Reference

Glossary

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Terms you know0 / 29

Amortization: The schedule by which loan payments gradually pay off the balance.
Appraisal: A lender-ordered opinion of what a property is worth.
Appreciation: An increase in a property's value over time.
Capital gain: The profit made when a property sells for more than it cost you.
Capitalization rate: Net operating income divided by price, used to compare properties.
Cash flow: The money left each month after every cost, including the loan.
Cash-on-cash return: Yearly cash flow divided by the cash you actually invested.
Closing costs: Fees paid at purchase for the loan, title, and recording.
Debt coverage ratio: Operating income divided by the loan payment; a safety cushion measure.
Depletion: An allowance that deducts part of the income produced as reserves are used up.
Depreciation: A yearly deduction for the wearing out of a building, claimed without spending cash.
Diversification: Spreading investments so one bad market cannot sink everything.
Down payment: The share of the purchase price you pay from your own funds.
Equity: What the property is worth minus what you still owe on it.
Exit strategy: The plan for how and when you will sell, refinance, or keep a property.
Intangible drilling costs: Well costs with no salvage value, often deductible in the first year.
Interest: The cost of borrowing, charged on the outstanding loan balance.
Landlord: The owner who rents property to a tenant under a lease.
Lease: The written agreement setting the terms between landlord and tenant.
Leverage: Using borrowed money to control a larger asset than your cash alone would buy.
Net operating income: Rent minus operating expenses, before any loan payment.
Operating expenses: The recurring costs of running a property, excluding the mortgage.
Passive activity: An investment you do not materially work in, which limits how losses can be used.
Principal: The portion of a loan payment that reduces the balance owed.
Reserves: Cash held back for vacancies, repairs, and surprises.
Screening: Checking a prospective tenant's income, references, and history.
Security deposit: Tenant money held against damage or unpaid rent, governed by state rules.
Vacancy: Time a rental sits empty and earns nothing.
Working interest: An ownership share that carries both drilling costs and active-business treatment.