Real estate investing terms investors use every day

DSCR measures whether a property generates enough income to cover its loan payments.

Formula: DSCR = Annual NOI ÷ Annual Debt Service

Example: Annual NOI = $15,000 Annual debt service = $12,000 DSCR = 1.25

Interpretation: - above 1.0 means the property produces enough income to cover the debt - below 1.0 means the property does not fully cover the debt - many lenders like to see 1.2 or higher

Why this matters: DSCR answers the simple question: does the property make enough to pay the loan? It helps you see how much room there is if income drops or expenses rise.

NOI is the income a property produces after operating expenses are removed, but before the mortgage is applied.

Formula: NOI = Effective Gross Income − Operating Expenses

Example: Rent = $2,000/month Vacancy = $100/month Effective Gross Income = $1,900/month Operating expenses = $650/month NOI = $1,250/month

Why this matters: NOI shows the property's income before financing. It's useful because it isolates the property performance independent of loan terms and is used in cap rate and DSCR.

Cap rate measures how strong a property is without looking at financing.

Formula: Cap Rate = Annual NOI ÷ Purchase Price

Example: Monthly NOI = $1,250 Annual NOI = $15,000 Purchase price = $220,000 Cap rate = $15,000 ÷ $220,000 = 6.8%

Why this matters: Cap rate helps compare properties on their own income vs price, before loans change the picture.

Cash-on-cash return tells you how hard your invested cash is working.

Formula: Cash-on-Cash Return = Annual Cash Flow ÷ Total Cash Invested

Example: Down payment = $40,000 Closing costs = $6,000 Initial repairs = $9,000 Total cash invested = $55,000 Annual cash flow = $3,600 Cash-on-cash return = $3,600 ÷ $55,000 = 6.5%

Why this matters: This helps you compare how efficiently your upfront cash is earning income. Two deals can have the same cash flow but very different cash required; this metric makes that clear.

LTV shows how much of the property is financed with a loan.

Formula: LTV = Loan Amount ÷ Property Value

Example: Loan amount = $160,000 Property value = $200,000 LTV = 80%

Why this matters: Higher LTV means more leverage, which can improve returns but also increases risk.

Vacancy rate estimates how much rental income may be lost because the property is not occupied all the time.

Formula: Vacancy Loss = Gross Income × Vacancy Rate

Example: Monthly rent = $2,000 Vacancy rate = 5% Vacancy loss = $100/month

Why this matters: Ignoring vacancy makes deals look better on paper than they are in real life.

CapEx refers to large, infrequent costs like roofs, HVAC systems, and major replacements.

Example: If rent is $2,000/month and you reserve 5% for CapEx, that means setting aside $100/month.

Why this matters: One large repair can wipe out your profit if you are not planning for these costs.

Effective gross income is the income left after vacancy is removed from total rent and other income.

Formula: Effective Gross Income = Gross Income − Vacancy Loss

Example: Gross income = $2,100/month Vacancy loss = $105/month Effective gross income = $1,995/month

Why this matters: DealPrism uses effective gross income as the base for several operating expense calculations.

Monthly cash flow is the amount left over after income, operating expenses, and debt payments are accounted for.

Simple version: Cash Flow = Rent − Expenses − Mortgage

More complete version: Cash Flow = (Rent + Other Income − Vacancy) − Operating Expenses − Monthly Debt Service

Example: Rent = $2,000 Vacancy = $100 Operating expenses = $600 Mortgage = $1,100 Cash flow = $200/month

DealPrism uses the standard amortizing loan formula for principal and interest.

Formula: r = annual interest rate ÷ 12 n = loan term in months Monthly rate factor = [r × (1 + r)^n] ÷ [(1 + r)^n − 1] Monthly PI = Loan Amount × Monthly rate factor

If the rate is zero: Monthly PI = Loan Amount ÷ n

That principal and interest amount is then combined with PMI, if applicable, to get monthly debt service.