Glossary of Terms — Simplified for Smarter Investing

Accredited Investor 👤

Under SEC Rule 506(c), accredited investors are individuals or entities that have a net worth exceeding $1 million (excluding primary residence) or an annual income of $200,000 for individuals (or $300,000 for joint income with a spouse) in each of the two most recent years, with a reasonable expectation of the same income level in the current year.—giving them access to private investments not available to the general public.



Alternative Investments 🧩

Assets outside of traditional stocks, bonds, or mutual funds—such as commercial real estate, private equity, oil & gas, energy, commodities, agriculture, private lending…—designed to improve returns and diversify risk.



Amortization 🧮

The process of gradually paying off debt through scheduled payments that cover both interest and principal. Important for understanding loan terms and equity build-up.



Asset-Backed Investment 🏛️

An investment secured by tangible assets like real estate or equipment. These provide a built-in safety net, as there’s collateral (typically physical) behind the capital.



Asymmetric Risk/Reward ⚖️

A smart-money strategy where the potential upside heavily outweighs the potential downside. It’s how the ultra-wealthy play offense with minimal defense.



Basis Points (BPS) 🎯

A unit of measurement used in finance—1 basis point = 0.01%. For example, an interest rate increase of 50 BPS means it went up by 0.50%.



Cap Rate (Capitalization Rate) 🧠

A formula used to value income-producing properties:

Cap Rate = NOI ÷ Purchase Price.

The higher the cap rate, the greater the return—but often with more risk.



Capital Stack 🧱

The layers of funding in an investment deal—ranging from senior debt (lowest risk) to common equity (highest reward). Each layer has its place, priority, risk, and payout.



Cash-Out Refinance 🔁

Refinancing a property at a higher valuation to pull out equity—without selling the asset—then reinvesting it elsewhere for compounding growth.



Cost Segregation Study 🛠️

A tax strategy that breaks down a property into separate components to accelerate depreciation—which can create massive upfront tax savings for investors. Just remember recapture tax.


Debt Service Coverage Ratio (DSCR) 🧾

A key lending metric:

DSCR = NOI ÷ Debt Payments.

A DSCR over 1.25x shows healthy cash flow to cover loan obligations—important for both lenders and investors.



Deferred Sales Trust (DST) 🛡️

A tool that allows you to sell a highly appreciated asset and defer capital gains taxes by reinvesting proceeds through a trust structure.



Distributions 💰

Periodic cash payments—monthly or quarterly—sent to investors from asset income (like rent, interest, or profits). Passive income, activated.



Equity Multiple ✖️

The total return on your investment over the life of a project.

Example: 2.0x equity multiple = you doubled your money.

Simple, powerful way to express outcomes quickly.



Exit Strategy 🚪

The planned way to "cash out" or return capital to investors—often through a sale, refinance, or merger. Essential to know before you invest.



Forced Appreciation 🔨

When property value increases by design, not just by market trends—through renovations, better tenants, or improved management and operations.



Gross Rent Multiplier (GRM) 🧮

A quick way to screen deals:

GRM = Purchase Price ÷ Gross Annual Rent.

Lower GRM = more attractive on the surface—but it ignores expenses, so it’s just a first look.



Hold Period 📆

How long an asset is held before exiting—typically 1 to 7 years. This sets expectations for liquidity and return timelines.



Institutional-Grade Asset 🏙️

High-caliber properties typically owned by pension funds, REITs, or endowments. Think newer, stabilized, well-located assets with consistent income.



Internal Rate of Return (IRR) 🔁

A metric that captures the annualized return of an investment—including timing and cash flow. A key number used by pros to compare deal returns.



IRR Hurdle 🪜

A set return level (e.g. 8%) that must be met before the profit-sharing structure shifts—typically where GPs start earning their performance bonus (promote).



K-1 Tax Form 🧾

An annual document for investors in a pass-through entity (like a single-member LLC), showing their share of income, losses, and deductions for tax filing.



Limited Partner (LP) 👥

A passive investor in a real estate deal. LPs provide capital, earn returns, and enjoy limited liability—without the stress of day-to-day management.



Liquidity Event 💧

A major milestone that returns capital or profit to investors—like a sale, refi, or asset buyout. When the payoff hits your account.



Net Operating Income (NOI) 📈

A property's total income minus operating expenses (excluding debt). It’s the core profitability metric used to value real estate.



Opportunity Zone 🗺️

Special areas offering major tax benefits to investors who place capital in long-term (~10yrs) real estate projects there.



Preferred Return 🥇

The baseline return that investors get before the sponsor earns any profits. LPs get paid first—like a financial safety net.



Promote / Carried Interest 💼

The sponsor’s reward—a share of profits after the preferred return is paid. It aligns incentives and motivates great performance.



Reversion Cap Rate 🔄

The projected cap rate at the time of sale.

Used to estimate what the property will be worth when the exit strategy is executed—conservative reversion = safer underwriting.



Risk-Adjusted Return 🧠

A smarter way to measure return—factoring in over a dozen different types of risk(covered in our eBooks). Two investments might both return 15%, but the one with less risk is the winner here.



Syndication 🤝

A group investment where passive investors (LPs) pool capital with an experienced operator (GP) to acquire and manage a property together.



Sponsor / General Partner (GP) 🎯

The active manager who sources, negotiates, and operates the deal. Their job: create value, execute the plan, and deliver returns.



Turnkey Investment 🔑

An income-producing property that’s fully managed and ready to go. Hands-off, mailbox-money style investing.



Underwriting 📑

The process of analyzing a deal’s financials, risks, and returns—before pulling the trigger. A deep dive to protect capital and maximize upside.



Ultra-High-Net-Worth Individual (UHNWI) 💎

Anyone with $30M+ in net worth—usually with serious allocations to private markets, alternatives, and direct real estate for stability and growth.



Value-Add Investment 🧰

A property with room for improvement—whether through renovations, better management, implementing new business ideas, or lease-ups—designed to force appreciation and increase cash flow.





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