Real estate & property finance
Whether you're buying your first home or your tenth rental, the money side of real estate has its own language — down payments, cap rate, depreciation, 1031 exchanges, DSCR. Here's every key term in plain English, and how to think about each one.
The Financial Angel runs the numbers for you: it analyzes a deal's cash flow and cap rate, models your mortgage and closing costs, tracks depreciation and 1031 deadlines across your entities, and hands anything that needs a license — the loan, the deed, the tax return — to a vetted professional.
The cash you pay up front, as a percentage of the price. Conventional loans can start at 3–5%, FHA at 3.5%, and VA/USDA at 0% for those who qualify; less than 20% down usually adds mortgage insurance.
Why it matters — a bigger down payment lowers your loan, your monthly payment, and often your interest rate.
One-time fees paid at settlement — lender, appraisal, title, recording, and prepaid taxes and insurance — typically about 2–5% of the loan amount on top of your down payment.
Why it matters — budget for these separately so you're not caught short at the closing table.
A standard loan not backed by a government agency, usually following Fannie Mae/Freddie Mac limits. Good credit and steady income get the best rates; see our financing guide for how lenders decide.
Good fit if — you have solid credit and want flexible terms and property types.
A government-insured loan with lower credit and down-payment requirements (as little as 3.5% down), designed to help first-time and lower-down-payment buyers. It carries mortgage insurance premiums.
Good fit if — you have limited savings or a thinner credit file.
VA loans serve eligible veterans and service members; USDA loans serve qualifying rural buyers. Both can require no down payment and offer competitive rates.
Good fit if — you're a veteran/service member or buying in a USDA-eligible area.
A fixed-rate mortgage keeps the same rate for the whole loan; an adjustable-rate mortgage (ARM) starts lower, then resets with the market after an intro period.
Why it matters — a fixed rate is predictable; an ARM can be cheaper early but risks higher payments later.
Annual rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy) — but before the mortgage. It's the foundation for most other rental metrics.
Why it matters — NOI shows what the property earns on its own, independent of how you finance it.
Capitalization rate = NOI ÷ price (or value), as a percentage. A $20,000 NOI on a $250,000 property is an 8% cap rate — a fast way to compare income properties.
Why it matters — it benchmarks a property's return and pricing against the market, ignoring financing.
Your annual pre-tax cash flow ÷ the actual cash you invested (down payment plus closing and rehab costs). It measures the return on the money you personally put in.
Why it matters — unlike cap rate, it reflects leverage, so it shows how a mortgage boosts (or strains) your return.
NOI ÷ annual loan payments. A DSCR of 1.25 means the property earns 25% more than the mortgage costs. Lenders use it to size investment-property loans.
Why it matters — most lenders want a DSCR above ~1.2, and it's the basis of "DSCR loans" that qualify the property, not you.
An annual tax charged by local government based on your property's assessed value times a local rate (millage). It funds schools, roads, and services, and is often collected through your mortgage escrow.
Why it matters — it's a recurring cost that affects both affordability and a rental's NOI.
The assessor sets a taxable value for your property; if it looks too high versus comparable sales, most jurisdictions let you appeal with evidence by a deadline to lower your bill.
How the Angel helps — it watches your assessment, pulls comparable sales, and flags when an appeal is worth filing.
Many states reduce the taxable value of your primary residence, or offer breaks for seniors, veterans, or disability. You usually must apply, and rules vary by state.
Good fit if — the home is your primary residence or you qualify for a special-status exemption.
The IRS lets you deduct a rental building's cost (not the land) over 27.5 years for residential or 39 for commercial, offsetting rental income on paper — often even in profitable years.
Why it matters — it can wipe out taxable rental income, though it's "recaptured" and taxed when you sell.
Sell an investment property and roll the proceeds into another like-kind investment to defer capital-gains tax. Strict timing applies — 45 days to identify, 180 to close, via a qualified intermediary.
How the Angel helps — it tracks the 45/180-day clocks and coordinates the intermediary and CPA so a deadline never slips.
Homeowners who itemize can deduct interest on mortgage debt up to federal limits; for rentals, mortgage interest is a straightforward business expense against rental income.
Why it matters — interest is often the largest deduction in early loan years, when payments are mostly interest.
An engineering-based study that reclassifies parts of a building (fixtures, flooring, land improvements) into shorter depreciation schedules, front-loading deductions in the early years.
Good fit if — you own higher-value rental or commercial property and want to accelerate tax savings. See tax & asset protection.
Holding a rental in a limited liability company separates the property's liabilities from your personal assets and keeps its books clean. Watch for setup/annual fees and lender due-on-sale rules. See entity structuring.
Good fit if — you own rentals and want liability separation and cleaner accounting per property.
Holds title to real estate in a trust's name, keeping the owner's identity off public record and simplifying transfers between partners or entities — a common privacy tool for investors. See our trusts guide.
Good fit if — you want title privacy and easier transfers, often paired with an LLC for liability.
The written contract between landlord and tenant setting rent, term, deposits, maintenance duties, and rules. State and local law override anything unenforceable, so terms vary by jurisdiction.
Why it matters — a clear, compliant lease prevents disputes and protects both sides if things go wrong.
Money the tenant pays up front to cover unpaid rent or damage beyond normal wear. Most states cap the amount, require it to be held separately, and set deadlines to return it with an itemized list.
Why it matters — mishandling deposits is a common source of penalties; rules vary by state.
Renting a property by the night or week (e.g. Airbnb/Vrbo). Higher potential income comes with more turnover, cleaning, local permits, occupancy taxes, and sometimes outright bans.
Good fit if — you're in a tourist market and can manage frequent turnover and local STR rules.
Replacing your current mortgage with a new one — usually to lower the rate, change the term, or drop mortgage insurance. It resets closing costs, so weigh the savings against the fees. More in financing.
Good fit if — rates have dropped or your credit/equity has improved since you borrowed.
Refinance for more than you owe and take the difference in cash, drawing on your equity. It increases your loan balance and payment, but can fund renovations or another purchase.
Good fit if — you have substantial equity and a productive use for the funds.
A revolving credit line secured by your home's equity — borrow, repay, and reborrow during the draw period, usually at a variable rate. Your home is collateral, so missed payments risk foreclosure.
Good fit if — you want flexible access to equity for projects or reserves without refinancing the first mortgage.
Tell the Angel about the home or deal — it runs the cap rate, cash-on-cash, and DSCR, models your mortgage and taxes, and connects you to a licensed lender, agent, or CPA to close. Explore building wealth too.
Start your profileThese are plain-language definitions for education, not legal, tax, or investment advice. Real-estate rules and tax treatment vary by state and change over time — the Financial Angel drafts and recommends; a licensed professional reviews and executes.