COMMON MULTIFAMILY TERMS & ACRONYMS
Door: industry term sometimes used in place of unit.
T-12: trailing 12 month P&L (Profit & Loss).
T-3: trailing 3 month P&L (Profit & Loss).
Rent Roll (RR): lists all tenants, lease amount and start/end date.
Pro Forma/Underwriting: industry term referring to financially analyzing investment real estate.
Economic Vacancy Loss (EVL): this is the percentage that is not being collected against the market rents. Includes vacancy, bad debt/non-payment, actual rents vs. market rents.
Maintenance Costs: costs are expensed for tax purposes (i.e. fix AC unit, furnace, etc.).
Capital Costs: costs that can be capitalized over X number of years for tax purposes (i.e. replacement costs such as AC units, furnace, etc.).
Deferred Maintenance: the practice of postponing maintenance activities such as repairs on both real property (i.e. infrastructure) and personal property (i.e. machinery) in order to save costs, meet budget funding levels, or realign available budget monies.
Working Capital: funds used for future capital items (rule of thumb = 1 month of rents).
Ratio Utility Bills System: billing back the tenants for utilities.
Net Operating Income (NOI): gross income minus all expenses, prior to reserves and debt.
Debt Service Coverage Ratio (DSCR or DCR): income-expenses/debt. Ideally, the ratio should be over 1.0, which would mean the property is generating enough income to pay its debt obligations.
Cash Flow (CF): cash generated from the operations of a company, generally defined as revenues less all operating expenses.
Cash on Cash: a rate of return often used in real estate transactions. The calculation determines the cash income of the cash invested.
Due Diligence (DD): inspecting the property’s exterior and interior to determine the condition and deferred maintenance (required maintenance that the current seller has not performed); also includes lease audit.
Re-Trade: after DD, the buyer goes back to the seller asking for items to be fixed and/or a credit to fix deferred maintenance items.
CAP Rate: a cap rate measures a property’s rate of return for a single year without taking into account debt on the asset.
Recourse vs. Non-Recourse Loan: recourse - personally liable; non-recourse - not personally liable.
Amortization Period: number of years it will take you to repay the loan (typically 20-30 years).
Yield Maintenance: a prepayment penalty that, in the event the borrower pays off a loan before maturity, allows the lender to attain the same yield as if the borrower had made all scheduled mortgage payments until maturity.
Disposition: disposing or selling of a property.
DOCUMENTS
Personal Financial Statement (PFS): document showing your assets and liabilities; net worth.
Brokers Opinion of Value (BOV): broker provides this to a seller when the broker is trying to get the listing to sell the property.
Offering Memorandum (OM): broker document describing the property.
Letter of Intent (LOI): a non-binding offer to purchase - 1 or 2 pages with key terms.
Purchase and Sale Agreement (PSA): contract between the buyer and seller.
Operating Agreement (OA): most deals are created with a LLC governing how the LLC’s business will be operated.
Subscription Agreement (SA): application by an investor to join a limited partnership (LLC) for real estate investing.
Private Placement Memorandum (PPA): private offering used to raise money from investors.
POSITIONS
Syndication: sponsor raises funds from a group of people.
Key Principal (KP): individual/entity that signs on the loan plus equity.
Guarantor: individual/entity that signs on the loan, but no equity.
Asset Manager: manages the property management company. Fee is typically 1.5-2%.
Joint Venture (JV): sponsoring a deal with one or more other people.