Glossary
The terms we use, in plain English.
- Cash flow
- What's left each month after rent comes in and every bill is paid, including the mortgage. Negative means you cover the gap yourself.
- NOI (net operating income)
- Rent collected minus operating costs, before the mortgage.
- Cap rate
- The building's yearly profit before the mortgage, as a percent of the price. Think of it as the return if you paid cash.
- DSCR
- Debt service coverage ratio: how many times the building's profit covers the mortgage payment. Banks like 1.2 or more; under 1.0 means the rent doesn't cover it.
- GRM
- Gross rent multiplier: price ÷ a year's rent. Lower is cheaper relative to rent.
- Cash-on-cash return
- A year's cash flow ÷ the cash you put in to buy (down payment plus closing costs).
- Break-even price
- The price at which the rent would exactly cover all costs and the mortgage.
- Break-even rent
- The total monthly rent the building would need to cover everything at the current price.
- Capital reserve
- Money set aside every month for big replacements that come on a schedule: roof, boiler, water heater, windows.
- PMI
- Private mortgage insurance the bank charges when you put less than 20% down. It goes away once there's enough equity.
- Principal paydown
- The part of each mortgage payment that pays off the loan. It isn't cash in hand, but it builds ownership every month.
- Homestead vs. non-homestead
- In Minnesota an owner-occupied home is taxed at a lower rate. An investor pays the higher non-homestead rate, so a homesteaded seller's tax bill understates yours.
- Special assessment
- A charge added to the property tax bill for things like street or sewer work or city code enforcement.
- Rent control (St. Paul)
- Rent for a sitting tenant can rise at most 3% a year; more after a qualifying vacancy. Buildings first occupied after 2004 are exempt. Minneapolis has no cap.
- Certificate of occupancy (St. Paul)
- The city's rental certificate. It lists how many units are approved and the latest fire-inspection grade.
- Vacant Building registry
- St. Paul's list of vacant buildings. Category 2 and 3 buildings can't be sold or reoccupied without city approval and a plan to fix code violations.