Multifamily Terms, Defined

#

1031 Exchange

A tax-deferral strategy under Section 1031 of the Internal Revenue Code: sell investment real estate and reinvest in like-kind property, identifying replacements within 45 days and closing within 180 days. More on 1031 Exchange →

A

AB 1482

California’s Tenant Protection Act: a statewide annual rent cap and just-cause eviction rules for many residential buildings more than 15 years old. More on AB 1482 →

Accredited Investor

An investor who meets SEC income, net worth, or professional-credential tests and may participate in certain private offerings. More on Accredited Investor →

Adverse Possession

A doctrine that can let someone gain title by openly occupying land for a period set by state law. More on Adverse Possession →

Appraisal

A licensed appraiser opinion of market value, prepared under USPAP, that lenders use to size loans and buyers use to check price. More on Appraisal →

Assumable Mortgage

A loan a buyer can take over from the seller, keeping its rate and terms, usually only with the lender approving the buyer. More on Assumable Mortgage →

B

Balloon Payment

The remaining loan balance due in one lump sum when a loan term ends before the loan is fully amortized. More on Balloon Payment →

Bonus Depreciation

A federal provision allowing an immediate deduction for a percentage of qualifying short-life property in the year it is placed in service. More on Bonus Depreciation →

Bridge Loan

A short-term, usually interest-only loan used to buy or reposition a property until it qualifies for long-term financing. More on Bridge Loan →

Broker Opinion of Value (BOV)

A broker estimate of what a property would sell for, based on comparable sales, rents and cap rates. More on Broker Opinion of Value (BOV) →

BRRRR Method

Buy, rehab, rent, refinance, repeat: buying a property below its improved value, renovating and renting it, then refinancing to pull cash out for the next deal. More on BRRRR Method →

C

Cap Rate

Capitalization rate: a property’s net operating income divided by its value or price. It expresses the unlevered annual yield a buyer earns at a given price — a lower cap rate means a higher price for the same income. More on Cap Rate →

Capital Expenditures (CapEx)

Spending on major replacements and improvements such as roofs, HVAC systems, or unit renovations. CapEx is not an operating expense and is excluded from NOI. More on Capital Expenditures (CapEx) →

Capital Stack

The layers of money in a deal, from senior debt to mezzanine debt, preferred equity and common equity, ranked by who gets paid first. More on Capital Stack →

Cash for Keys

A payment a landlord makes to a tenant in exchange for moving out by an agreed date and leaving the unit in agreed condition. More on Cash for Keys →

Cash-on-Cash Return

Annual pre-tax cash flow after debt service divided by the total cash invested (down payment, closing costs, and upfront capital). It measures the cash yield on the equity in a deal. More on Cash-on-Cash Return →

Cash-Out Refinance

A new, larger loan that pays off the existing debt and returns the difference to the owner as cash, without selling the property. More on Cash-Out Refinance →

Certificate of Occupancy

A document from the building department confirming a building or space may be legally occupied for its approved use. More on Certificate of Occupancy →

Cost Segregation

An engineering-based study that reclassifies parts of a building into shorter depreciation lives to accelerate deductions. More on Cost Segregation →

D

Debt Service Coverage Ratio (DSCR)

NOI divided by annual loan payments. Lenders use DSCR to size loans; many require coverage comfortably above 1.0x, with the exact minimum depending on the lender and loan program. More on Debt Service Coverage Ratio (DSCR) →

Deed in Lieu of Foreclosure

A deed the owner gives the lender to settle a defaulted loan instead of going through foreclosure. More on Deed in Lieu of Foreclosure →

Defeasance & Yield Maintenance

Prepayment structures on commercial loans: defeasance swaps the property collateral for Treasury securities, while yield maintenance charges a fee that makes the lender whole for lost interest. More on Defeasance & Yield Maintenance →

Depreciation Recapture

On a sale, the portion of gain attributable to depreciation previously taken. For real property it is generally taxed federally at up to 25%. More on Depreciation Recapture →

Distribution Waterfall

The order in which a deal’s cash flow and sale proceeds are split between investors and the sponsor, as defined in the offering documents. More on Distribution Waterfall →

DSCR Loan

An investment property loan sized on the rent the property produces compared with its payment, rather than on the personal income of the borrower. More on DSCR Loan →

Due Diligence

The period after an accepted offer when the buyer verifies financials, leases, physical condition, title, and permits before closing. More on Due Diligence →

E

Estoppel Certificate

A signed tenant statement confirming lease terms, rent, and deposit. Buyers often request estoppels so the rent roll can be relied on at closing. More on Estoppel Certificate →

Eviction

The court process a landlord must follow to remove a tenant, usually starting with a written notice such as a notice to pay rent or quit. More on Eviction →

Expense Ratio

Operating expenses divided by effective gross income. It helps compare how efficiently similar buildings are run. More on Expense Ratio →

F

Fair Housing Act

The federal law that bars housing discrimination based on race, color, religion, sex, national origin, familial status or disability. More on Fair Housing Act →

Family Limited Partnership (FLP)

A partnership family members use to hold and pass down assets such as rental buildings, often with valuation discounts on gifted interests. More on Family Limited Partnership (FLP) →

G

General Partner (GP) & Limited Partner (LP)

In a syndication, the GP (sponsor) finds, finances, and manages the property; LPs contribute capital and are passive, with liability generally limited to their investment. More on General Partner (GP) & Limited Partner (LP) →

Gross Rent Multiplier (GRM)

Price divided by gross annual rent. GRM is a quick screening metric for comparing similar buildings; it ignores expenses, so it is less precise than a cap rate. More on Gross Rent Multiplier (GRM) →

H

House Hacking

Living in one unit of a small multifamily property and renting the others to offset the mortgage. More on House Hacking →

I

Installment Sale

A sale where at least one payment is received after the tax year of the sale, so the gain is generally reported as principal is collected rather than all at once (IRC Section 453). More on Installment Sale →

L

Land Contract

A sale in which the buyer pays the seller in installments and the seller keeps legal title until the contract is paid, also called a contract for deed. More on Land Contract →

Letter of Intent (LOI)

A short written proposal covering price and key terms — deposit, diligence period, closing timeline — that frames the purchase agreement. More on Letter of Intent (LOI) →

Life Estate

An ownership interest that lasts for the lifetime of a person, after which the property passes to the remainderman. More on Life Estate →

LLC for Rental Property

A limited liability company that holds title to a rental property to separate its liabilities from the personal assets of the owner. More on LLC for Rental Property →

Loan-to-Value (LTV)

The loan amount divided by the property value. Lenders cap LTV to keep an equity cushion under the loan. More on Loan-to-Value (LTV) →

Loss-to-Lease

The gap between market rent and the rent tenants actually pay under current leases. A large loss-to-lease can signal upside for a buyer. More on Loss-to-Lease →

M

Multifamily

Residential property with two or more separate units, from a duplex to an apartment complex. Buildings with five or more units are financed and valued as commercial real estate. More on Multifamily →

N

Net Investment Income Tax (NIIT)

A 3.8% federal tax under IRC Section 1411 on investment income, including rents and gains, above fixed income thresholds. More on Net Investment Income Tax (NIIT) →

Net Operating Income (NOI)

Income from a property’s operations after vacancy, credit loss, and operating expenses — but before debt service, capital expenditures, depreciation, and income taxes. NOI is the number most buyers use to value an apartment building. More on Net Operating Income (NOI) →

O

Off-Market Sale

A sale negotiated privately without a public listing, often for confidentiality or to avoid disrupting tenants and staff. More on Off-Market Sale →

Opportunity Zone

A designated low-income census tract where investing capital gains through a Qualified Opportunity Fund can defer and reduce tax under IRC Section 1400Z-2. More on Opportunity Zone →

P

Partition Action

A lawsuit asking a court to divide co-owned property or order it sold and split the proceeds when the owners cannot agree. More on Partition Action →

Phase I Environmental Site Assessment

A records review and site inspection, done under ASTM E1527-21, that looks for recognized environmental conditions before a purchase or loan. More on Phase I Environmental Site Assessment →

Pocket Listing

A property an agent markets privately to selected buyers instead of listing it publicly. More on Pocket Listing →

Preferred Return

A threshold return that investors receive before the sponsor shares in profits under a deal’s distribution terms. It is a priority of payment, not a guarantee. More on Preferred Return →

Probate

The court process that settles an estate, including selling real estate the person who died owned in their own name. More on Probate →

Property Condition Assessment (PCA)

A report on the physical condition of a building, its immediate repairs and its long-term replacement reserves, usually prepared under ASTM E2018. More on Property Condition Assessment (PCA) →

Q

Qualified Intermediary

The independent party that holds sale proceeds during a 1031 exchange so the seller never takes receipt of the funds. More on Qualified Intermediary →

Qualified Purchaser

An investor who meets the Investment Company Act Section 2(a)(51) investment thresholds, a higher bar than accredited investor status. More on Qualified Purchaser →

Quitclaim Deed

A deed that transfers whatever interest the grantor has, if any, with no warranty of title. More on Quitclaim Deed →

R

Real Estate Crowdfunding

Raising money for real estate from many investors online, usually through Regulation CF, Regulation A or Regulation D offerings. More on Real Estate Crowdfunding →

Real Estate Professional Status

A tax status under IRC Section 469(c)(7) that lets a qualifying taxpayer treat rental losses as non-passive when they materially participate. More on Real Estate Professional Status →

Real Estate Syndication

A structure in which a sponsor pools capital from multiple investors to buy a property that none would typically buy alone. More on Real Estate Syndication →

Real Estate Transfer Tax

A state or local tax charged when real estate changes hands, usually a percentage of the price or a set amount per $500 or $1,000. More on Real Estate Transfer Tax →

Rent Roll

A unit-by-unit list of tenants, lease dates, rents, deposits, and balances. Together with the T-12, it is the first document a buyer asks for. More on Rent Roll →

Rent Stabilization

Rules that limit how much and how often rent can rise on covered units, usually with registration and just-cause requirements. More on Rent Stabilization →

Rule 506(b) & 506(c)

SEC Regulation D exemptions for private offerings. 506(b) prohibits general solicitation; 506(c) allows it but requires verifying every investor is accredited. More on Rule 506(b) & 506(c) →

S

Schedule K-1

The tax form a partnership issues each investor, reporting their share of income, losses, and deductions for the year. More on Schedule K-1 →

Section 1231 Gain

Gain on business or rental property held more than a year, generally taxed at capital gain rates after recapture is carved out. More on Section 1231 Gain →

Section 8 (Housing Choice Voucher)

The HUD voucher program in which a local housing authority pays part of the rent directly to the owner under a HAP contract. More on Section 8 (Housing Choice Voucher) →

Security Deposit

Money a tenant pays at move-in to cover unpaid rent or damage beyond normal wear and tear, held and returned under state law. More on Security Deposit →

Seller Closing Costs

The costs a seller pays to close a sale, such as broker commission, transfer tax, title and escrow fees, legal fees, prorations and any loan prepayment. More on Seller Closing Costs →

Seller Financing

The seller carries part of the purchase price as a loan to the buyer, secured by the property, with agreed interest, term, and payoff date. More on Seller Financing →

Stepped-Up Basis

For inherited property, the tax basis generally resets to fair market value at the owner’s date of death, which can reduce capital gains on a later sale. More on Stepped-Up Basis →

T

T-12 (Trailing Twelve Months)

An operating statement showing a property’s actual income and expenses for the most recent twelve months. Buyers compare the T-12 with the rent roll to understand how the building really performs. More on T-12 (Trailing Twelve Months) →

Tenant Screening

Checking an applicant against written criteria, such as income, rental history, credit and background, before approving a lease. More on Tenant Screening →

Tenants in Common (TIC)

A form of co-ownership in which each owner holds an undivided share of the property that can be sold, mortgaged or inherited separately. More on Tenants in Common (TIC) →

Transfer on Death Deed

A recorded deed that passes real estate to a named beneficiary at the death of the owner without probate, in states that allow it. More on Transfer on Death Deed →

V

Vacancy & Credit Loss

The income lost to empty units and unpaid rent, usually expressed as a percentage of gross potential rent. More on Vacancy & Credit Loss →

Value-Add

A strategy of buying a property with room to improve — renovations, better management, or lease-up — to raise NOI and value over time. More on Value-Add →

W

Warranty of Habitability

The duty of a residential landlord to keep units fit to live in, implied in leases in most states. More on Warranty of Habitability →

Wraparound Mortgage

Seller financing in which the new note to the seller includes, or wraps around, the existing loan of the seller, which the seller keeps paying. More on Wraparound Mortgage →