Real Estate Investing

A metric used to evaluate the profitability of an investment property, calculated by dividing the net operating income (NOI) by the property's current market value or purchase price. It expresses the expected rate of return independent of financing.

A measure of the annual pre-tax cash flow relative to the total cash invested, expressed as a percentage. Unlike cap rate, it accounts for financing and reflects the actual return on the investor's out-of-pocket capital.

The use of borrowed capital (mortgages or other debt) to increase the potential return on an investment. Leverage amplifies both gains and losses, allowing investors to control larger assets with less personal capital.

The total income generated by a property minus all operating expenses, excluding mortgage payments, depreciation, and income taxes. NOI is the fundamental measure of a property's operational profitability.

A provision in the U.S. tax code that allows an investor to defer capital gains taxes by reinvesting the proceeds from a property sale into a like-kind replacement property within specific time constraints (45 days to identify, 180 days to close).

A company that owns, operates, or finances income-producing real estate across a range of property sectors. REITs allow individual investors to earn dividends from real estate investments without having to buy, manage, or finance properties directly.

A financial ratio that measures a property's ability to cover its debt obligations, calculated by dividing NOI by total debt service (principal and interest payments). Lenders typically require a DSCR of 1.20 or higher.

The increase in a property's value over time, driven by market forces (market appreciation) or by improvements made by the owner (forced appreciation). Appreciation is a primary source of wealth building in real estate alongside cash flow.

A strategy where the investor lives in one unit of a multi-unit property (or rents out rooms in a single-family home) while tenants pay rent that covers most or all of the mortgage, effectively reducing the investor's housing costs to near zero.

A non-cash tax deduction that allows real estate investors to deduct the cost of the building (not land) over its useful life, as defined by the IRS: 27.5 years for residential and 39 years for commercial property. This reduces taxable income even when the property is appreciating in market value.