New to real estate investing? Use this 101 glossary to learn more about common real estate investment management terms.

AMORTIZATION A gradual reduction of a loan debt through periodic installment payments of principal and interest, calculated to pay off the debt at the end of a fixed period.

ASSESSMENT A property’s assessment is based on its market value. Assessments are determined by the assessor, a local official who estimates the value of property in a community.

BASIS POINT A unit equal to 1/100 of 1% and used to denote the change in a financial instrument.

CAPITAL EXPENDITURE OR CAP EX Money spent by a business to acquire or maintain fixed assets such as land, buildings, and equipment.

CAP RATE The ratio between a property’s market value and its net operating income (NOI). NOI divided by market value equals cap rate, and/or, NOI divided by cap rate equals market value.

CASH FLOW The money that enters or leaves your pocket while you are operating an investment property. Positive cash flow is good; negative cash flow is bad.

COMMERCIAL LOAN A debt-based funding arrangement that a business can enter into with a financial institution.

DEBT SERVICE The cash required during a certain period for repayment of interest and principal ona debt.

DEPRECIATION The measure of how much a property’s value has decreased over time.

DUE DILIGENCE A review of a potential investment, including a financial records analysis.

FINANCIAL INSTRUMENT A monetary contract between parties such as cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash. They can be created, traded, modified and settled.

101 Real Estate Investing Glossary

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ISSUER An issuer is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments.

LOAN TO VALUE (LTV) The percentage of the loan to the overall property value. For example, if the loan is $14 million and the property value is $20 million, then the LTV is 70%.

MARKET VALUE The amount a property would sell for under normal conditions.

NET OPERATING INCOME (NOI) A measure that shows a property’s ability to generate income. NOI equals all revenue from the property minus all reasonably necessary operating expenses.

OPERATING EXPENSE An expense incurred in carrying out the day-to-day operation and maintenance of an income-producing property.

REAL ESTATE INVESTMENT TRUST (REIT) A special type of corporate entity that invests in real estate and that receives special tax benefits, but also falls under various operational restrictions.

RETURN ON INVESTMENT (ROI) The percent gained or lost on an investment.

SECURITIZATION The process through which an issuer creates a financial instrument by combining other financial assets, and then marketing different tiers of the repackaged instrument to investors.

TAX ABATEMENT A reduction in taxes based on investments made into new construction or renovations.

TRAUNCHE A piece, portion, or slice of a deal or structured financing.

UNDERWRITING The process of evaluating an investment, performed by both investors and lenders.