Real estate investing glossary

Plain-language definitions for ARV, MAO, BRRRR, hard money loans, the 70% rule, and every other term you will encounter when analyzing flip deals.

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70% Rule: A quick underwriting guideline: pay no more than 70% of ARV minus rehab costs. Formula: MAO = (ARV × 0.70) − Rehab. The 30% buffer covers all costs (closing, holding, financing) plus profit.

ARV (After Repair Value): The estimated market value of a property after all planned renovations are completed. Determined by running comparable sales (comps) of similar nearby properties sold within 90 days. ARV is the most important number in any fix and flip deal.
Assignment Fee: The profit a wholesaler earns by assigning their purchase contract to an end buyer. Typically ranges from $5,000 to $30,000+. The fee is agreed upon between the wholesaler and buyer and is paid at closing.

BRRRR Strategy: Buy, Rehab, Rent, Refinance, Repeat. An investment strategy where you purchase a distressed property, renovate it, rent it out, refinance to pull out your capital, and reinvest in the next deal.

Cap Rate (Capitalization Rate): Annual net operating income divided by property value. Used to compare income-producing properties independently of financing. Example: $12,000 NOI ÷ $150,000 value = 8% cap rate.
Cash-on-Cash Return: Annual pre-tax cash flow divided by total cash invested. Measures the actual yield on your out-of-pocket investment. In BRRRR, if you recover all capital via refinancing, cash-on-cash return is infinite.
Comps (Comparable Sales): Recently sold properties similar to your subject property, used to determine ARV. Best comps are within ½ mile, same bed/bath count, similar square footage, and sold within the last 90 days.
Closing Costs: Fees incurred when buying or selling a property. Buy-side: title, escrow, inspection — typically 1–3% of purchase price. Sell-side: agent commission, transfer taxes, title insurance — typically 7–9% of sale price.

DSCR Loan: Debt Service Coverage Ratio loan. A rental property mortgage based on the property's rental income rather than the borrower's personal income or employment. Widely used for BRRRR refinances. Typical LTV: 70–80%.
Due Diligence: The investigation period before closing. Includes property inspection, title search, zoning review, survey, and review of any liens or encumbrances. Critical for land deals where issues are not visible.

Earnest Money Deposit (EMD): A deposit paid by a buyer to demonstrate serious intent to purchase. Typically 1–3% of the purchase price. At risk if the buyer backs out without a valid contractual contingency.

Hard Money Loan: A short-term, asset-based loan secured by real property. Used by flippers for fast closings. Typical terms: 10–14% annual interest, 2–3 origination points, 6–18 month term. Based on property value, not borrower credit.
Holding Costs: Ongoing monthly expenses while you own a property: property taxes, insurance, utilities, HOA fees, and loan interest. Every additional month adds directly to your cost basis and reduces profit.

Infinite Return: Achieved in BRRRR when the cash-out refinance proceeds equal or exceed total invested capital, leaving zero of your own money in the deal. Rental income earned on zero invested capital is mathematically infinite ROI.

LTV (Loan-to-Value): Loan amount as a percentage of property value. A 75% LTV refinance on a $200,000 property produces a $150,000 loan. Most BRRRR refinances are done at 70–80% LTV.

MAO (Maximum Allowable Offer): The highest price you should pay for a property to achieve your target profit. Standard formula: ARV × 70% − Rehab = MAO. Adjust the percentage lower for riskier or larger rehabs.

Net Operating Income (NOI): Gross rental income minus operating expenses, excluding debt service (mortgage payments). Used to calculate cap rate and DSCR.

Points: Upfront loan origination fees expressed as a percentage of the loan amount. One point = 1% of the loan. Hard money lenders typically charge 2–3 points. On a $150,000 loan, 2 points = $3,000.
Profit Margin: Net profit divided by sale price, expressed as a percentage. A deal with $40,000 net profit on a $300,000 sale has a 13.3% profit margin. Healthy fix and flip margins run 10–20%.

Rehab Budget: Total planned cost of renovations including materials, labor, permits, and a contingency reserve. Experienced investors add 15–20% contingency to their base estimate to account for unexpected issues.
ROI (Return on Investment): Net profit divided by total invested capital. On a flip: (Sale price − all costs) ÷ all costs. A 20% ROI on a 6-month flip annualizes to roughly 40% — well above typical market returns.

Wholesale Assignment: Transferring your contractual rights to purchase a property to a third-party buyer for an assignment fee, without ever taking title. The wholesaler profits from the spread between their contract price and what the buyer pays.