If you want to become a successful investor, a multifamily real estate glossary will help you understand all the terminology in the game.
Within multifamily real estate, this metric refers to the rate of new units that are successfully leased during a specific timeframe.
In a condominium building, which is a structure containing five or more units, each rental unit is regarded as an apartment.
Property-based assisted housing implies low-income individuals receiving support from the government to reside in a rental properties. On the other hand, within resident-based assisted housing, the individuals receive a type of rental subsidy as residents.
An interest rate change metric for notes and bonds.
The budget dedicated to upgrading physical assets to improve value and longevity. While repairs are expensed within the same year, capital expenditures depreciates over time for the assets involved.
The total amount of resources — equity and debt — used to finance a property investment.
CASH ON CASH
Also known as cash flow, cash on cash (COC) is the subtraction of total expenses from the total income of an investment.
A discount, benefit, preferential rent, or other financial incentive offered by a property owner to promote a lease.
CONSUMER PRICE INDEX (CPI)
“A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” (Bureau of Labor Statistics)
COMMERCIAL MORTGAGE-BACKED SECURITIES
A frequently offered bond type in America, CMBS is supported by multifamily and commercial mortgages as opposed to residential.
An investment in a high-quality real estate asset that is located in a highly accessible and desirable submarket. The asset earns among the highest rents in that submarket, requiring little short-term investment. These assets offer the lowest risks/rewards of any kind.
DEBT COVERAGE RATIO (DCR)
DCR is net operating income divided by yearly debt obligations.
“A risk indicator that measures the portion of a company’s assets that is financed by stockholder’s equity rather than by debt. It is calculated by dividing a company’s total asset value by its total shareholders’ equity.” (Investopedia)
FAIR MARKET RENT
“Fair Market Rents, as defined in 24 CFR 888.113, are estimates of 40th percentile gross rents for standard quality units within a metropolitan area or nonmetropolitan county.” (HUD’s Office of Policy Development and Research)
GROSS RENT MULTIPLIER (GRM)
The GRM of a property is purchase price divided by gross scheduled income.
“In economics, collective increases in the supply of money, in money incomes, or in prices. Inflation is generally thought of as an inordinate rise in the general level of prices.” (Encyclopedia Britannica)
INTERNAL RATE OF RETURN (IRR)
“The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.” (Investopedia)
LOAN TO VALUE RATIO (LTV)
The proportion of a mortgage loan to the property’s value that is used as security. It is usually conveyed as a percentage.
Borrowing money to aid in the purchase of an asset, either to improve the anticipated rate of return or a person’s power of buying.
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.
How efficiently assets can be turned into cash.
LOSS TO LEASE
In multifamily real estate, it is the difference between a property’s market rate and the actual rent recorded in the contract.
A type of loan that is frequently utilized by builders to access additional funds for projects.
A hybrid form of development that mixes commercial, residential, and industrial-office living in one site or group.
MORTGAGE DEBT SERVICE
The total amount of cash needed to pay off the principle mortgage’s obligations, interest payments, and any credit enhancement expenses.
NET OPERATING INCOME (NOI)
The total amount occupied apartments, conveyed as a percentage.
REAL ESTATE INVESTMENT TRUST (REIT)
A Real Estate Investment Trust (REIT) is a company that is either the owner or financing source of assets that generate income. owns or finances income-generating assets, such as apartments, shopping malls, offices, warehouses, or hotels. REIT income is distributed to shareholders in the form of dividends.
When owners sell some or all of their equity stake in an asset. They may do this by selling part or the majority of their position of equity.
SECTION 8 HOUSING
“Section 8 of the Housing Act of 1937, often called Section 8, as repeatedly amended, authorizes the payment of rental housing assistance to private landlords on behalf of low-income households in the United States.” (Wikipedia)
Supply that greatly surpasses demand, giving potential tenants or buyers the ability to achieve lower rates.
SPECIAL ASSESSMENT TAX
“A surtax levied on property owners to pay for specific local infrastructure projects such as the construction or maintenance of roads or sewer lines. The tax is charged only to the owners of property in the neighborhood that will benefit from the project. That neighborhood is called the special assessment district.” (Investopedia)
TOTAL OPERATING EXPENSES
The total cost of operations, without depreciation, interest, and amortization.
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.
Public services like electricity, gas, water, and often additional services like cable internet.
The rent that could have been earned from empty apartments if they had tenants leasing according to current market rates.