Real Estate Investment Glossary

Private real estate includes terminology that may be unfamiliar to new investors. Below is a glossary of commonly used terms to help you better understand the investment structure.

Accredited Investor
An individual who meets specific income or net worth requirements under U.S. securities laws, allowing participation in certain private investment offerings.

Appreciation
An increase in the value of a property over time, driven by market growth or operational improvements.

Asset Management
Ongoing oversight of a property’s performance, including financial management, strategic planning, and operational execution.

Bonus Depreciation
A tax strategy that allows accelerated depreciation deductions in the early years of ownership.

Capital Call
A request for additional funds from investors if needed beyond the original investment amount (not all investments require this).

Capital Expenditures (CapEx)
Major property improvements or upgrades that extend the life or value of the asset (e.g., roof replacement, unit renovations).

Cap Rate (Capitalization Rate)
A metric used to estimate a property’s value based on its Net Operating Income (NOI).
Formula: Value = NOI ÷ Cap Rate.

Cash Flow
Income generated by the property after operating expenses and debt payments.

Cost Segregation
A tax strategy that accelerates depreciation by reclassifying certain building components into shorter depreciation schedules.

Debt Service
The total amount required to cover loan principal and interest payments.

Depreciation
A non-cash tax deduction that allows property owners to offset income over time due to the wear and tear of the asset.

Distributions
Payments made to investors from a property’s available cash flow.

Equity
Ownership interest in a property or investment entity.

Equity Multiple
Total cash received divided by total cash invested. For example, a 2.0x multiple means doubling your original investment.

General Partner (GP)
The managing party responsible for operating the investment and making decisions.

Limited Partner (LP)
A passive investor who provides capital but does not manage the property.

Internal Rate of Return (IRR)
A metric used to measure the annualized return of an investment over time.

K-1 (Schedule K-1)
A tax document issued annually to investors showing their share of income, losses, and deductions.

Limited Liability Company (LLC)
A legal entity used to hold real estate investments. It provides liability protection and defines ownership structure.

Net Operating Income (NOI)
Property income after operating expenses but before debt service.
Formula: Income – Operating Expenses = NOI.

Passive Income
Income earned without active day-to-day involvement in operations.

Preferred Return
A targeted return that investors may receive before the sponsor participates in profit sharing (if applicable to the structure).

Private Placement Memorandum (PPM)
A legal document outlining the risks, terms, and structure of a private investment offering.

Refinance
Replacing existing debt with new financing, often to improve terms or return capital to investors.

Self-Directed IRA
A retirement account that allows investments in alternative assets such as real estate.

Syndication
A structure in which multiple investors pool capital to purchase a property managed by a sponsor.

Value-Add Strategy
An approach focused on increasing property value through renovations, operational improvements, or repositioning.