Underwriting Glossary
The language behind the numbers. Every term used across our underwriting tools is defined here — hover any dotted term inside the tools for a quick reminder, or read the full reference below.
Total rental income minus all operating expenses (taxes, insurance, management, maintenance) — before debt service. The number everything else is calculated from.
The unlevered yield of a property. Compare your actual cap rate to your target — if actual is lower, you're paying more than your target return justifies.
How many times over the property's income covers its loan payment. Most lenders want 1.20–1.25x or higher. Below 1.0x means the property can't cover its own debt.
Pre-tax cash flow divided by total equity invested. Measures the annual yield on your actual dollars in — compare to the opportunity cost of your capital.
The annualized time-weighted return of all cash flows over the hold — contributions, distributions, and the sale. Accounts for when money moves, not just how much.
How many dollars you get back for every dollar invested (e.g. 1.85x). Ignores timing — pair with IRR to judge both magnitude and speed of return.
A simple straight-line annualized return on equity. Less precise than IRR (ignores timing) but a quick gut-check of overall performance.
What you're paying per apartment. A fast apples-to-apples comparison across properties of different sizes and submarkets.
Your total yearly loan payment, amortized over the loan term at the given interest rate. Drives your cash flow and coverage ratios.
What the property is worth at your target cap rate. Compare to purchase price — if implied value is higher, the deal is priced below your target return.
The cap rate the market applies at sale. A conservative (higher) exit cap rate lowers your sale price — underwrite it 25–50 bps above going-in.
The net operating income used to value the property at exit — typically the last-year stabilized NOI, sometimes grown to reflect rent gains.
Total cost to sell the asset — broker commissions, legal, and transfer taxes. Deducted from gross sale price to reach net sale proceeds.
Total cash distributed to limited partners across the hold, per the waterfall. Excludes the GP's promote share.
The sponsor's carried interest — the profit slice the GP earns above their capital share after LP hurdles are met.
Total equity capital called from limited partners. The denominator for LP return metrics and waterfall hurdles.
Income lost to empty units plus concessions and bad debt. Underwrite to market norms — aggressive vacancy inflates NOI and every return downstream.
All costs to run the property day-to-day, excluding debt service and capex. The line between NOI and net income.