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Common Multifamily Terms

Real Estate can be confusing sometimes. So we made a glossary to make it a bit easier!


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1031 Exchange

A 1031 Exchange is a capital gains tax deferral option in which taxpayers can reinvest the proceeds from the sale of an investment property into another investment or property, delaying any capital gains taxes.


Rule 506(b) provides an exemption under Regulation D of the Securities Act. This exemption provides a way for companies to raise money and sell investment opportunities to both accredited investors and a limited number of non-accredited investors per opportunity. Under this rule, the company offering the investment can't advertise or publish investment details publicly.


Rule 506(c) permits issuers to solicit and generally advertise an offering to accredited investors. The issuer must take steps to verify purchasers' accredited investor status and satisfy other conditions in Regulation D.



A reduction in amount or intensity. Usually applies to decreases in taxes or rent.

Absorption Rate

A reduction in amount or intensity. Usually applies to decreases in taxes or rent.

Accredited Investor

A partner once they have an annual income of $200,000, or $300,000 for joint income, for the last two years with an expectation of earning the same or higher in the future. If the individual does not meet this requirement, they will also qualify if they, either individually or with their spouse, have a net worth above $1 million.

Acquisition Fee

The buyer pays the Acquisition Fee as an upfront fee to the general partner for the service they provided to find, analyze, evaluate, source financing, and close the investment. The fees range depending on the size of the deal.

Ad Valorem

The Ad Valorem Tax is a tax imposed at the time of a transaction, based on the value of the transaction.

Annual Percentage Rate (APR)

The Annual Percentage Rate reflects the cost of borrowing money. This rate represents the entire disclosure of the interest rate, loan discount points, loan origination fees, and other lender-paid credit costs.


Appreciation reflects the increase in the value of an asset over time. Appreciation occurs through two main types: forced and natural. Natural appreciation occurs when the economy is performing well and the market cap rate decreases "naturally". Forced appreciation occurs through increasing the net operating income (either by increasing the revenue or decreasing the expenses).

Asset Management Fee

An Asset Management Fee is an ongoing fee paid annually to the general partner for property oversight.

Average Annual Effective Rent

An Asset Management Fee is an ongoing fee paid annually to the general partner for property oversight.


Bad Debt

Bad Debt reflects the sum of past-due money a tenant owes after they move out.


The amount left over after subtracting the amount owed (on a loan) or the amount remaining already paid (in an account).

Base Rent

A Base Rent is the set amount used as the minimum rent in a business plan.

Base Year

The Base Year refers to the expenses and taxes at the point of purchase. Once these expenses are known, the unit leases increase annually to reflect expense increases above the base year figures.

Breakeven Occupancy

Breakeven Occupancy is the rate need to cover all of the apartment community expenses. This rate is calculated by dividing the operating expenses and debt service by the gross potential income.

Bridge Loan

A Bridge Loan is a loan used until a company secures permanent financing. Bridge loans are short-term, typically six months to three years, with the option to purchase an additional six months to two years. Bridge Loans commonly have a higher interest rate and are almost exclusively interest-only. Bridge Loans are ideal choices for apartment financing. They are also referred to by other names, such as swing loans, interim financing, or gap financing.


A Broker is a commercial real estate agent who represents a party to facilitate buying, selling, or leasing a commercial property.

Building Classifications

Building Classifications typically refer to Class "A", "B", "C", and "D" properties. The rating assigned to a building is subjective and relative to the sub-market. Class "A" properties are commonly newer buildings with a higher level of construction, higher-finish levels, and located in prime locations. Age, location, amenities, and construction of the building impact its classification ranking. A Class "A" building in one sub-market may rank lower in a different sub-market due to the other competition in that sub-market.

Cap Rate

The capitalization rate, or “cap rate,” refers to a ratio used to convert an income stream into an estimate of value. The income stream utilized is the property's net operating income, which takes into account expenses such as utilities, insurance, management, and repairs, but which does not include financing expenses (like debt service). At the time of acquisition, the cap rate can be figured by dividing a property's net operating income by the property's purchase price (its then current value). Example: A property that has a gross income of $300,000 and operating expenses of $100,000 (for a net operating income of $200,000), and a purchase price of $2,000,000 would be calculated as: Net Operating Income ÷​ Purchase Price = $200,000 ÷​ $2,000,000 = 10.0% cap rate. Since cap rates convert an income stream to value, the above calculation can be re-figured so that a given income stream and an assumed cap rate can be used to estimate the value of a comparable property, or even to estimate the future value of a property. Investors often use cap rates to convert future projected income streams into that property's future value (and thus its anticipated sales price at that time).

Capital Expenditures (CapEx)

Capital Expenditures, referred to as CapEx, are the funds used to upgrade and maintain an apartment community. An expense is considered a capital expenditure when used to improve the life of an apartment complex or unit and is capitalized – spreading the cost of the expenditure over the asset's useful life. Capital Expenditure renovations can include both interior and exterior updates. Examples of CapEx include rebranding the property, installing new flooring, and fresh paint. CapEx does not include operating expenses, turnover costs, ongoing maintenance and repairs, landscaping, utilities, or payroll.

Capital Gain

Capital Gain is calculated as follows: the final sale price of the investment property, minus the exchange expenses, minus the sold property's adjusted basis.

Capital Improvements

Improvements refer to updates made to a property to improve its physical appearance on the exterior or interior. It can also include additions to the property such as playgrounds, gates, and carports.


Capitalization is the method of determining the value of real property. This calculation is made by looking at net operating income divided by a predetermined annual rate of return.

Capitalization Rate (Cap Rate)

Cap Rate reflects the rate of return and is based on the income the property is expected to generate. The cap rate is the NOI (net operating income) divided by the purchase price. Also called "free and clear return". See "Capitalization".

Carrying Charges

Carrying Charges represents the costs incidental to property ownership, other than interest, that must be absorbed during the lease-up of a building and during periods of vacancy. For example - taxes, insurance, and maintenance.

Cash-On-Cash (CoC)

Cash-On-Cash (CoC) provides the rate cash is returned in relation to your original investment, expressed as a percentage. CoC is calculated by dividing the cash flow by the initial investment. If you receive 10,000 in cash flow and you initially invested $100,000, your CoC would be 10% (10,000/$100,000)

Cash Flow

Cash Flow is the revenue provided to investors after all expenses are paid. To calculate Cash Flow, subtract the operating expense and debt service from the collected revenue.

CBD: Central Business District

The Central Business District is the main business and commercial area of a town or city.

Certificate of Insurance

An insurance company or its agent issues a Certificate of Insurance to verify that an insurance policy is in effect for stated amounts, coverages, and names those insured.

Closing Costs

Closing Costs refer to the additional expenses beyond the property's price that buyers and sellers typically incur to complete a real estate transaction.

Commencement Date

The Commencement Date is the date the lease goes into effect.

Common Area

The Common Area includes the areas of a building (and its site) available for use by all tenants, such as lobbies, corridors, and parking lots.


Concessions are incentives offered to prospective tenants to encourage them to sign a lease. For example, a landlord may offer a discount for the first three months if a tenant signs a longer lease term.


An acronym for "Consumer Price Index," CPI is an economic indicator measuring inflation. Rental rates tend to increase annually, aligning with this inflation rate.

Debt Service

The periodic payments required to cover the interest payments -- and usually also including a portion of the principal amount -- of a loan.

Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR) measures the cash flow available to cover the property's debt obligation. This ratio is calculated by dividing the net operating income by the total debt service. A DSCR of 1.0 shows there is enough net operating income to cover 100% of the debt service.

Base Rent

A Base Rent is the set amount used as the minimum rent in a business plan.


Depreciation allocates an asset's cost over its useful life. Depreciating assets helps companies expense a portion of the asset's cost each year the asset is in use while earning revenue on the investment.


Distributions are made based on the cash flow of the property and profits made when it is refinanced or sold. The limited partner's portion of the profits is paid through these distributions, which are sent monthly, quarterly, or annually, and when a property is refinanced or sold.

Earnest Money

Earnest Money is an advance of a portion of the purchase price to indicate the ability of the buyer to carry out the contract.

Effective Gross Income (EGI)

Effective Gross Income (EGI) reflects the positive cash flow of the multifamily property. This number reflects the sum of the income minus the lost income - typically due to vacancy, concessions, and bad debt.

Effective Rent

The Effective Rent is the actual rental rate achieved by the landlord after deducting any concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the lease term.

Employee Unit

An Employee Unit is a unit rented at a discounted rate to employees.


Any right to, or interest in, land that affects its value. Includes outstanding mortgage loans, unpaid taxes, easements, and deed restrictions.

Equity Investment

The Equity Investment reflects the initial cost associated with purchasing an apartment community, including the down payment, closing costs, and fees. This investment may also be referred to as the initial cash outlay or the down payment.

Equity Multiple (EM)

Equity Multiplier (EM) demonstrates the rate of return based on the total net profit and the initial investment. This value is calculated by adding the total net profit and the gross cash flow divided by the equity investment. An equity multiple of 2X means that you are doubling your money throughout the project.


An Escalation is a provision in a lease that increases the cost of rent for the tenant.

Exit Strategy

The Exit Strategy is the last stage of the business plan defining the timeline and process to refinance or sell the property.

Fair Market Value

The most probable price that a property should bring in a competitive and open market under all conditions needed for a fair sale, assuming that the price is not affected by undue stimulus and that the buyer and seller are each acting prudently and knowledgeably. The fair market value is the theoretical highest price that a buyer would pay, and the lowest price a seller would accept, assuming that both parties were willing -- but not compelled -- to act.

Financing Fees

Financing Fees are the fees charged by the lender at the beginning of the debt service. These fees are also referred to as a finance charge.

Fixed Costs

Fixed Costs are costs, such as loan service, which do not vary over the course of doing business.

General Partner

In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners, while in a limited partnership most members enjoy limited liability (although one partner must still be a general partner).

General Partner (GP)

A General Partner is a person who has responsibility for the company's actions, can legally bind the business, and is liable for the business's debts and obligations personally.

Gross Potential Income (GPI)

Gross Potential Income, or GPI, calculates the maximum rental income that a multifamily community could generate. GPR assumes that a property has no rental payment issues and 0% vacancy. The calculation is based on market rent, which is the average rent in the same geographic area. Also referred to as Gross Potential Rent (GPR).

Gross Rent Multiplier (GRM)

Gross Rent Multiplier (GRM) shows the ratio of a real estate investment price compared to its annual rental income before accounting for expenses. The GRM reflects the number of years the property would take to pay for itself. For a prospective real estate investor, a lower GRM represents a better opportunity.

Indirect Costs

Indirect Costs are development costs that do not include material and labor costs. These are also known as Soft Costs.

Interest Rate

An Interest Rate reflects the amount of interest due per period. The total interest on the amount lent or borrowed depends on the interest rate, principal sum, compounding frequency, and the length of time it is lent, deposited, or borrowed.

Interest-Only Loan

An Interest-Only Loan is a loan type in which the borrower pays only the interest for a designated period, with the principal balance unchanged during the interest-only period.

Internal Rate of Return (IRR)

The IRR is the annual rate of return, factoring in the timing of when those returns are received. If you invest $100,000 and receive a total of $100,000 in returns over five years, the average annual return is 20%. However, the IRR would be lower than that, as it factors in the timing of the payouts.


A Lease is a property contract between a tenant and a landlord. This contractually binding agreement grants exclusive possession or use of property, usually in return for a periodic payment referred to as "rent."

Lease Agreement

The Lease Agreement is a type of contract providing exclusive possession of the leased premises entered into by a landlord and tenant reflecting agreed-upon terms and conditions.

Lease Commencement Date

The Lease Commencement Date usually constitutes the beginning of the lease term, whether or not the tenant has taken possession.

Letter of Intent (LOI)

The Letter of Intent (LOI) is a document expressing the intent of each party in an agreement. It is not legally binding but instead aims to reduce misunderstandings between the parties.

Loss To Lease (LtL)

Loss To Lease (LtL) describes the difference between the actual rent per the lease and a unit's market rental rate. As an example, if the market rent for a unit is $2,000 per month and the actual rent is $1800 per month, the loss to lease is $200 per month.

Market Rent

Market Rent is the rental rate that a property would command on the open real estate market.

Market Value

Market Value is the highest price a property would command in a competitive and open market.

Metropolitan Statistical Area (MSA)

MSA is an acronym for Metropolitan Statistical Area, an area encompassing a major city and the surrounding cities.


Mid-Rise refers to a building with 4 to 8 stories above ground. However, in a Central Business District, this might extend to buildings up to twenty-five stories.

Model Unit

A Model Unit is a unit used as a sales tool to show how the actual unit will appear in layout, amenities, and construction.

Multifamily Dwelling

A Multifamily Dwelling is a classification of housing where multiple separate housing units are within one building or a complex of several buildings. A common form is an apartment building.

Operating Expenses

Operating Expenses reflect the cash needed to maintain and operate a property. Examples of operating expenses include property insurance, real estate taxes, property management, maintenance expenses, utilities, and accounting expenses. Operating expenses do not include debt service, capital expenditures, or cost recovery.

Pari-Passu Preferred Return

If the sponsor and investor receive the same preferred return, paid simultaneously, the pref is a "Pari-Passu" Preferred Return.

Permanent Agency Loan

A Permanent Agency Loan is defined as a loan on a piece of commercial property that has a term of at least five years and some amortization. Most commercial permanent loans are amortized over 25 years.

Physical Occupancy Rate

The Physical Occupancy Rate is the percentage of available rental space that is occupied by paying tenants. To find the occupancy rate for a particular month, take the number of units rented, divided by the number available to be rented, times 100.

Preferred Return (Pref)

A Preferred Return is a profit distribution structure in which proceeds are distributed to one class of equity before another until a specific rate of return on the initial investment is reached.

Prepayment Penalty

A Prepayment Penalty is an additional fee some lenders charge if you pay off your loan early.

Price Per Unit

The Price Per Unit refers to the price per apartment as it relates to the sum total of the multifamily investment. In other words, the number of units divided by the total investment.

Pro Forma

The Pro forma statement presents expected results to investors and assesses the potential earnings using specific projections or presumptions.

Profit and Loss Statement

The Profit and Loss Statement details the revenues and expenses during a time period. This statement indicates how the revenues are transformed into net income or net profit.

Property Management Fee

The Property Management Fee is a fee paid for day-to-day professional property management services in connection with the properties.

Ration Utility Billing System (RUBS)

RUBS stands for Ratio Utility Billing System. It can be a cost-effective and fair alternative to submeters. RUBS is a popular utility management solution and essentially divides the bill among your residents based on certain criteria. Different utility types can often influence the type of RUBS formula a property uses.

Recourse Loan

Recourse Loans allow the lender to recover any losses against the personal assets of a party liable for the debt in the event they default on the loan.

Refinance (Refi)

A Refinance (Refi) refers to the process of revising and replacing an existing loan agreement. When a business decides to refinance a credit obligation, they effectively seek to make favorable changes to their interest rate, payment schedule, or other terms. If approved, the new contract replaces the original agreement.

Refinancing Fee

Refinancing replaces an older loan with a new loan, typically with better terms. During this process, businesses will repay many loan-related fees, such as attorney and application fees.


Short for rehabilitation, Rehab is the extensive renovation of a building or project to improve the property's appearance.

Rent Comparable Analysis

The Rent Comparable Analysis is part of the due diligence process to analyze similar apartment communities in the same sub-market to determine how the market rents compare to the subject apartment community.

Rent Roll

A Rent Roll is a list of residents by unit and the rent paid by each resident in a multi-tenant property.

Rental Concession

Rental Concessions are something a landlord may offer a tenant to secure the tenancy. A move-in bonus or a short decrease in rent are common examples.

Sale Proceeds

The Net Sale proceeds are the amount the seller earns from selling an asset, minus the costs and expenses from the gross proceeds.

Soft Cost

Soft Costs refer to the project costs associated with the development, construction, marketing, leasing, operation, and maintenance of the improvements.

Soft Interest

A Soft Interest refers to how much you may be potentially interested in investing in a deal. The investment managers may ask for a soft interest after providing limited information before they open the deal for investment. Soft Interest is not a commitment to invest.

Sophisticated Investor

A sophisticated investor is a high-net-worth investor with sufficient knowledge and experience in financial and business matters, making them capable of evaluating the merits and risks of the prospective investment.


A Submarket is a segment or portion of a larger geographic market defined and identified based on one or more attributes that distinguish it from other submarkets or locations.


Regarding apartments, a Syndication is typically a partnership between general partners and the limited partners to acquire and sell an apartment community while sharing in the profits created through the process.


The Tenant is an individual who has possession of the property through a lease. A tenant also may be referred to as a lessee.


The Term refers to the duration of the lease agreement.

Time Value of Money (TVM)

TVM is an economic principle recognizing that a dollar today has greater value than a dollar in the future because of its current earning power.

True Preferred Return

If the investor receives a preferred return before a sponsor does, then the Pref is considered a "True" Preferred Return.


In real estate, generally refers to making an assessment of the risks and potential returns of a potential investment or loan


Underwriting is an investor or business process to evaluate, research, and quantify the financial risk associated with a particular investment.

Vacancy Loss

Vacancy Loss refers to the money that a property owner will not receive due to unfilled units or the non-payment of rent—also called vacancy and credit loss.

Vacancy Rate

Vacancy Rate is the total of available units compared to the unit count, expressed as a percentage and computed by multiplying vacant units times 100 and then dividing by the total unit count.


Another term for the internal rate of return (IRR), a measure of an investment's return rate that takes account of the time value of money.

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