Investment Property Terms & Definitions

Understanding these key real estate investment terms will help you make smarter decisions when buying income-producing properties in South Florida.

Core Financial Metrics

Capitalization Rate (Cap Rate)
Annual return based on a property’s Net Operating Income (NOI) divided by purchase price. Used to compare investment opportunities.

Net Operating Income (NOI)
Income remaining after operating expenses but before mortgage payments and taxes.

Cash Flow
Money left after all expenses and mortgage payments are paid. Positive cash flow means the property generates income.

Return on Investment (ROI)
Measures profitability relative to the total cash invested.

Internal Rate of Return (IRR)
Annualized return over time considering purchase price, income, and resale value.

Income & Expense Terms

Gross Rental Income
Total rent collected before expenses.

Operating Expenses
Costs required to operate the property, including:

  • Property taxes
  • Insurance
  • HOA fees
  • Maintenance & repairs
  • Property management
  • Utilities (if owner paid)

Vacancy Rate
Estimated percentage of time a unit is unoccupied during the year.

Capital Expenditures (CapEx)
Major replacements such as roof, HVAC systems, elevators, or structural repairs.

Financing & Valuation

Loan-to-Value Ratio (LTV)
Loan amount divided by property value. Higher LTV means greater leverage and risk.

Debt Service
Total mortgage payment including principal and interest.

Debt Service Coverage Ratio (DSCR)
NOI divided by debt service. Lenders typically prefer a ratio of 1.25 or higher.

Appraised Value
Professional estimate of a property's market value.

Profit & Tax Concepts

1031 Exchange
Allows investors to defer capital gains taxes by reinvesting proceeds into another qualifying investment property.

Depreciation
Tax deduction reflecting the property’s wear and tear over time.

Cost Basis
Original purchase price plus improvements minus depreciation.

Capital Gains
Profit earned from selling a property.

Rental Investment Metrics

Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested.

Gross Rent Multiplier (GRM)
Property price divided by gross rental income.

Break-Even Ratio
Operating expenses plus debt service divided by gross income. A lower ratio indicates a safer investment.

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