Multifamily real estate has its own vocabulary. Understanding that language makes it easier to follow how a property is evaluated, financed, acquired, improved, and operated.
This dictionary provides plain-English definitions of terms you may encounter throughout our website and when reviewing a potential investment opportunity. These definitions are educational; the legal and offering documents for a specific investment will control how its terms are applied.
Our dictionary covers the most commonly used terms in multifamily syndication, including cash flow, depreciation, cap rates, net operating income, and internal rate of return. You will also find definitions of deal-structure terms such as general partner, limited partner, preferred return, and promoted interest.
Whether you are new to real estate or a seasoned investor, this resource helps you understand the language of the industry. Bookmark this page and refer back whenever you encounter unfamiliar terms in your investment journey.
The scheduled principal and interest payments made on a property’s loan.
A ratio that compares a property’s NOI with its required debt payments. A DSCR above 1.0 indicates that NOI exceeds debt service, although lenders may calculate the ratio differently.
The amount of a loan divided by the property’s appraised value or purchase price. Lenders use LTV as one measure of financing risk.
A loan with an interest rate that remains unchanged during its specified fixed-rate period.
Shorter-term financing that may be used while a property is being renovated, repositioned, or prepared for longer-term financing. Bridge loans can carry additional interest-rate and refinancing risk.
A structure through which multiple investors combine capital to participate in a property that they may not be able—or may not want—to purchase and operate individually.
The individual or group responsible for organizing the investment and overseeing execution of the business plan. Responsibilities and decision-making authority are defined by the investment’s legal documents.
A passive investor who contributes capital but does not manage the property’s daily operations. An investor’s rights, responsibilities, and limitations are established by the applicable agreements.
A return threshold that generally gives capital partners priority in the distribution structure before certain profits are shared with the sponsor. It is not a guaranteed return, and the exact terms vary by offering.
The order and method used to distribute available cash and sale proceeds among investors and sponsors.
The sponsor’s share of profits after specified return thresholds or distribution priorities have been met.
A request for investors to contribute additional capital after the original investment. Whether capital calls are permitted, required, or optional depends on the investment documents.
Cash remaining after property income is used to pay operating expenses, debt service, reserves, and other required costs. Not all available cash must be distributed to investors.
Annual cash distributions divided by the investor’s original cash investment. This measure does not include appreciation or sale proceeds.
Total distributions received over the life of an investment divided by the amount of equity invested. Equity multiple does not account for how long the capital was invested.
A return expressed as an average yearly rate over a particular period. It is not the same as internal rate of return.
A performance measure that considers the amount and timing of projected or actual cash flows. IRR is sensitive to when distributions and sale proceeds occur.
An increase in property value caused by market conditions, improved financial performance, or both. Appreciation is not guaranteed.
A potential increase in value created by deliberately improving a property’s income, expenses, operations, or physical condition. Market conditions and capitalization rates also affect the resulting value.
The process of evaluating a property’s financial performance, condition, market, financing, risks, and potential business plan.
The physical, financial, legal, and operational investigation performed before completing an acquisition. Due diligence is used to verify information and identify conditions that could affect the investment.
A financial projection based on assumptions about future income, expenses, financing, improvements, and property performance. A pro forma is an estimate, not a promise of future results.
A business plan intended to improve a property through renovations, better management, new amenities, expense controls, or other operational changes.
The anticipated length of time an investment will own a property. The actual hold period may be shorter or longer depending on performance, financing, market conditions, and the business plan.
The planned method for completing the investment, such as selling or refinancing the property. Execution and timing depend on future conditions and cannot be guaranteed.
A tax deduction that allocates the cost of qualifying property over a prescribed period. Depreciation may reduce taxable income even when the property’s market value has not declined.
A specialized tax study that separates qualifying property components into different depreciation categories, potentially accelerating certain deductions. The benefits and consequences vary by investor. Investors should consult their own tax professionals regarding how these or other tax provisions may apply to their circumstances.
If you encounter a term on our website or in investment materials that you do not understand, ask us. We want prospective capital partners to understand the language being used before evaluating an opportunity.
