Glossary

Real estate investing, translated

A real estate investing glossary defines the terms investors encounter on a pro forma, in a lender conversation, or on a property listing. This Lineage glossary covers DSCR, cap rate, cash-on-cash return, NOI, depreciation, 1031 exchanges, and 25+ other terms — each with a Lineage-specific example using real numbers.

1031 Exchange: Sell one investment property and buy another without paying capital gains tax. You have 45 days to identify a replacement property and 180 days to close. The gain rolls into the new property’s cost basis — you can defer taxes indefinitely by continuing to exchange. Most investors use this to trade up from a single property into a larger one.

Amortization: The schedule that determines how much of each payment goes to interest vs. principal. Early in the loan, most of your payment is interest. Over time, the split shifts and more goes to principal. On a 30-year loan at 7%, you’re paying roughly 88% interest in year one. By year 15, it’s closer to 77%. The amortization schedule determines how fast you build equity.
Appreciation: The increase in your property’s market value over time. In Lineage markets, this has historically run 4–6% annually. The key insight for leveraged investors: appreciation applies to the full property value, not just your down payment. A 5% gain on a $200K property is $10K — but if you only put $40K down, that’s a 25% return on your cash from appreciation alone.
ARV (After Repair Value): What a property is worth after renovations are complete. If you buy for $140K and put $20K into repairs, and the ARV is $185K, you’ve created $25K in equity through the rehab. Lineage properties are typically delivered at or near ARV — you’re not buying a project.

BRRRR: BRRRR is a rental property strategy: buy a distressed property, renovate it, rent it out, refinance to pull the renovation capital back, and repeat with the next deal. BRRRR is the operator-heavy version of building a rental portfolio. The investor sources off-market deals, manages contractors, lives with construction risk and timeline slips, and waits 6–12 months before the cash-out refinance returns their capital. The upside is capital efficiency: when it works, the same dollars fund every property. The cost is time, expertise, and the very real chance the renovation goes over budget or the appraisal comes in low. Turnkey rentals exist precisely because most investors don't want this work as their second job.

Cash Flow: The money left after a rental property pays every bill. Not the rent. The actual cash that hits your bank account after mortgage, taxes, insurance, property management, maintenance reserves, and vacancy allowance. A realistic range for Lineage properties is $200–$500/month per property after all expenses.
Cash-on-Cash Return: Your annual cash flow divided by total cash invested. If you put $50K into a property and it generates $3,600 in annual cash flow, your cash-on-cash return is 7.2%. This is the return that matters most for comparing properties — it measures what your actual dollars are earning.
Cap Rate (Capitalization Rate): Annual net operating income divided by purchase price. It tells you what the property earns before financing. A 7% cap rate means the property generates 7 cents of net income for every dollar of purchase price. Cap rate ignores your mortgage — it’s a property-level metric, not an investor-level metric. Lineage markets typically range from 6–8%.
Cash-Out Refinance: A cash-out refinance replaces your existing mortgage with a new, larger loan and returns the difference to you in cash at closing. Investors use cash-out refis to recapitalize after appreciation or principal paydown has built equity in a property — the new loan funds the next acquisition without selling the existing asset. DSCR cash-out caps typically run at 70–75% LTV. On a property worth $260K with $150K owed, a 75% LTV refi pulls roughly $45K out (after closing costs), enough to put down on the next deal.
Cost Segregation: A tax strategy that accelerates depreciation into the first few years of ownership. An engineer identifies components of your property (appliances, flooring, fixtures, landscaping) that can be depreciated faster than 27.5 years. On a $200K property, cost segregation can generate $15K–$22K in first-year deductions vs. $6K with standard depreciation. The study costs $3K–$5K. Worth it for high-income investors.
Closing Costs: Closing costs are the one-time fees paid when a real estate transaction closes, separate from the down payment. Includes lender fees, title insurance, appraisal, inspection, recording fees, and prepaid property taxes and insurance. On a $200K property, expect $4,000–$8,000 depending on the state and loan type. DSCR loans typically run higher than conventional on closing fees but lower on documentation drag.
Class A / B / C Properties: Property class is a shorthand for a rental's age, condition, and tenant profile — Class A is newest and highest-end, Class C is older and working-class. Class A: built in the last 10–15 years, premium finishes, professional tenants, lowest cap rates (4–6%). Class B: 1980s–2000s build, solid condition, mixed white-collar and blue-collar tenants, 6–8% cap rates. Class C: pre-1980, older systems, working-class tenants, 8%+ cap rates with higher operational diligence required. Lineage typically transacts in the B and B-/C ranges where cash flow is strongest and the operating team's expertise actually matters.

DSCR (Debt Service Coverage Ratio): The ratio of a property’s rental income to its mortgage payment. A DSCR of 1.2 means the property generates 20% more rent than the mortgage costs. DSCR loans qualify based on the property’s income, not yours — your W-2, tax returns, and other debts don’t factor in. Lineage’s lending partner typically requires a minimum DSCR of 1.0–1.25.
DSCR Loan: A mortgage that qualifies based on the property’s rental income, not yours. Rates run 0.25–0.75% higher than conventional loans. The trade-off: no income verification, no DTI calculation, and you can close in an LLC. For W-2 professionals who already have a conventional mortgage on their primary residence, DSCR is often the cleaner path.
DTI (Debt-to-Income Ratio): Your total monthly debt payments divided by your gross monthly income. Conventional lenders use DTI to determine how much you can borrow. Most cap investment property DTI at 45–50%. DSCR loans bypass DTI entirely — which is why most Lineage investors use them.
Debt Service: Your total mortgage payment — principal plus interest. When lenders evaluate a rental property, they compare the rent to the debt service to determine if the property can support the loan.
Depreciation: A non-cash tax deduction the IRS gives you for owning a rental property. Residential rentals are depreciated over 27.5 years. On a $200K property with $170K in building value, that’s a $6,182 annual deduction — money you deduct from your taxable income without writing a check. The property is probably appreciating in real life while you claim it’s losing value on paper. That’s the arbitrage.

Equity: Equity is the difference between what your property is worth and what you owe on it. Equity grows three ways: appreciation (market value increases), principal paydown (your tenant’s rent reduces the loan balance), and forced equity (renovations that increase value above their cost). On a $200K property with $150K owed, equity is $50K — and that number compounds quietly across a hold period.

Gross Yield: Annual rent divided by purchase price. A quick way to compare properties before running detailed numbers. A $200K property renting for $1,500/month ($18K/year) has a gross yield of 9%. This doesn’t account for expenses — it’s a screening metric, not a decision metric.

HELOC (Home Equity Line of Credit): A HELOC is a revolving credit line secured by the equity in a property you already own, usually your primary residence. Investors use HELOCs to fund down payments on rental properties without liquidating other assets. You draw what you need, pay interest only on what you use, and can repay and re-borrow as long as the line is open. Rates float and are typically a few points above prime.

IRR (Internal Rate of Return): IRR is the annualized rate of return on an investment that accounts for the timing of every cash flow over the hold period. Unlike cash-on-cash return, which only measures year-one cash relative to the down payment, IRR factors in appreciation, principal paydown, and the proceeds from sale or refinance. A $50K investment that produces $4K/year in cash flow and exits for $80K of equity after five years can pencil out to a 14–16% IRR. IRR is the metric sophisticated investors use to compare a rental property against other capital allocations.

LTV (Loan-to-Value Ratio): The loan amount divided by the property value. If you put 25% down on a $200K property, your loan is $150K and your LTV is 75%. Most DSCR lenders require 75–80% LTV for investment properties. Lower LTV = more equity = better rates.

Net Operating Income (NOI): Rental income minus operating expenses, before mortgage payments. Includes taxes, insurance, management, maintenance, and vacancy. On a property renting for $18K/year with $8K in operating expenses, NOI is $10K. This is the number used to calculate cap rate.

Pro Forma: A projection of a property’s financial performance. Expected rent, expenses, cash flow, and returns. Lineage provides one for every property in the marketplace. Pro formas are estimates based on conservative assumptions — we underwrite with realistic vacancy, full management fees, and maintenance reserves.
Principal Paydown: The portion of each mortgage payment that reduces your loan balance. Your tenant pays the full mortgage, but part of each payment builds your equity. On a $160K loan at 7%, about $1,572 goes to principal in year one. By year 10, it’s $2,343/year. Over 10 years, your tenant has paid down $18K–$20K of your debt. It’s a return most investors forget to count.
Property Management Fee: The percentage of rent paid to a professional property manager. Industry standard is 8–10% of collected rent. On a $1,500/month rental, that’s $120–$150/month. The property manager handles tenant screening, lease enforcement, maintenance coordination, and rent collection. For out-of-state investors, this isn’t optional — it’s infrastructure.

ROE (Return on Equity): Return on equity is annual return divided by your current equity in the property, not the cash you originally invested. ROE differs from cash-on-cash because it uses the equity you have today, which grows over time as the property appreciates and the loan amortizes. A property with strong year-one cash-on-cash can have a falling ROE five years in. Once ROE drops well below what fresh capital could earn, that's the signal to refinance or 1031 the equity into a larger asset.
Reserves: Reserves are cash held in liquid accounts to cover unexpected expenses, vacancies, and lender requirements after closing. Your lender will typically require 6 months of fixed expenses (PITI plus HOA) at closing. Beyond that, maintain roughly $200/month per property for maintenance. The property manager also holds a small repair reserve, usually $500. Reserves aren’t a cost — they’re insurance against a surprise turning into a crisis.

Turnkey Rental: A rental property delivered in rent-ready condition with the operating team already in place. A turnkey rental ships pre-inspected, renovated, and tenanted (or tenant-ready), with a vetted property manager assigned and lending pre-aligned. The investor closes and starts collecting rent without sourcing the contractor, the PM, or the lender themselves. Lineage runs ~$50K all-in on a typical $200K property (down payment plus closing plus reserves), closes in around 13 days, and charges a single $749 transaction fee. The opposite of BRRRR (which front-loads the operator's labor) and unlike a REIT (which gives up direct ownership). Title is in your name; you can sell or 1031 exchange whenever the deal makes sense.
Tenant Screening: The process of evaluating rental applicants before signing a lease. Lineage’s property managers screen for 3x income-to-rent ratio, credit history, criminal background, and prior rental history. Some do in-home visits. The result: less than 5% eviction rate across the portfolio. This is the single biggest factor in whether your cash flow projections hold up.
Tenant Placement: Tenant placement is the property manager's process of marketing a vacant unit, screening applicants, and signing the first qualified tenant. Industry-standard placement fee is 50–100% of one month's rent, paid once per new tenancy and separate from the ongoing management fee. A good PM targets 30–45 days from listing to lease signing in a healthy market. The placement fee is the moment to verify the PM is actually doing the screening work — it's the highest-leverage spend in the entire operating budget.
Turnover: Turnover is the full sequence between one tenant moving out and the next tenant moving in: cleaning, repairs, repainting, re-listing, screening, and signing the new lease. A typical turnover costs $1,000–$3,000 per unit and adds 30–60 days of partial vacancy. That makes tenant retention the cheapest amenity a landlord can buy — keeping a good tenant for an extra year is often worth more than a $50/month rent bump. Lineage's PM partners run lease renewal conversations 60–90 days before expiration to manage this.

Vacancy Rate: The percentage of time a property sits empty between tenants. Lineage pro formas budget 5% vacancy (roughly 2–3 weeks per year). Good tenant screening and market-rate pricing keep vacancy low. Every vacant month costs you a full mortgage payment with zero income.

Examples, projections, and financial figures on this page are illustrative. Actual results vary based on property, market, financing, and individual circumstances. This is educational content, not financial or tax advice.

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