A-Z MultiFamily Real Estate Glossary

For my second Newsletter, I wanted to incorporate a piece that I know will be helpful for your future. One of the topics I'll be touching up on will be Real Estate and if you want to become a successful investor, this multifamily real estate glossary will help you understand all the terminology in the game.

A

ABSORPTION RATE

Within multifamily real estate, this metric refers to the rate of new units that are successfully leased during a specific timeframe.

APARTMENT

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

ASSISTED HOUSING

Property-based assisted housing implies low-income individuals receiving support from the government to reside in rental properties. On the other hand, within resident-based assisted housing, the individuals receive a type of rental subsidy as residents.

B

BASIS POINTS

An interest rate change metric for notes and bonds.

C

CAPITAL EXPIDENTURE

The budget that is dedicated to upgrading physical assets to improve value and longevity. While repairs are expensed within the same year, capital expenditures depreciate over time for the assets involved.

CAPITALIZATION RATE

Cap rate?is?net operating income?(NOI) divided by the price paid. In other words, the cap rate is the expected return on a property if paid cash with no debt.

CAPITAL STACK

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.

CONCESSION

A discount, benefit, preferential rent, or other financial incentives are 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.

CORE INVESTMENTS

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.

D

DEBT COVERAGE RATIO (DCR)

DCR?is net operating income divided by yearly debt obligations.

E

EQUITY MULTIPLIER

“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)

F

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)

G

GROSS RENT MULTIPLIER (GRM)

The?GRM of a property?is purchase price divided by gross scheduled income.

I

INFLATION

“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)

L

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.

LEVERAGE

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.

LIKE-KIND EXCHANGE

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.

LIQUIDITY

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.

M

MEZZANINE DEBT

A type of loan that is frequently utilized by builders to access additional funds for projects.

MIXED-USE DEVELOPMENT

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 principal mortgage’s obligations, interest payments, and any credit enhancement expenses.

MULTIFAMILY

Any residential building that contains more than one unit of housing.?Duplexes, townhomes,?apartment complexes, and condominiums are some of the most common examples of multifamily properties.

N

NET OPERATING INCOME (NOI)

NOI?is used to determine how profitable property is by subtracting all operating costs, excluding debt service,?depreciation, capital expenditures, and income taxes.

O

OCCUPANCY RATE

The total amount of occupied apartments, conveyed as a percentage.

R

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.?

RECAPITALIZATION

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.

S

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)

SOFT MARKET

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)

T

TOTAL OPERATING EXPENSES

The total cost of operations, without depreciation, interest, and amortization.

TURNOVER RATE

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.

U

UTILITIES

Public services like electricity, gas, water, and often additional services like cable internet.

V

VACANCY COST

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

What other terms would you add to my multifamily real estate glossary? To learn about my massive experience in the game,?register now for my Real Estate Training.