1031 Exchange
A US tax provision (IRC §1031) letting you defer capital gains tax when you sell an investment property and reinvest in another "like-kind" property. Strict timelines: identify replacement within 45 days, close within 180.
Tax
28/36 Rule
Lender guideline: housing payment shouldn't exceed 28% of gross monthly income (front-end ratio); total debt payments shouldn't exceed 36% (back-end ratio). Some lenders stretch to 35/43.
Mortgage
Adjusted Basis
What you paid for a property + capital improvements − accumulated depreciation. The number subtracted from sale price to compute gain.
Tax
Amortization
The way a mortgage payment is split between principal and interest. Early in the loan, most goes to interest; over time, more goes to principal.
Mortgage
Appreciation
Increase in property value over time. Driven by inflation, supply constraints, and local demand.
Investing
ARM (Adjustable-Rate Mortgage)
Mortgage with a fixed initial rate (e.g., 5 or 7 years) that then adjusts annually based on a benchmark rate. Lower starting rate, higher long-term risk.
Mortgage
Basis
Your cost in a property for tax purposes — generally what you paid plus capital improvements. Used to compute capital gain on sale.
Tax
BRRRR
Buy, Rehab, Rent, Refinance, Repeat. A strategy of buying distressed property, fixing it, renting it, then refinancing to pull equity out for the next deal.
Strategy
Cap Rate (Capitalization Rate)
Net Operating Income ÷ Property Price. The yield a property would produce if you paid all cash. Lower cap rate = "more expensive" property; higher = "cheaper."
Investing
Capital Gains
Profit on sale of an asset above your basis. Long-term (held >1 yr) is taxed at preferential rates (0%/15%/20% federal); short-term is ordinary income.
Tax
Cash-on-Cash Return
Annual cash flow ÷ cash invested. The return on the cash you actually put in (down payment + closing + reserves), not the property value.
Investing
Closing Costs
Fees paid at the close of a real estate transaction — title insurance, escrow, attorney, transfer taxes, lender fees. Typically 2–5% of the sale price for buyers, 1–3% for sellers (excluding commission).
Transaction
CMA (Comparative Market Analysis)
A pricing study that estimates a home's value by comparing recent sales of similar nearby properties. Real estate agents prepare CMAs to suggest list prices.
Transaction
Conforming Loan
A mortgage that meets Fannie Mae / Freddie Mac size and underwriting limits — the most common type. Above the limit is a "jumbo" loan.
Mortgage
Cost Segregation
A study that reclassifies property components into shorter depreciation categories (5-, 7-, 15-year instead of 27.5- or 39-year). Accelerates tax deductions.
Tax
Debt-to-Income Ratio (DTI)
Total monthly debt payments divided by gross monthly income. Lenders cap conforming loans around 43–50% DTI.
Mortgage
Depreciation
A tax deduction allowing rental property owners to write off the building (not land) cost over 27.5 years (residential) or 39 years (commercial), even though the building isn't actually losing value.
Tax
Depreciation Recapture
When you sell a depreciated property, the depreciation taken comes back as taxable income — capped at 25% federal rate.
Tax
DSCR Loan
Debt Service Coverage Ratio loan. Underwritten on the property's rental income vs. mortgage payment, not on borrower income. Used by serious investors.
Mortgage
Earnest Money
A deposit (typically 1–3% of price) the buyer puts up to show good faith. Held in escrow; applied to closing or forfeited if buyer backs out without cause.
Transaction
Equity
Property value minus what you owe on it. A $500K home with a $300K mortgage = $200K equity.
General
Escrow
A neutral third party that holds money or documents during a transaction. Also a monthly account where the lender holds property tax and insurance funds for you.
Transaction
FHA Loan
Federal Housing Administration-insured mortgage. Allows 3.5% down with FICO 580+. Requires mortgage insurance for the life of the loan in most cases.
Mortgage
FICO Score
Your credit score, 300–850. Above 740 typically gets you the best mortgage rates; below 620 limits you to FHA/VA loans at higher rates.
Credit
FSBO (For Sale By Owner)
Selling without a listing agent. Saves the ~3% listing commission; typically nets 5–10% less on price for most sellers due to weaker negotiating leverage and limited buyer reach.
Transaction
HELOC
Home Equity Line of Credit. Variable-rate revolving credit secured by your home equity. Useful for short-term flexible funding.
Mortgage
House Hack
Buying a 2–4 unit property with owner-occupied financing (low down payment), living in one unit, renting the others.
Strategy
Jumbo Loan
A mortgage above the conforming loan limit (~$806K in most US counties as of 2026, higher in expensive markets). Requires stronger credit and larger down payment.
Mortgage
LTV (Loan-to-Value)
Loan amount divided by property value. 80% LTV means you borrowed 80% and put 20% down. Higher LTV = more leverage = more risk.
Mortgage
Mortgage Insurance (PMI / MIP)
Insurance protecting the lender if you default. Required when LTV exceeds 80%. Typically 0.5%–1.5% of the loan annually.
Mortgage
Multifamily
Residential property with multiple units. 2–4 unit properties get residential financing; 5+ units are commercial.
Property type
NIIT (Net Investment Income Tax)
Additional 3.8% federal tax on investment income (including capital gains and rental income) for high earners — over $200K single, $250K joint.
Tax
NOI (Net Operating Income)
Gross rental income minus operating expenses (taxes, insurance, maintenance, vacancy, management) but before mortgage. The cash flow available to pay debt service and provide return.
Investing
Opportunity Zone (QOZ)
A federally designated low-income census tract where investing capital gains in a Qualified Opportunity Fund earns major tax benefits. Made permanent by the OBBB Act of July 2025; new designations take effect Jan 1, 2027.
Tax
Origination Fee
Lender fee for processing the loan — typically 0.5–1% of loan amount. Folded into closing costs.
Mortgage
PITI
Principal, Interest, Taxes, Insurance — the four components of your monthly housing payment. Add HOA and PMI if applicable.
Mortgage
Points
Upfront fee paid to lower your interest rate. One point = 1% of loan amount, typically buys 0.25% off the rate. Worth it if you'll keep the loan long enough to recoup.
Mortgage
Pre-approval
A lender's conditional commitment to lend you up to a certain amount, based on verified income, credit, and assets. Stronger than "pre-qualification."
Mortgage
Price-to-Rent Ratio
Home price ÷ annual rent. Below 18 favors buying; above 25 favors renting. A market-level indicator.
Investing
Principal Residence Exclusion
IRC §121: up to $250K (single) / $500K (married) of gain on sale of primary residence is tax-free, if you've owned and lived there 2 of the past 5 years.
Tax
Property Manager
A firm or individual that handles tenant screening, rent collection, maintenance, and evictions for an owner. Standard fee: 8–12% of collected rent + leasing fee for new tenants.
Operations
QOF (Qualified Opportunity Fund)
An investment vehicle that invests at least 90% of assets in property within designated Opportunity Zones. Hold 10+ years to get tax-free appreciation on the QOF itself.
Tax
Refinance
Replacing your current mortgage with a new one — typically to lower the rate, change the term, or pull cash out. Worth doing when the new rate is at least 0.5–1 point lower and you'll keep the loan 18+ months.
Mortgage
REIT (Real Estate Investment Trust)
A publicly traded company that owns real estate. By law must distribute 90% of taxable income as dividends. Buy shares like stocks; instant liquid real estate exposure.
Investing
Short-Term Rental (STR)
Vacation rental — Airbnb, VRBO. 1.5–3× the gross income of long-term rental but higher operating costs, vacancy, and regulatory risk.
Strategy
Step-Up in Basis
When you die holding appreciated property, your heirs' basis becomes the fair market value at your death — the embedded capital gains disappear. Foundation of multigenerational real estate strategies.
Tax
STR Loophole
If you materially participate in your short-term rental (avg. stay ≤7 days, you do meaningful work), losses can offset W-2/active income — bypassing passive activity rules. Subject to specific tests.
Tax
Stress Test
Re-running the affordability math at a higher rate (e.g., +1–2% above current) to see if you could still cover the payment if rates rose.
Mortgage
Syndication
A group investment in real estate where a "sponsor" finds, finances, and manages a property; "limited partners" provide capital. Typically restricted to accredited investors.
Strategy
Title Insurance
Insurance protecting against defects in the property's title (liens, prior claims, fraud). One-time premium at closing. Two policies: lender's and owner's.
Transaction
Turnkey Rental
An already-renovated, already-tenanted rental property sold ready to operate. Typically out-of-state; managed by a partner property management company.
Strategy
VA Loan
Mortgage backed by the US Department of Veterans Affairs. 0% down for eligible veterans, no PMI, competitive rates.
Mortgage
Vacancy Allowance
A line in your rental underwriting that assumes the property will be empty some of the time. Standard: 5–10% of gross rent for long-term; 30–50% for short-term.
Investing
Zestimate
Zillow's automated home value estimate. Useful as a starting point but documented to be off by 5–20% in many markets — never the only data point you should rely on for pricing.
Tools