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6 Acronyms Every Beginner Real Estate Investor Should Know

by Ken Horst on June 23, 2014 · 5 comments

  

Pretty much every time you learn something new, you also learn a whole new vocabulary to go along with it.

The 6 Acronyms You Need to Know as A Real Estate Investor

Real estate investing is no different.

As a real estate investor, we must learn the real estate investing terms and investment vocabulary, and understand what they mean. Here are definitions of some of the real estate acronyms you might come across:

1. PITI

This is an acronym for Principal (P), Interest (I), property taxes (T) and insurance (I).

This is basically the “bottom line” or the minimum of what you need to calculate when thinking about purchasing an investment property with a loan. Usually it is calculated “overall” and for a month to month basis.

The “overall” number is what you would potentially spend on the property over the lifetime of the loan. The month-to-month is what portion of the PITI you have to pay each month to stay in good standing. This information can help you determine how much rent you should charge.

Related: Trying to Choose The Right Loan? Stop Looking at Just The Rates!

2. LTV

This stands for Loan-to-Value.

This is also an important one to know if you’re taking out a loan for your investment property. This ratio is calculated by evaluating the value of the property, versus the sum of the loan.

For example, if the loan is $200,000 and the value of the property is $250,000, the LTV is 80%. Lower LTVs can be especially helpful if you ever need to sell the property.

3. GOI

Gross Operating Income is the annual rental income collected from the property. This includes rent paid on all occupied units as well as income from other sources, like coin-operated laundry facilities.

4. NOI

Net Operating Income is the income you receive after rent has been paid to you and after you’ve finished paying out all your monthly operating expenses.

Subtracting your expenses from your GOI should give you the NOI for the property. For example, if you are paid $10,000 for rent on all the units, and you spent $8,000 on maintenance, janitorial duties, supplies, accounting, insurance, taxes, and utilities, your NOI for the month was $2,000.

5. DCR

This is short for Debt Coverage Ratio.

This real estate investing term is commonly used by lenders, as this ratio is used in underwriting loans for income generating properties. It is calculated by dividing the NOI by total debt to be serviced. Ratios of 1.20 and higher are considered normal or average.

Related: Understanding Debt Service Coverage Ratio

6. CCR

Conditions, Covenants, and Restrictions are things both you and your tenants should know.

These are promises written into contracts where the parties agree to perform, or not perform, certain actions. CCRs can occur in several contexts. There can be conditions, covenants and restrictions written into a deed when you purchase a property.

Additionally, your tenants could sign a rental agreement in which they agree to certain conditions or restrictions (such as “no pets allowed” and “you can live here as long as you pay rent, otherwise we can evict you”).

I’m sorry to disappoint you on that last one. CCR on the radio is much more exciting than the real estate investing version of CCR. But it’s still an important term to learn, so I hope I’m forgiven. Either way, the acronyms listed above will hopefully be helpful in your quest to invest in real estate.

Want more info?

Check out the BiggerPockets Ultimate Beginners Guide to Real Estate Investing!

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{ 5 comments… read them below or add one }

Trevor June 24, 2014 at 12:42 pm

Hey Ken CCR or Credit, Criminal, Rental history. I’ve had prospective tenants ask me, “what do you check.” Which sends a red flag if you ask me. But that’s how I remember it.

Reply

Mary B June 26, 2014 at 11:39 am

This sounds more like real estate agent lingo when you mention (CCR) condition covenant restriction. Every real estate investor (beginner or seasoned) doesn’t have a license in real estate and every agent isn’t a REI….

Reply

Tom Phelan June 26, 2014 at 12:13 pm

Ken,

Great article and I can think of yet another, very important acronym, “IRA”.

An IRA or Individual Retirement Arrangement, most people incorrectly think it means Individual Retirement Account, is the largest sleeping giant in the real estate industry.

There are 45 million IRAs in America today collectively worth six trillion (yes “billion” with a “t”) and guess who controls 95% of those IRA dollars, Wall Street?

200 million dollars a month flee Wall Street’s “one-size-fits-all” IRA into Self-Directed IRAs and do you know what the #1 investment for these 200 million dollars is? Yes, real estate, the very product Realtors® sell.

If Realtors® were familiar with IRAs they would be suggesting them as a money source for real estate purchases but I won’t hold my breath and I expect Wall Street will continue, like the last 30 years, its unchallenged 95% dominance of financial products over real estate.

Reply

Keith Weinhold June 26, 2014 at 6:01 pm

Good column for the beginner, Ken, thanks.

Funny, CCR can be Conditions, Covenants, and Restrictions.

Yet with real estate investing, I call Cash-on-Cash Return “CCR”.

Cash-on-Cash return has a dizzying number of acronyms meaning the same dog gone thing:
-CCR
-COC
-CoC
-COCR
-CoCR
-I’ve even seen “CROCI”! – Cash Return On Cash Invested

Reply

Jonathan October 7, 2014 at 11:14 am

I’m surprised MAO or ARV weren’t on here! :P

Reply

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