Apollo AdvisingRental property glossary
Plain-language definitions of the terms that come up when you buy, run, refinance, sell, or exchange a rental property.
Return on equity Cash-on-cash return Cap rate Net operating income (NOI) Net cash flow Gross rent multiplier Appreciation Loan paydown Vacancy rate Capital expenditures (CapEx) Reserves Depreciation Short-term rental (STR) Medium-term rental (MTR) Long-term rental (LTR) House hacking Accessory dwelling unit (ADU) 1031 exchange Qualified intermediary (QI) Like-kind property Identification period Exchange period Boot Delaware Statutory Trust (DST) Depreciation recapture Loan-to-value (LTV) Debt service coverage ratio (DSCR) Cash-out refinance HELOC
Returns and numbers
- Return on equity
- A rental's annual net cash flow divided by its equity, which is today's market value minus the loan balance. It shows what the money tied up in a property is earning now. Calculator.
- Cash-on-cash return
- Annual pre-tax cash flow divided by the total cash you put in to buy the property, including the down payment, closing costs, and initial repairs. It measures the purchase; return on equity measures the property today.
- Cap rate
- Net operating income divided by the property's price or current value. Because it ignores financing, it is useful for comparing properties with each other, not for judging your own cash return.
- Net operating income (NOI)
- Rental income minus operating expenses such as taxes, insurance, repairs, management, and vacancy, before mortgage payments, depreciation, and income taxes.
- Net cash flow
- What a rental leaves you after every operating expense, the full mortgage payment, and a reserve for repairs and capital items.
- Gross rent multiplier
- Price divided by annual gross rent. A quick screening number that ignores expenses entirely.
- Appreciation
- The increase in a property's market value over time. It is not guaranteed, and it shows up as equity rather than cash until you sell or borrow against it.
- Loan paydown
- The principal portion of each mortgage payment, which reduces the loan balance and builds equity.
Running a rental
- Vacancy rate
- The share of the year a rental sits empty, usually budgeted as a percentage of gross rent.
- Capital expenditures (CapEx)
- Large, infrequent replacements such as roofs, HVAC systems, water heaters, and flooring. Owners usually set aside a monthly reserve for them.
- Reserves
- Cash set aside for repairs, capital expenditures, and vacancy so one bad month does not become a crisis.
- Depreciation
- A tax deduction for the wear on a rental building, not the land. Residential rental property is generally depreciated over 27.5 years. Your CPA calculates it.
Rental strategies
- Short-term rental (STR)
- A furnished rental for stays of a few nights, usually booked through platforms such as Airbnb or Vrbo. Many cities regulate stays under 30 days. Comparison guide.
- Medium-term rental (MTR)
- A furnished rental for stays of 30 days to several months, often for traveling nurses, relocating workers, and insurance placements.
- Long-term rental (LTR)
- An unfurnished rental on a lease, typically 12 months.
- House hacking
- Living in one unit or room of a property and renting out the rest to offset or cover the mortgage.
- Accessory dwelling unit (ADU)
- A second, self-contained living unit on a single-family lot, such as a garage apartment, backyard cottage, or converted basement. Local zoning decides whether one is allowed.
1031 exchanges
- 1031 exchange
- A transaction under Section 1031 of the Internal Revenue Code that lets you defer capital gains tax when you sell investment or business real property and reinvest in like-kind real property. Timeline guide.
- Qualified intermediary (QI)
- The independent party that holds sale proceeds during a 1031 exchange. If the proceeds reach you, the exchange generally fails.
- Like-kind property
- For real estate, real property in the United States held for investment or business use is generally like-kind to other such property, so a rental house can be exchanged for an apartment building or land. A primary home does not qualify.
- Identification period
- The 45 days after the sale closes in which replacement property must be identified in writing. Deadline calculator.
- Exchange period
- The 180 days after the sale closes in which replacement property must be acquired, ending sooner if the tax return for that year is due first, unless extended.
- Boot
- Cash or other value received in an exchange that is not like-kind property, including debt that is paid off and not replaced. Boot is generally taxable.
- Delaware Statutory Trust (DST)
- A trust that holds professionally managed real estate and sells fractional interests to investors. A DST interest can generally serve as like-kind replacement property in a 1031 exchange, but it is a security: typically illiquid, with no investor control and fees that vary by sponsor. Consult a licensed investment adviser before investing. More on DSTs.
- Depreciation recapture
- When you sell a rental, the part of the gain that comes from depreciation you took is generally taxed at rates up to 25%. A 1031 exchange can defer it along with capital gains tax.
Financing
- Loan-to-value (LTV)
- The loan balance divided by the property's value. Lenders use it to set how much you can borrow.
- Debt service coverage ratio (DSCR)
- Net operating income divided by annual mortgage payments. Many lenders look for 1.2 or higher on rental loans, though requirements vary.
- Cash-out refinance
- Replacing your mortgage with a larger one and taking the difference in cash. It raises the balance and usually the payment. Refinance decisions.
- HELOC
- A home equity line of credit: a revolving line secured by a property's equity. Lines on investment property are less widely available and usually carry higher rates.
This page is general education, not legal, tax, investment, insurance, or lending advice. See our disclosures.