Real estate investor glossary

ARV(After-Repair Value)

ARV is the estimated market value of a property after all planned renovations are complete. Investors find it by analyzing recent sales of comparable, fully renovated homes nearby. ARV anchors every flip calculation — your maximum offer, profit, and loan amount all derive from it.

MAO(Maximum Allowable Offer)

MAO is the highest price you can pay for a property and still hit your target profit. It works backward from the after-repair value, subtracting rehab costs, your desired profit, and all transaction costs. Paying above MAO erodes or erases your margin.

MAO = ARV × 70% − Estimated Rehab Costs

70% Rule

The 70% rule is a quick screen that says a flipper should pay no more than 70% of a property's after-repair value minus rehab costs. It bakes in roughly a 30% buffer to cover holding, financing, selling costs, and profit. Use it to filter deals fast, then verify with a full analysis.

Max Offer = (ARV × 0.70) − Rehab Costs

DSCR(Debt-Service Coverage Ratio)

DSCR measures whether a property's income covers its debt. Lenders divide net operating income by annual debt service; a DSCR of 1.0 means the rent exactly covers the loan. DSCR loans qualify you on this ratio instead of personal income, so most lenders want 1.20–1.25 or higher.

DSCR = Net Operating Income ÷ Annual Debt Service

Cap Rate(Capitalization Rate)

Cap rate is a property's annual net operating income as a percentage of its price or value. It lets investors compare income properties independent of financing. A higher cap rate signals more income per dollar invested — but often more risk or a weaker market.

Cap Rate = Net Operating Income ÷ Property Value

Cash-on-Cash Return

Cash-on-cash return measures the annual pre-tax cash flow a property produces against the actual cash you invested. Unlike cap rate, it accounts for financing — it's the real return on the money out of your pocket. It's the headline metric for leveraged rental and BRRRR deals.

Cash-on-Cash = Annual Pre-Tax Cash Flow ÷ Total Cash Invested

NOI(Net Operating Income)

NOI is a property's income after operating expenses but before mortgage payments and income taxes. Start with gross rental income, subtract vacancy, then subtract operating costs like taxes, insurance, maintenance, and management. NOI drives cap rate and DSCR and is the cleanest measure of a property's earning power.

NOI = Gross Operating Income − Operating Expenses

GRM(Gross Rent Multiplier)

GRM is a fast screening ratio: a property's price divided by its annual gross rent. A lower GRM suggests a cheaper price relative to rent. It ignores expenses, so it's a rough first filter — useful for comparing similar rentals quickly before deeper analysis.

GRM = Property Price ÷ Annual Gross Rent

BRRRR(Buy, Rehab, Rent, Refinance, Repeat)

BRRRR is a strategy where you buy a distressed property, renovate it, rent it out, then refinance based on the new higher value to pull most of your capital back out — keeping a cash-flowing rental with little money left in. You recycle that capital into the next deal.

Hard Money Loan

A hard money loan is short-term financing from private lenders, secured by the property rather than your credit. It funds fast and lends against after-repair value, making it the go-to for flips — but it carries higher rates and upfront points than conventional mortgages.

Holding Costs

Holding costs (carrying costs) are the recurring expenses you pay while you own a flip — loan interest, property taxes, insurance, utilities, and HOA. They accrue every month the project runs, so timeline overruns directly eat profit. A flip that drags on can lose its whole margin to holding costs.

Comps(Comparable Sales)

Comps are recently sold properties similar to your subject home in location, size, condition, and features. Investors use them to estimate after-repair value: find renovated homes that sold nearby in the last few months and adjust for differences. Accurate comps are the foundation of every reliable ARV.

LTV(Loan-to-Value)

LTV is the loan amount as a percentage of a property's value. A $150,000 loan on a $200,000 property is 75% LTV. Lenders cap LTV to limit risk; lower LTV means more equity and usually better loan terms. Combined LTV (CLTV) adds a second lien like a HELOC.

Seasoning

Seasoning is the minimum time a lender requires you to own a property before they'll refinance it at its new value. Cash-out refinances often require 6–12 months of seasoning. It's a key constraint in BRRRR — you can't pull your capital back out until the seasoning period passes.

Wholesaling

Wholesaling is putting a property under contract at a discount, then assigning that contract to another investor for a fee — without ever buying or renovating it. It needs little capital and no rehab, making it a common entry point, but profit per deal is lower than flipping.

PITIA(Principal, Interest, Taxes, Insurance, Association dues)

PITIA is the full monthly cost of a mortgaged property: principal, interest, property taxes, insurance, and any HOA dues. Lenders use PITIA as the debt-service figure in DSCR and qualifying calculations because it reflects the true carrying cost, not just principal and interest.

1% Rule

The 1% rule is a quick rental screen: a property's monthly rent should be at least 1% of its purchase price. A $200,000 home should rent for about $2,000/month to pass. Like the 70% rule, it's a fast filter — not a substitute for full cash-flow analysis.

Scope of Work(SOW)

A scope of work is the detailed, room-by-room list of every task, material, and finish a renovation requires. It turns a vague "rehab budget" into line items contractors can bid against accurately. A tight SOW is the single best defense against cost overruns and contractor disputes.