Real Estate Investing Glossary
Plain-English definitions of the metrics real estate investors use — DSCR, cap rate, NOI, cash-on-cash, GRM, amortization, LTV and more.
- Capitalization rate (cap rate)The unlevered annual return an income property produces: net operating income divided by its value or purchase price.
- Cash-on-cash returnAnnual pre-tax cash flow divided by the total cash invested (down payment + closing costs).
- Debt service coverage ratio (DSCR)The ratio of a property’s net operating income to its annual debt service — the number DSCR lenders qualify the loan on.
- Net operating income (NOI)A property’s gross operating income minus its operating expenses, before debt service and income tax.
- Gross operating income (GOI)Gross scheduled rent minus vacancy and credit loss — the income a property actually collects.
- Operating expenses (opex)The recurring costs of running a rental property, excluding the mortgage and capital improvements.
- Vacancy rateThe share of potential rent lost to unoccupied units and uncollected rent.
- AmortizationThe schedule by which a loan is paid off over time through fixed payments of principal and interest.
- Principal & interest (P&I)The two parts of a mortgage payment: principal reduces the loan balance; interest is the lender’s charge.
- Debt serviceThe total cash required to repay a loan over a period — for a mortgage, monthly principal and interest (×12 for annual).
- Loan-to-value (LTV)The loan amount as a percentage of the property’s value.
- Gross rent multiplier (GRM)A property’s price divided by its gross annual rent — a fast price-to-income screen.
- The 50% ruleA rule of thumb that a rental’s operating expenses run about half of its gross income, leaving roughly 50% as NOI.
- The 1% ruleA rule of thumb that a deal is worth a closer look when gross monthly rent is at least 1% of the purchase price.
- Down paymentThe portion of the purchase price paid in cash up front; the rest is financed.
- Cash flowThe cash a property generates after operating expenses and debt service — what actually reaches your pocket.
- EquityThe portion of a property’s value you own free and clear — its value minus the loan balance.
Every InvestCalc result is built from a handful of core concepts. This glossary defines them in plain English so you can read a calculator’s output with confidence — and know which metric answers which question.
A quick map: cap rate and GRM value a property ignoring financing; cash-on-cash and DSCR put the mortgage back in. NOI sits underneath all of them. The 50% rule and 1% rule are fast screens to triage a listing before you get to the detailed math.
How the metrics fit together
A typical workflow: screen with GRM or the 1% rule, value with cap rate, then test financing with DSCR (what a lender checks) and cash-on-cash (what your wallet feels). Cap rate and cash-on-cash use the same NOI — the difference is whether the loan is included.