Real Estate Investing Terms Explained

ARV (After Repair Value) is the estimated market value of a property after all planned renovations are completed. Calculated using comparable recent sales, ARV is the foundational metric for house flippers and wholesalers to determine their maximum allowable offer and expected profit.

MAO (Maximum Allowable Offer) is the highest price a real estate investor should pay for a property. Calculated as ARV × 70% minus repair costs, MAO ensures enough margin for profit, carrying costs, and contingencies — it's the cornerstone formula for wholesaling and fix-and-flip offers.

Cap rate (capitalization rate) measures the annual return on a rental property independent of financing. Calculated as Net Operating Income divided by purchase price, a 4-6% cap rate is typical in premium markets, 6-8% in stable markets, and 8%+ in higher-risk emerging markets.

NOI (Net Operating Income) is a property's annual income after all operating expenses but before mortgage payments. It equals gross rental income minus property taxes, insurance, maintenance, vacancy costs, and management fees — the key input for cap rate and DSCR calculations.

DSCR (Debt Service Coverage Ratio) measures whether a rental property generates enough income to cover its mortgage payments. A DSCR above 1.0 means the property breaks even; lenders typically require 1.25+ for DSCR loans. Calculate it by dividing annual NOI by annual debt service.

BRRRR (Buy, Rehab, Rent, Refinance, Repeat) is a real estate investment strategy where investors buy and renovate a distressed property, rent it out, then do a cash-out refinance to recover their initial capital and repeat the process — building a rental portfolio without tying up cash long-term.

Cash-on-cash return measures the annual return on the actual cash you invested in a property. Unlike cap rate, it accounts for financing — divide annual pre-tax cash flow by your total cash invested (down payment + closing costs + renovations). A 8-12% cash-on-cash return is generally considered solid.

Comps (comparable sales) are recently sold properties similar to the subject property used to estimate market value or ARV. Good comps share the same zip code, sold within 6 months, have similar square footage (±25%), beds, baths, and property type — they form the foundation of every ARV calculation.

Real estate wholesaling is a strategy where an investor contracts a property at a below-market price, then assigns that contract to a cash buyer for an assignment fee — typically $5,000-$25,000 — without ever owning the property. It requires finding motivated sellers and building a buyers list.

The 70% rule states that real estate investors should pay no more than 70% of a property's ARV minus repair costs. It's a quick screening formula for house flippers and wholesalers: if ARV is $200K and repairs are $30K, the maximum offer is $200K × 0.70 − $30K = $110K.