Glossary
Decode the sentence before it costs you money.
Jargon is not sophistication. It is often a fog machine. Pick a term, see the plain meaning, the math, the trap, and the question to ask before you nod like it made sense.
26 terms shown.
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506(b) A private-offering path where public solicitation is generally off limits. Rule 506(b) is a Regulation D exemption often used for private offerings built around pre-existing relationships and limited solicitation. Legal Private relationship first; offering discussion second; documents govern everything. Ask how the sponsor knew investors before sharing the offering and what counsel says the communication lane permits. 506(c) A private-offering path that permits public solicitation with verified accreditation. Rule 506(c) can allow public solicitation if every purchaser is accredited and the issuer takes reasonable verification steps. Legal Public solicitation allowed + accredited investors only + reasonable verification steps. Ask who verifies accreditation, what proof is required, and whether the public claims match the actual offering documents. 1
1031 exchange A tax-deferral mechanism for swapping qualifying real estate. A 1031 exchange can defer capital gains taxes when proceeds from a qualifying sale are reinvested into qualifying replacement property under strict rules. Tax Sell qualifying property, use a qualified intermediary, identify replacement property within 45 days, close within 180 days. Ask who is running the timeline before the sale closes. After closing is a bad time to discover the clock already started. A
Accredited investor A regulatory investor-status category based on income, net worth, licenses, or entity tests. For individuals, common tests include income over $200K individually or $300K jointly, or net worth over $1M excluding a primary residence. Legal Common individual tests: income, net worth excluding primary residence, or certain professional licenses. Ask what verification is required and why the offering is structured that way. Compliance is boring until it saves everyone. C
Cap rate A quick read on how expensive a property is relative to its income. Cap rate is net operating income divided by price. It is an unlevered yield, not your full projected return. Underwriting NOI / purchase price = cap rate Ask whether the NOI is trailing, adjusted, or projected. That one word changes the whole answer. Capital call A request for more investor capital after the original raise. A capital call asks investors to contribute additional money, usually because the business plan needs more capital than expected. Syndications Additional need - available reserves - lender/operating options = capital-call pressure. Ask what broke, who else is contributing, what happens if investors do not fund, and whether the sponsor is taking pain too. Capital gains Profit from selling an asset for more than its tax basis. Capital gain is generally the difference between sale proceeds and adjusted basis, subject to tax rules and holding-period treatment. Tax Sale price - selling costs - adjusted basis = potential capital gain Ask what the adjusted basis is before anyone tells you the profit number. Capital stack The layers of debt and equity in a deal. The capital stack shows who provides the money for a deal, who has priority, and where each party sits in the risk order. Syndications Senior debt gets paid before mezzanine debt, preferred equity, common equity, and sponsor promote. Ask where you sit, what sits above you, and what has to go wrong before your position gets hurt. Cash-on-cash return Annual cash flow divided by invested cash. Cash-on-cash return measures annual pre-tax cash distributions as a percentage of the cash invested. Underwriting Annual pre-tax cash flow / cash invested = cash-on-cash return Ask whether the cash flow is actual, projected, current, stabilized, or supported by reserves. Those are not the same sentence. Cost segregation A study that can accelerate parts of real estate depreciation. Cost segregation separates building components into shorter depreciation lives when supported by a qualified study. Tax Building basis is separated into components with different depreciation lives. Ask who prepared the study and whether your CPA agrees with the treatment before you count the benefit. D
Debt service The required loan payments the property has to survive. Debt service is the scheduled principal and interest owed to the lender, usually measured monthly or annually. Financing Principal + interest payments = debt service Ask how the payment changes after interest-only periods, floating rates, rate caps, maturities, and covenant tests. Depreciation A tax deduction for the wear-down of a building over time. Depreciation lets real estate owners deduct portions of building basis over time under tax rules. Tax Depreciable basis / recovery period = annual depreciation, before special rules. Ask what basis is depreciable, what schedule applies, and what your CPA says happens on sale. DSCR A lender metric for debt-service coverage. Debt service coverage ratio compares net operating income to required debt payments. Higher coverage means more cushion. Underwriting NOI / annual debt service = DSCR Ask what DSCR looks like after rate changes, vacancy, taxes, and insurance. Cushion is only cushion after stress. E
Equity multiple Total cash returned divided by the original cash invested. Equity multiple tells you how many dollars come back for each dollar invested, before you pretend timing does not matter. Underwriting Total distributions and proceeds / invested equity = equity multiple Ask whether the multiple includes return of capital, refinance proceeds, sale proceeds, and projected cash flow. Expense ratio Operating expenses as a percentage of property income. Expense ratio compares operating expenses to income so you can see how much rent survives before debt service. Underwriting Operating expenses / effective gross income = expense ratio Ask which expenses were normalized, excluded, or magically expected to improve. I
IRR A time-weighted return metric that cares when cash comes back. Internal rate of return estimates the annualized discount rate that makes all projected cash flows equal the original investment. Syndications IRR solves for the annualized rate that makes projected cash flows equal the original investment. Ask for equity multiple beside IRR. If they only want to show one number, they probably like that number too much. K
K-1 The tax form that reports your share of partnership income, loss, deductions, and credits. A Schedule K-1 reports an investor or partner share of tax items from an entity, including income, loss, deductions, credits, and other information your CPA needs. Tax Entity tax results + ownership share + allocations = your K-1 reporting package. Ask when K-1s are delivered, who prepares them, what states are involved, and whether the reported loss is usable in your own tax situation. N
NOI The property income that drives value. Net operating income is rental and other property income minus operating expenses, before debt service and taxes. Underwriting Effective gross income - operating expenses = NOI Ask what expenses are excluded. If payroll, insurance, repairs, or management are treated like footnotes, slow down. O
Operating agreement The rulebook for the deal entity. The operating agreement governs how the entity operates, who controls decisions, how money moves, and what rights investors actually have. Legal Control rights + distribution rules + transfer rules + remedies = the actual investor relationship. Ask who can make major decisions, when investors vote, how transfers work, and what happens after default or removal events. P
Passive losses Tax losses from passive activity that may have limits on when you can use them. Passive losses are losses from passive activities that may be limited unless you have passive income or meet specific tax rules. Tax Passive losses offset passive income unless an exception or release event applies. Ask your CPA whether the loss is usable, suspended, offsetting passive income, or trapped behind another rule. PPM The private placement memorandum: the risk document people skim at their own expense. A PPM describes a private offering, its risks, terms, issuer, conflicts, fees, and legal disclosures. Legal Offering terms + risk factors + conflicts + disclosures = the document you do not skim. Ask which risk factor, fee, conflict, or control right would change your decision if it got ugly. Preferred return The return hurdle investors are generally paid before the sponsor promotes. A preferred return is a priority return to limited partners before profits are split according to the promote structure. Syndications Cash available first pays the preferred return, then the waterfall decides the split. Ask whether the pref is cumulative, compounding, current-pay, or catch-up. The polite word can hide very different math. R
Rate cap Insurance against floating-rate debt rising past a set level. A rate cap limits how high the benchmark rate can affect a floating-rate loan for a defined period. Financing Floating debt risk + cap strike + expiration date + replacement cost = the real rate-cap question. Ask when the cap expires, what strike price it has, what replacement costs, and whether reserves already cover it. Reserves Cash held back so the property can survive real life without panic. Reserves are cash set aside for repairs, downtime, insurance shocks, debt issues, capital projects, and the ordinary ugliness that never appears in the pretty version of a model. Underwriting Known needs + operating cushion + lender requirements + real-world contingency = reserve policy. Ask how much cash is reserved, what it is earmarked for, who controls it, and what happens before investors are asked for more capital. S
Syndication A group of investors pooling capital to buy a real estate asset. A real estate syndication lets passive limited partners own a share of a larger asset while a sponsor handles acquisition and operations. Syndications Sponsor controls the plan; limited partners supply capital and read the documents before they wire. Ask who controls decisions after the wire leaves. Passive does not mean blind. W
Waterfall The order in which deal profits are distributed. A waterfall lays out who gets paid, in what order, and at what return hurdles as deal cash flow and sale proceeds are distributed. Syndications Cash flows through tiers: return of capital, preferred return, catch-up if any, then split profits. Ask when the sponsor promotes, whether there is catch-up, and what happens after refinance or sale. No glossary terms match that search.
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