Investor Glossary

The terms that actually move your numbers.

No jargon for jargon's sake. These are the five line items that make the difference between a spreadsheet that looks good and a deal that actually holds up. Jump to a term, or read straight through.

Quick reference

The one-line version of each, if you just need the gist. Full definitions are below.

⚠ Watch for

Older home with no updates? Don't lean on the standard 5% placeholders for capex and maintenance. Budget more up front, because on a dated property the surprises tend to show up in year one, not year five.

Budgeting

Capital Expenses (CapEx)

The biggest-ticket items you need to budget for as a landlord: a new roof, mechanicals and HVAC, the larger fixes that require you to build up your reserves over time. I'd suggest holding back about 5% as a placeholder, but it will vary depending on the home's condition. A new-construction home, for example, may only need 1% budgeted toward capital improvements. An older home with no updates may need more allocated.

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Budgeting

Maintenance

This may vary depending on the building, but I like to budget about 5% at least as a placeholder. Even a new-construction home may require maintenance visits, and it's helpful to set aside a little toward this line item each month.

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Budgeting

Vacancy

I'd allocate at least 5% toward your vacancy rate, just in case. During the first year, you may spend a little time getting your rental permit sorted and then wait for the right tenant to apply for your home. In subsequent years, you'll have a better idea of when your tenants plan to move, and can coordinate the timing a bit better.

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Returns

IRR: Internal Rate of Return

Internal Rate of Return. This takes into account the equity you're building over time, appreciation, and tax savings, not just what's landing in your account this month. It's the number that tells you what a deal actually returned once you factor in the full hold and the sale.

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Watch closely

Phantom Cashflow

Subtracting the mortgage and other expenses, but not your budgeted items like capex, maintenance, and vacancy, to find the gross amount of income you earn per month. It fools you into thinking you have a higher cash flow than you actually do. It's crucial to set aside extra funds for expenses, even when the top-line number looks healthy.

⚠ Watch for

Phantom cashflow is the number one way new investors talk themselves into a bad deal. If a spreadsheet only subtracts the mortgage, it isn't showing real cash flow, it's showing a number that disappears the first time the water heater dies. Always underwrite with your budgeted items in, not just the loan payment.

Want these numbers run on a real property?

Every one of these terms is already built into the Holistic Rental Calculator. Plug in a listing and see your real cash flow, cash-on-cash, and IRR, no phantom numbers included.

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