Glossary
The vocabulary of running apartments, from NOI and cap rate to make-ready and fair housing. Short answers first, the detail right behind them.
44 terms
A
Absorption is the pace at which available units are leased, usually counted as net units leased per month.
Net absorption = move-ins - move-outs over a period. It is used to judge how fast a lease-up is going and how strong demand is in a market. A property can lease many units and still show low net absorption if move-outs keep pace.
Related:Lease-UpStabilization
Ancillary income is money a property earns beyond base rent, such as fees, parking, storage, laundry, pet rent and utility reimbursements.
It is also called other income. It is added to rent in effective gross income and can grow with services residents value. Fee rules vary by state and city, so check with a qualified attorney before adding or changing charges.
Related:Effective Gross Income (EGI)RUBS (Ratio Utility Billing System)Bulk Internet
An asset manager oversees a property or portfolio on behalf of its owners, focusing on financial performance and strategy.
They set goals, approve budgets and capital plans, and decide when to refinance, renovate or sell. The asset manager typically oversees the property management company. The role focuses on value, while the property manager focuses on daily operations.
B
Bad debt is rent and charges owed by current or former residents that the property does not expect to collect.
It is usually written off and reported as a reduction in income, often as a percentage of gross potential rent. Strong screening, quick follow-up on late payments and consistent notices keep it down. It is related to, but different from, delinquency, which is money owed but not yet written off.
Related:DelinquencyEconomic Occupancy
Bulk internet is an arrangement where a property buys internet service from a provider for all or most units and passes the cost to residents.
The charge may be built into rent or billed separately, and it is often a source of ancillary income or a resident perk. Contracts can be long, so owners review terms and service quality before signing. Disclosure and billing rules vary by state, so consult a qualified attorney.
C
The capitalization rate is a property's net operating income divided by its value or purchase price.
Cap rate = NOI / value. A building with $1,000,000 of NOI priced at $18,000,000 has a cap rate of about 5.6 percent. Buyers use it to compare properties, and the same formula run backward gives an implied value: NOI / cap rate.
CapEx is spending that adds lasting value or extends the life of a property, such as a new roof, a renovation or replacement flooring across many units.
Capital spending is generally not counted in NOI and is often funded from reserves or a separate budget. The line between CapEx and routine repair can depend on cost, useful life and accounting policy. Ask the owner or accountant how the property draws the line.
Related:OpEx (Operating Expense)Replacement ReservesNet Operating Income (NOI)
Cash-on-cash return is the annual cash a property earns after loan payments, divided by the cash the investor put in.
Cash-on-cash = annual pre-tax cash flow / cash invested. It differs from cap rate because it accounts for financing. Two buyers can see the same property with the same cap rate and very different cash-on-cash returns.
A concession is a discount or incentive, such as free weeks of rent or a waived fee, offered to win or keep a resident.
Concessions reduce the rent a property collects without changing the advertised rent. They are tracked as a reduction in income so that economic occupancy and effective rent show their real cost. The concession calculator on this site shows how much a given offer costs over a lease.
Cost per lease is what a property spends on marketing and leasing to sign one lease.
Cost per lease = marketing and leasing spend / new leases signed. It helps compare lead sources and judge whether spending is worth it. Include fees and commissions along with ad spend for a fair figure.
Related:Lead-to-Lease ConversionTurnover
D
Delinquency is rent or charges that residents owe past the due date and have not yet paid.
Properties track it as a dollar amount and as a percentage of billed rent, often split by how many days late. Some delinquency is collected and some turns into bad debt. Late-fee and notice rules vary by state, so check with a qualified attorney.
Related:Bad DebtEvictionNotice to Vacate
DSCR measures whether a property's income covers its loan payments, calculated as NOI divided by annual debt service.
DSCR = NOI / annual debt service. A DSCR of 1.25 means the property earns 25 percent more than its loan payments. Lenders set a minimum, and falling below it can trigger loan terms or restrictions.
E
Economic occupancy is the share of potential rent a property actually collects, rather than the share of units that are filled.
Economic occupancy = rent collected / gross potential rent. It is lower than physical occupancy when units are on concession, rents are below market, or residents are not paying. It is a truer picture of how well a property turns units into income.
Effective gross income is the income a property actually expects to collect: gross potential rent minus vacancy and credit loss, plus other income.
EGI = GPR - vacancy and credit loss + other income. Operating expenses come off EGI to arrive at NOI. It is also the base for the expense ratio.
Related:Gross Potential Rent (GPR)Ancillary IncomeNet Operating Income (NOI)Expense Ratio
Effective rent is the rent a property actually collects per month after concessions are spread across the lease term.
Effective rent = (rent x lease months - concessions) / lease months. Six weeks free on a 12-month lease at $1,800 brings the effective rent to roughly $1,592. It lets you compare units and properties on equal footing.
Related:ConcessionsLoss to Lease
An emotional support animal is an animal that provides comfort or support to a person with a disability and is not necessarily trained for specific tasks.
In housing, an ESA request is generally handled as a reasonable accommodation under fair housing law, not as a pet. Housing providers may be able to ask for reliable documentation when the disability or need is not obvious. Rules vary by state, so consult a qualified attorney.
Eviction is the legal process a landlord uses to remove a resident from a rental home, usually through a court.
It generally starts with a written notice and, if the issue is not resolved, moves to a court filing. Procedures, timelines and resident protections vary widely by state and city. Self-help actions such as changing locks are restricted in most places, so work with a qualified attorney.
The expense ratio is operating expenses divided by effective gross income.
Expense ratio = operating expenses / EGI. It shows how much of every income dollar goes to running the property. Ratios differ by property age, size, location and which costs are included, so compare like with like.
Related:OpEx (Operating Expense)Effective Gross Income (EGI)Net Operating Income (NOI)
F
Fair housing refers to laws that prohibit discrimination in renting and selling housing based on protected characteristics.
The federal Fair Housing Act protects race, color, religion, sex, national origin, familial status and disability. Many states and cities add more protected classes. Rules vary by location, so teams should be trained and should consult a qualified attorney with questions.
Related:Reasonable AccommodationService AnimalEmotional Support Animal (ESA)
G
Gross potential rent is the total rent a property would collect if every unit were leased all year at its asking or scheduled rent.
GPR = number of units x rent per unit x 12. It is the top line of most operating statements, before vacancy, concessions and bad debt are subtracted. Some operators calculate it at market rent and some at the rent in place, so check which one a report uses.
Related:Effective Gross Income (EGI)Loss to LeaseEconomic Occupancy
L
Lead-to-lease conversion is the percentage of leads, such as inquiries and tours, that end in a signed lease.
Conversion = leases signed / leads in the period. It can be measured from first contact or from tour. Comparing it by lead source shows where marketing money turns into leases.
Lease-up is the period when a new or newly renovated property fills its units for the first time.
Lease-up usually starts when the first units are ready and ends when the property reaches its target occupancy. Concessions and heavier marketing are common during this phase. The speed of lease-up is measured by absorption.
Loss to lease is the difference between a unit's market rent and the rent in its current lease.
Loss to lease = market rent - actual lease rent, summed across the leased units. It grows when market rents rise faster than leases renew, and it shrinks as leases reset to market. It is a measure of rent growth that has not yet been captured.
Related:Gross Potential Rent (GPR)Renewal RateEffective Rent
M
Make-ready is the work done to get a vacant unit clean, repaired and ready for the next resident.
It usually includes cleaning, paint, minor repairs, flooring touch-ups and a final inspection. The cost and the number of days it takes both affect how long a unit stays vacant. Tracking make-ready days is a common way to find slow spots in a turn process.
A mystery shop is a visit, call or inquiry by someone posing as a prospect to rate how well a leasing team handles it.
Shoppers score greeting, product knowledge, follow-up and closing. The results show training needs and consistency across properties. They work best as coaching tools, not as a gotcha.
N
Net operating income is the income a property earns after operating expenses are paid, before debt payments and capital spending.
NOI equals effective gross income minus operating expenses. It is the main measure of a property's earning power and the number that value is built on. Mortgage payments, depreciation and capital improvements are not part of it.
Related:Effective Gross Income (EGI)OpEx (Operating Expense)Cap Rate
A notice to vacate is written notice that a resident or landlord gives to end a tenancy on a stated date.
A resident usually gives it to say they are moving out, and the required notice period is set by the lease and state law. A landlord may also serve a notice, and the rules for that differ by reason and by state. Check with a qualified attorney before sending or acting on one.
O
An operating budget is a property's plan for income and expenses over a year, usually built by month.
It sets targets for rent, occupancy, other income and each expense line. Managers compare actual results to it every month and explain the variances. The owner or asset manager typically approves it before the year starts.
OpEx is the recurring cost of running a property day to day, such as payroll, repairs, utilities, insurance and property taxes.
Operating expenses are subtracted from effective gross income to get NOI. They do not include debt payments or capital spending. Managers control many of them, which is why they get close attention in the budget.
Related:CapEx (Capital Expenditure)Net Operating Income (NOI)Expense RatioOperating Budget
P
Physical occupancy is the percentage of units that are occupied by a resident on a given day.
Physical occupancy = occupied units / total units. A property can be 95 percent occupied physically and still collect far less than 95 percent of its potential rent. Compare it with economic occupancy to see the gap.
Related:Economic OccupancyStabilization
A proforma is a forward-looking financial projection of a property's income and expenses based on stated assumptions.
Proformas are used to underwrite a purchase, a renovation or a budget year. They are only as reliable as their assumptions about rent growth, occupancy and costs. Compare the proforma to actual results as the year goes on.
A property manager runs the day-to-day operations of a property, including leasing, residents, staff, maintenance and the budget.
They lead the on-site team, enforce lease terms, handle resident concerns and report results to the owner or regional manager. Strong property managers balance occupancy, rent growth and expenses. Licensing requirements vary by state.
Related:Regional ManagerAsset Manager
R
A reasonable accommodation is a change to a rule, policy or practice that gives a person with a disability equal opportunity to use and enjoy their home.
Examples include an assigned accessible parking space or an exception to a no-pets policy for an assistance animal. Housing providers generally must consider such requests, with limits. Requirements vary by state, so consult a qualified attorney.
Related:Fair HousingService AnimalEmotional Support Animal (ESA)
A regional manager oversees a group of properties and the property managers who run them.
They coach managers, review financial and operating reports, and keep standards consistent across the portfolio. They are often the link between on-site teams and ownership or the asset manager. Many property managers aim for this role as a next step.
Related:Property ManagerAsset Manager
The renewal rate is the percentage of expiring leases that residents renew rather than move out.
Renewal rate = renewals / leases expiring in the period. A higher renewal rate means fewer turnovers and less vacancy. Renewal offers are often priced against market rent and the cost of replacing the resident.
Related:TurnoverLoss to Lease
A rent roll is a report listing every unit with its resident, lease dates, rent, deposits and status.
It shows who lives where, what they pay and when each lease ends. Managers use it to track expirations and loss to lease, and buyers and lenders use it to verify income. It is a snapshot of one date, so it should be paired with a T12 for the full picture.
Related:T12 (Trailing 12)Loss to LeaseGross Potential Rent (GPR)
Replacement reserves are money set aside, usually monthly, to pay for the future replacement of big building components.
Reserves are often quoted per unit per year. They cover items such as roofs, appliances, flooring and paving. Lenders may require them, and the amount is sometimes deducted from NOI when valuing a property.
Related:CapEx (Capital Expenditure)Net Operating Income (NOI)
RUBS is a method of billing residents for water, sewer, trash and similar utilities by allocating the building's bill with a formula instead of individual meters.
The property takes the master bill and divides it among units using a set ratio, such as square footage, occupants or bedroom count. Residents pay their share, usually as a monthly charge. Rules on utility billing vary by state and sometimes by city, so confirm requirements with a qualified attorney.
S
A security deposit is money a resident pays at move-in that the landlord holds to cover unpaid rent or damage beyond normal wear.
State law sets limits on the amount, how the money is held, what it can be used for and how fast it must be returned, often with an itemized list of deductions. Rules differ widely, so check with a qualified attorney. Good move-in and move-out documentation protects both sides.
Related:Notice to VacateMake-Ready
A self-guided tour lets a prospect see a unit on their own, usually with a smart lock or code, without a leasing agent present.
Prospects book a time, verify their identity and receive access to the unit. It extends touring hours and saves staff time. Properties often pair it with follow-up and security steps.
A service animal is generally a dog trained to do work or perform tasks for a person with a disability.
Under the Americans with Disabilities Act, service animals are defined narrowly, and they are not considered pets. Housing is covered by the Fair Housing Act, which can apply to a broader set of assistance animals. Check with a qualified attorney, since state and local rules vary.
Related:Emotional Support Animal (ESA)Reasonable AccommodationFair Housing
A property is stabilized when it has reached a steady, expected level of occupancy and income.
Lenders and investors often define it as a set occupancy, such as 90 to 95 percent, held for a number of months. Before stabilization, income is uncertain and concessions are common. The exact definition depends on the lender, the owner or the loan documents.
Related:Lease-UpPhysical OccupancyDSCR (Debt Service Coverage Ratio)
T
A T12 is an operating statement showing a property's income and expenses for the most recent twelve months.
Buyers and lenders use it to see what a property has really earned, month by month. It smooths out seasonality and shows trends in income and expenses. It is usually reviewed alongside the rent roll.
Turnover is when a resident moves out and the unit must be prepared and leased to someone new.
Turnover rate = move-outs in a year / total units. Each turnover brings lost rent while the unit is empty, make-ready costs, marketing and leasing effort. Improving retention is one of the most direct ways to protect income.
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