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Terms Every Real Estate Investor Should Know: 2023


Terms Every Real Estate Investor Should Know

Cap Rate (Capitalization Rate): The ratio of Net Operating Income (NOI) to the property asset value. It is used to estimate the investor's potential return on investment in real estate NOI


(Net Operating Income): The income generated by a property after operating expenses but before mortgage payments, tenant improvements, and leasing commissions


IRR (Internal Rate of Return): A metric used in capital budgeting to estimate the profitability of potential investments. It is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zero CoC (Cash on Cash Return): Cash on Cash Return is a measure of the annual return on an investment relative to the amount of cash invested. Cash on Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested


UYOC (Unlevered Yield on Cost): The annual net operating income produced by an asset, divided by the total cost of the asset. It does not consider the effects of borrowing or financing


ROI (Return on Investment): A ratio between the net profit and cost of the investment, as a percentage of the total cost of investment


LTV (Loan to Value): A ratio used by lenders to calculate the loan size compared to the value of property


DCR (Debt Coverage Ratio): A measure of the cash flow available to pay current debt obligations.


GRM (Gross Rent Multiplier): A figure used in real estate to indicate the ratio of a property's price to its gross rental income


CRE (Commercial Real Estate): Real estate intended for use by for-profit businesses, like office buildings, shopping centers, service businesses, and apartment complexes


REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate. REITs pool the capital of numerous investors to purchase a portfolio of properties, which individual investors might not be able to afford alone


FMV (Fair Market Value): The price a specific property, asset, or business would sell for on the open market in its current condition


OPEX (Operating Expenses): Expenses associated with the day-to-day operations of a business. In real estate, these could include costs for property management, maintenance, insurance, property taxes, utilities, etc

 
 
 

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