Multifamily Terms
& Definitions

Are you a Multifamily Investor or wanting to start buying
apartment buildings?

Here are some helpful terms and definitions related to
Multifamily Investing.

There may not be a test, but learning the multifamily lingo is always a good idea.

Here are some helpful terms and definitions related to
Multifamily Investing.

ABP- All Bills Paid:

Property pays for all utilities.

ALURA – A Land Use Restrictions Agreement:

Seller bought the property and received tax credits and now there is a limit on the amount of $ a tenant can make. You will have a harder time selling this type of property.

Amortization Period:

Number of years it will take you to repay the loan. Typically 20-30 years.

Asset Manager:

Manages the property management company. Fee is typically 1.5-2% to the asset manager.

Best & Final:

Process whereby a seller down-selects buyers to a smaller group and asks them to submit their best and final offer.

BOV – Broker Opinion of Value:

Broker provides this to a seller when the broker is trying to get the listing to sell the property.

Buyer Broker:

A broker representing the buyer.

Capital Cost:

Costs can be capitalized over x# of years for tax purposes. Example: replace an AC unit.

Cap Rate:

A cap rate measures a property’s rate of return for a single year without taking into account debt on the asset.

Cash Flow:

Buy for cash flow and pay market price.

DD – Due Diligence:

Inspecting the property’s exterior and interior to determine the condition and deferred maintenance (required maintenance that the current seller has not performed); also includes lease audit.

Deferred Maintenance (DM):

Required maintenance that has not been performed.


Disposing or selling of a property.


Industry term used instead of Unit.

Economic Vacancy:

This is the % that is not being collected against the market rents. Includes vacancy, bad debt/non-payment, actual rents vs. market rents.


Signs on the loan, but no equity

Hard Money:

Money that the seller keeps if you walk away from a deal. Hard money can be at time of contract, after due diligence, or any other time agreed upon.

JV – Joint Venture:

Sponsoring a deal with one or more other people.

KP- Key Principal:

Signs on the loan+ equity


Using other money such as a loan.

Listing Broker:

The broker that has the property listed.

LOI – Letter of Intent:

Non-binding offer to purchase – 1 or 2 pages with key terms.

Maintenance Expenses:

Costs are expensed for tax purposes. For example, fix an AC unit.


Net Operating Income

OA – Operating Agreement:

Most deals are created with a LLC governing how the LLC’s business will be operated.

OM – Offering Memorandum:

Broker document describing the property.

PFS – Personal Financial Statement:

Has your assets and liabilities; net worth.

PPM – Private Placement Memorandum:

Private offering used to raise money from investors.

Primary Market:

5 million or more people, but also need to look at the investment activity. For example, Detroit has more than 5 million people, but low investment so it is considered a secondary market.

Principal Paydown:

We call this our “personal piggy bank”. Every month when your tenants pay their rent, they pay off a portion of any financing used to purchase the property creating additional equity in the property as they pay down your loan.

Principal Protection:

Multifamily Investments are secured by their cash flow and also hazard insurance that even covers the income the properties generate if disaster hits. Are your other investments secured?


Industry term referring to financially analyzing investment real estate.

Proof of Funds:

Account statements (excluding retirement) showing liquidity to close the deal.

Property Traded for:

Term used to represent what a property sold for.

PSA – Purchase and Sale Agreement:

Contract between the buyer and seller.

Recourse vs Non Recourse Loan:
  • Recourse – personally liable
  • Non-Recourse – not personally liable

After due diligence, the buyer goes back to the seller asking for items to be fixed and/ or a credit to fix deferred maintenance items.

Reversion Cap Rate:

Cap rate you think at time of sale for the property.

RR- Rent Roll:

Lists all tenants; their lease amount and lease start/end date.

Risk Fee:

A fee charged to a tenant that has a lower credit score.

RUBS – Ratio Utility Bills System:

Billing back the tenants for utilities.

SA – Subscription Agreement:

Application by an investor to join a limited partnership (LLC) for real estate investing

Secondary Market:

2-5 million people, but also need to look at investment activity. For example, Austin has less than 2 million people, but is considered secondary due to investment activity.


Sponsor raises funds from a group of people.

T l2:

Trailing 12 P&L (Profit & Loss).

T 3:

Trailing 3 P&L (Profit & Loss).

Tax Benefits:

Mutlifamily real estate has some huge tax advantages that create “tax-advantaged income”. Through the use of depreciation, 1031 exchanges, and self-directed IRAs, you can have some of the most favorable income tax treatments of any asset class.

Tertiary Market:

Less than 2 million people.

Working Capital:

Funds used for future capital items (rule of thumb= 1 month of rents).

Yield Maintenance:

A prepayment penalty that, in the event the borrower pays off a loan before maturity, allows the lender to attain the same yield as if the borrower had made all scheduled mortgage payments until maturity.