property with now cash. 

This is what leverage looks like in action.


Also known as a 1031 Exchange, a Like-Kind Exchange is — in a very general sense — when a property is exchanged for another with certain caveats attached. It is named after the U.S. Internal Revenue Code Section 1031, which has been around since 1921.

A 1031 Exchange comes with a strict set of rules imposed by the IRS. Only certain investment professionals, entities, and properties qualify. 


Financial liquidity represents how efficiently assets can be turned into cash. 

In contrast, illiquid assets are difficult to exchange into cash. 

For me, illiquidity is everything. When you invest in hard assets which cash flow, they appreciate in value to earn you more.



In multifamily real estate, loss to lease is the difference between a property’s market rate and the actual rent recorded in the contract.

For example, let’s say the market rate for an apartment rental is $3,000/month. If you lease it for only $2,700, the loss to lease will be $300 on a monthly basis. 

On the flip side, if the actual rent is higher than the market rate, then you’re dealing with a gain to lease. 



To access additional funds for projects, builders frequently utilize a type of loan known as mezzanine debt.

The term “mezzanine” comes from the connection the loan makes between equity financing and debt. 

In spite of high potential returns, mezzanine debt is widely regarded as one of the highest-risk kinds of debt out there. 


A hybrid form of development that combines commercial, residential, and industrial-office living in one site or group is considered “mixed-use”.


Mortgage debt service is the total amount of cash needed to pay off the principal mortgage’s obligations, interest payments, and any credit enhancement expenses.

In other words, the term is simply the full amount of annual debt you pay for a mortgage. 


Any residential apartment buildings that contain more than one unit qualify as multifamily housing, as opposed to single-family properties. 

Duplexes, townhomes, triplexes, apartment complexes, and condominiums are some of the most common examples of multifamily properties.


While multifamily real estate refers to any property with two or more units, “commercial” comes into play when there are at least five units. Anything below that number falls into the “residential” category.

There are pros and cons to investing in residential properties or commercial real estate. While it’s easier to get a residential multifamily deal, the higher number of doors in commercial properties generates more cash flow. 

To each their own, but I always go for the highest number of multifamily units I can get my hands on.



Another property value metric is the Net Income Multiplier (NIM). It helps you establish how high the property’s price is compared to the Net Operating Income (NOI — defined below) it generates.

The formula for calculating NIM is the purchase price divided by the NOI. Generally, the lower this number is, the better. 


NOI (Net Operating Income) is used to determine how profitable a property is by subtracting all operating costs, excluding debt service, depreciation, capital expenditures, and income taxes.

To calculate NOI for a deal, start by multiplying the current rent by the number of units. Then, multiply that number by 12 to get an annual figure. Finally, subtract 10% to compensate for vacancies.

The result from this three-step calculation is the NOI you have at hand. 




A property’s occupancy rate shows the percentage of occupied apartments.

Naturally, as an investor, you want the building to be packed. To increase occupancy rate, I recommend doing at least a few of the following:

  • Market consistently, with high-quality materials
  • Adjust rental rates when appropriate
  • Keep listings for unoccupied units up-to-date
  • Partner with property managers for professional assistance



In real estate, classes refer to different property types based on quality, location, and potential.

The most common multifamily property classes are:

  • Class A — newest, best-placed, and highest-quality real estate
  • Class B — older than Class A properties, but generally come with good appreciation and cash flow
  • Class C — typically the worst asset class as far as quality, but with substantial cash flow potential


Although fairly self-explanatory, property management expenses are the total costs required to maintain a piece of real estate.


The real purchase price isn’t just the price of the property. It includes all legal fees, closing costs, documents costs, rehab, and more. 



As opposed to financial assets like bonds, stocks, or cash reserves, real assets are physical, tangible investments. 

Examples of real assets include natural resources, collectibles, precious metals, and, of course, real estate.


A Real Estate Investment Trust (REIT) is a company that is either the owner or financing source of assets that generate income, such as apartments, shopping malls, warehouses, hotels, or an office building. 

REIT income is distributed to shareholders in the form of dividends. 


When owners sell some or all of their equity stake in an asset the process is known as recapitalization. 

The owners may do this by selling part or the majority of their position of equity.



In a soft market, supply greatly surpasses demand. Consequently, it gives potential tenants or buyers the ability to achieve lower rates.



The full cost of operations — without depreciation, interest, and amortization — is referred to as total operating expenses.


The rate of vacancy is used to express the proportion of units abandoned during a given duration, typically over a year, as a percentage of the total number of units.



In real estate underwriting, a third party (individual or organization) evaluates all aspects of a property to determine its value. 

Factors that go into underwriting include anticipated expenses, vacancy rates, rental income, and repair costs, among others. 


Public services like electricity, gas, water, and often additional services like cable internet are all considered to be utilities.



The vacancy cost is the rent that could have been earned from empty apartments if they had tenants leasing according to current market rates.


In contrast to occupancy rate, vacancy rate reflects how many units are not occupied in the complex. The figure is expressed as a percentage.

But Why Invest in Multifamily Real Estate at All?

Now that you’re familiar with the lingo around multifamily commercial real estate, it’s important to consider if the industry is right for you.

I know it’s a lot to take in, but set some time aside and really ask yourself:

  • Am I looking for a reliable source of passive income that can withstand any economic conditions?
  • Do I want to invest in something that pays me every month?
  • Will I play it safe with flipping houses or go BIG with apartments and create generational wealth to support my family?

The choice is yours.

Be Great,

Grant Cardone

Disclosure: This content is intended to be used for educational and informational purposes only. Before investing, you should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Individual results may vary. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.

We are not attorneys, investment advisers, accountants, tax professionals or financial advisers and any of the content presented should not be taken as professional advice.  We recommend seeking the advice of financial professional before you invest, and we accept no liability whatsoever for any loss or damage you may incur.

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Star of Discovery Channel’s “Undercover Billionaire,” Grant Cardone owns and operates seven privately held companies and a private equity real estate firm, Cardone Capital, with a multifamily portfolio of assets under management valued at over $4 billion. He is the Top Crowdfunder in the world, raising over $900 million in equity via social media. Known internationally as the leading expert on sales, marketing, and scaling businesses, Cardone is a New York Times bestselling author of 11 business books, including “The 10X Rule,” which led to Cardone establishing the 10X Global Movement and the 10X Growth Conference, now the largest business and entrepreneur conference in the world. The online business and sales educational platform he created, Cardone University, serves over 411,000 individuals and Forbes 100 corporate clients throughout the world. Voted the top Marketing Influencer to watch by Forbes, Cardone uses his massive 15 million plus following to give back via his Grant Cardone Foundation, a non-profit organization dedicated to mentoring underserved, at-risk adolescents in financial literacy, especially those without father figures.

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