Glossary of Terms

Below are some of the most commonly used terms in Multifamily Syndications.

Cap rate: A measure of a property’s value that is calculated by dividing the property’s net operating income (NOI) by its purchase price.

Cash-on-cash return: The annual rate of return on an investment property based on the amount of cash invested.

Equity: The difference between the property’s value and the outstanding mortgage balance.

Gross rent multiplier (GRM): A measure of a property’s value that is calculated by dividing the property’s purchase price by its gross rental income.

Internal rate of return (IRR): The rate of return on an investment property based on the time value of money.

Limited liability company (LLC): A legal structure that provides limited liability protection for its members.

Limited partnership (LP): A legal structure that allows for limited liability for certain partners and general liability for others.

Net operating income (NOI): The income generated by a property after deducting operating expenses.

Operating expenses: The expenses associated with operating a property, such as property taxes, insurance, utilities, and maintenance costs.

Preferred return: A guaranteed rate of return on an investment, paid to investors before any profits are distributed.

Syndication: An investment structure where multiple investors pool their funds to purchase and operate a property.

Value-add: A strategy where an investor purchases a property with the intention of making improvements that will increase its value and generate higher returns.

Vacancy rate: The percentage of units in a property that are not occupied by tenants.

Debt service coverage ratio (DSCR): A measure of a property’s ability to generate enough income to cover its mortgage payments.

Capital expenditure (CapEx): The amount of money spent on improving the property that is not considered as a regular operating expense.

Renovated Rent Premium: The increase in rent that could be charged on a unit that has been improved or renovated, relative to its original rent.

Loan-to-value ratio (LTV): The ratio of the loan amount to the value of the property.

Market rent: The average rent being charged in a specific market for a particular type of property.

Hold period: The duration for which an investor intends to hold onto an investment property before selling it.

Concessions: Perks or incentives offered by the landlord to tenants, usually during lease-up, to attract new tenants or to retain existing ones.