Cap Rate Glossary

• Net Operating Income (NOI)

  Income after operating expenses, before debt

• Property Investment Calculator

  Tool that computes cap rate, GRM, cash on cash, NPV and IRR

• Income Approach

  Valuing property by capitalizing its income

• Real Estate Appraisal

  Professional opinion of value, including the income approach

• Gross Rent Multiplier (GRM)

  Price divided by annual gross rent

• Real Estate Investing

  Buying property for income and appreciation

• Market Value

  The price a property would fetch between willing parties

• Cash on Cash Return

  Cash flow after the mortgage divided by cash invested

• Discounted Cash Flow (DCF)

  Valuing a stream of future cash flows at a discount rate

• Mortgage Constant

  Annual debt service as a share of the loan balance

• Debt Service Coverage Ratio (DSCR)

  NOI divided by annual debt service

• Loan-to-Value Ratio (LTV)

  Loan amount as a share of value

• Net Present Value (NPV)

  Present value of future cash flows minus the cost today

• Internal Rate of Return (IRR)

  The discount rate at which NPV equals zero

• Risk Premium

  Extra return demanded for bearing risk

• Dividend Discount Model

  Value equals next payment divided by rate minus growth

• Commercial Property

  Real estate held to produce income

• Payback Period

  Years to recover the investment from its income

• Rack-Rent

  Full market rent, when passing rent equals rental value

• Mortgage Calculator

  Computes a loan payment from amount, rate and term

• Cash Flow

  NOI minus debt service