Reference
Real Estate Investing Glossary
Definitions and explanations of key terms in single-family residential investing, 1031 exchanges, and real estate tax strategy.
1
- What Is The 1% Rule In SFR Investing? The 1% rule is a profitability benchmark requiring monthly rent to equal at least 1% of the total purchase price.
- What Is A 1031 Exchange? Comprehensive guide to 1031 exchanges — how property investors can leverage tax-deferred exchanges to reinvest proceeds and defer capital gains.
- What Is A 1031 Exchange In SFR Investing? A 1031 exchange allows deferral of federal and state capital gains taxes when exchanging investment properties for like-kind replacements.
A
- What Is Accelerated Depreciation In SFR Investing? Accelerated depreciation allows investors to deduct a greater portion of depreciable property costs during early ownership years.
- What Is An Accommodator In SFR Investing? An Accommodator is an unrelated party who holds funds in escrow in a tax-deferred 1031 exchange, also known as a Qualified Intermediary.
- What Is Adjusted Basis In SFR Investing? Adjusted basis is the total cost of an investment property adjusted for depreciation and capital expenditures.
- What Is After Repair Value In SFR Investing? After Repair Value (ARV) is an estimate of a property's value after renovation, based on comparable properties.
- What Is Alternative Minimum Tax In SFR Investing? A supplemental income tax imposed by the federal government on individuals and entities with special exemptions reducing standard tax obligations.
B
- What Is a Balanced Exchange In SFR Investing? A balanced exchange ensures 100% tax deferral by acquiring replacement property of equal or greater value.
- What Is a Basis Point In SFR Investing? A basis point equals 0.01% — one hundred basis points equal a 1% change.
- What Is Boot In SFR Investing? Boot is non-like-kind property or cash in a 1031 exchange that becomes taxable.
- What Is a Broker Price Opinion (BPO) In SFR Investing? A BPO is a property valuation report incorporating comparable sales and property condition.
C
- What Is a Cap Rate In SFR Investing? Capitalization rate is the percentage return calculated by dividing income by property cost or value.
- What Are Capital Expenditures (CAPEX) In SFR Investing? Capital expenditures are upgrades or material improvements to investment properties, distinct from repairs.
- What Is a Capital Gain or Loss In SFR Investing? Capital gain or loss is the difference between a property's selling price (minus costs) and its adjusted basis.
- What Are Capital Improvements In SFR Investing? Capital improvements are permanent property upgrades where costs are added to the property basis.
- What Is Cash On Cash In SFR Investing? Cash on cash measures return on initial investment — net cash flow after loan payments divided by initial cash invested.
- What Is a Clear Title In SFR Investing? Clear title means property ownership without any material lien or levy from creditors.
- What Are Closing Costs In SFR Investing? Closing costs are expenses that buyers and sellers incur over and above the property price in a transaction.
- What Is Community Property In SFR Investing? Community property is property acquired by spouses during marriage with equal ownership interests.
- What Is Compound Annual Growth Rate (CAGR) In SFR Investing? CAGR measures the compounded growth rate from initial to ending investment property value across multiple periods.
- What Is a Cooperation Clause In SFR Investing? A cooperation clause is contractual language indicating a transaction is part of a 1031 exchange.
- What Is a Cost Segregation Analysis In SFR Investing? Cost segregation identifies and reclassifies personal property assets to shorten depreciation time for tax benefits.
D
- What Is Depreciation In SFR Investing? Depreciation is the periodic wearing away of property value over its economic life, providing tax deductions to investors.
- What Is Depreciation Recapture In SFR Investing? Depreciation recapture is the taxable gain representing recovery of previously claimed depreciation deductions.
- What Is Diligence In SFR Investing? Due diligence is the buyer's pre-purchase investigation covering lease review, title checks, inspections, and market research.
- What Are Distributions / Dividends In SFR Investing? Distributions are periodic payments made to investors from profits of rental investment properties.
- What Is A Down Payment In SFR Investing? The down payment is the portion of the property price paid in cash at the time of purchase when using leverage.
E
- What Is Equity In SFR Investing? Equity is the property value accumulated through mortgage paydown and market appreciation.
- What Is An Escrow Agent In SFR Investing? An escrow agent coordinates property transfers, prepares closing documents, and ensures sale terms are satisfied.
- What Is An Exchange In SFR Investing? An exchange is the disposition of relinquished property and acquisition of like-kind replacement property under IRC Section 1031.
- What Is Exchange Agreement In SFR Investing? An exchange agreement is a written agreement between a Qualified Intermediary and Exchangor for a 1031 exchange.
- What Is Exchange Period In SFR Investing? The exchange period is the 180-day window to complete acquisition of replacement property in a 1031 exchange.
- What Is An Exchangor In SFR Investing? The Exchangor is the taxpayer completing the tax-deferred 1031 exchange transaction.
G
H
- What Is A Home Inspection In SFR Investing? A home inspection examines a property's condition including roofing, plumbing, electrical, and structural systems.
- What Is A Home Owners Association (HOA) In SFR Investing? An HOA is an organization in a subdivision that makes and enforces rules for properties in its jurisdiction.
- What Is HPA In SFR Investing? HPA (Home Price Appreciation) is the increase in property value driven by demand, supply, inflation, or interest rates.
I
- What Is An Identification Period In SFR Investing? The identification period is the 45-day window to identify replacement properties in a 1031 exchange.
- What Is Income Property In SFR Investing? Income property is developed or purchased to generate income through rental revenue or appreciation.
- What Is The Initial Investment In SFR Investing? Initial investment is the capital needed to purchase rental property including down payment, fees, and closing costs.
- What Is Insurance In SFR Investing? Insurance policies covering comprehensive loss causes and replacement costs for rental properties.
- What Is An Intermediary In SFR Investing? An intermediary is an unrelated party facilitating 1031 exchanges between relinquished and replacement properties.
- What Is Internal Rate of Return (IRR) In SFR Investing? IRR measures annualized net return on equity, calculated as the discount rate where net present value equals zero.
- What Is The Internal Revenue Code 1031 In SFR Investing? IRC Section 1031 allows deferral of capital gains and depreciation recapture taxes when exchanging properties for like-kind replacements.
- What Is Investment Property In SFR Investing? Investment property is purchased to generate returns through rental income, future resale, or both.
- What Is IRA Investing In SFR Investing? IRA investing allows using retirement accounts to invest in real estate with tax-deferred returns.
L
- What Is A Lease In SFR Investing? A lease is a contract where a property owner transfers possession rights to a tenant in exchange for rent.
- What Is A Leasing Fee (Commission) In SFR Investing? Leasing fees are compensation paid to agents or property managers for securing new tenant leases and renewals.
- What Is Leveraged Return In SFR Investing? Leveraged return reflects actual investment returns after accounting for loans and debt used in acquisition.
- What Is A Like-Kind Exchange In SFR Investing? A like-kind exchange defers capital gains and depreciation recapture taxes when exchanging investment properties under IRC Section 1031.
- What Is Loan To Value In SFR Investing? Loan to Value (LTV) is a lending risk assessment ratio dividing loan amount by property value.
M
- What Is Market Value In SFR Investing? Market value is the most probable price a property should command in a competitive, open market under fair sale conditions.
- What Is A Mortgage Loan In SFR Investing? A mortgage loan is a legal borrowing agreement where lenders take property title as collateral until debt repayment.
N
- What Is Net Cash Flow In SFR Investing? Net cash flow is the remaining funds after deducting all property expenses and debt service payments.
- What Is Net Operating Income (NOI) In SFR Investing? Net Operating Income (NOI) equals all revenue from a property minus all operating expenses.
- What Is A Non-Recourse Loan In SFR Investing? Non-recourse loans are secured by property collateral — lenders cannot pursue borrowers beyond seizing the asset upon default.
O
- What Are Operating Expenses In SFR Investing? Operating expenses include property management fees, insurance, taxes, and maintenance costs for rental properties.
- What Is an Opportunity Zone In SFR Investing? An Opportunity Zone is an economically-distressed community where new investments may be eligible for preferential tax treatment.
- What Is Out-Of-State Investing In SFR Investing? Out-of-state investing enables access to rental properties in distant markets with better income potential.
P
- What Is A Principal Residence Exclusion (Section 121) In SFR Investing? Section 121 provides exclusion from capital gains tax on sale of principal residence — $250K for individuals, $500K for couples.
- What Is A Property Manager In SFR Investing? A property manager oversees leasing, rent collection, repairs, and maintenance of investment properties for owners.
- What Is Property Tax In SFR Investing? Property tax is a real estate ad-valorem tax calculated by local government and paid by the property owner.
R
- What Is a Real Estate Appraisal In SFR Investing? A real estate appraisal is the process of developing an opinion of market value performed by licensed professionals.
- What Is A Real Estate Investment Trust (REIT) In SFR Investing? A REIT owns income-producing real estate, allowing individual investors to earn income without direct property ownership.
- What Is A Real Estate Owned (REO) In SFR Investing? REO properties are owned by lenders, typically banks, resulting from foreclosure on defaulted borrowers.
- What Is Real Property In SFR Investing? Real property encompasses land and anything growing on, affixed to, or built upon land, including buildings.
- What Is A Real Property Exchange In SFR Investing? A real property exchange is a tax-deferred 1031 exchange involving sale of relinquished property and purchase of like-kind replacement.
- What Is Regulation D In SFR Investing? Regulation D enables unlimited fundraising from accredited investors without SEC registration.
- What Is Rehabilitation In SFR Investing? Rehabilitation encompasses repair work needed to make single-family rental properties tenant-ready.
- What Is A Relinquished Property In SFR Investing? A relinquished property is the property sold or disposed of in a tax-deferred, like-kind exchange transaction.
- What Is Repair and Maintenance Expense In SFR Investing? Repair and maintenance expenses are costs to restore or maintain property condition, distinct from capital improvements.
- What Is Replacement Property In SFR Investing? Replacement property is a like-kind property acquired in a tax-deferred 1031 exchange transaction.
- What Are Retail Investors In SFR Investing? Retail investors are individual investors purchasing rental properties for personal portfolios at lower investment levels than institutions.
S
- What Is A Security Deposit In SFR Investing? A security deposit is a monetary deposit held by landlords to protect against tenant-caused damage.
- What Is A Self Directed IRA (SDIRA) In SFR Investing? A Self Directed IRA (SDIRA) allows greater asset diversification beyond stocks, bonds, and mutual funds into real estate.
- What Is A Single Family Rental In SFR Investing? A single family rental is a single-unit residential property operated as a rental investment, similar to commercial real estate.
- What Is A Starker Exchange In SFR Investing? A Starker Exchange is another name for tax-deferred, like-kind exchange transactions, named after the 1979 court decision.
T
- What Is A Title Holder In SFR Investing? The title holder is the entity whose name appears on property title for single family rental investments.
- What Is A Title Report and Title Insurance In SFR Investing? A title report provides written analysis of property title status including descriptions, titleholders, tax rates, and encumbrances.
- What Is A Trust In SFR Investing? A trust is a fiduciary relationship where a trustor gives a trustee the right to hold title to properties for beneficiaries.
- What Is A Trustee In SFR Investing? A trustee is an individual or institution appointed to administer a trust for its beneficiaries.