Intermediate2 hours14 terms

Pay Yourself First: Investment Savings Glossary

This curated collection offers key terms that might be helpful when exploring the 'Pay Yourself First' principle and automated investment savings. It's designed as a quick reference to clarify commonly referenced concepts, supporting your journey toward financial discipline and wealth building. Understand essential terminology to confidently implement this powerful strategy.

Term Collection

1

Contingency Fund

A contingency fund in real estate is a dedicated reserve of money set aside to cover unforeseen property-related expenses, major repairs, or periods of income loss, safeguarding an investment from unexpected financial shocks.

Intermediate12-13 min

2

Passive Income

Passive income refers to earnings from an enterprise in which an individual is not actively involved, typically generated from real estate investments like rental properties, REITs, or syndications, requiring minimal ongoing effort after initial setup.

Intermediate13-15 min

3

Debt Reduction

Debt reduction is the strategic process of paying down outstanding loan balances, particularly mortgages, faster than scheduled to minimize interest expenses, increase equity, and improve an investor's financial position.

Intermediate5 min

4

Equity Build-up

Equity build-up refers to the increase in a property owner's stake or ownership percentage in a real estate asset over time. It primarily occurs through two mechanisms: principal paydown on a mortgage and property value appreciation.

Beginner2-3 min

5

Capitalization Rate

The Capitalization Rate (Cap Rate) is a real estate valuation metric used to estimate the potential rate of return on an investment property, calculated by dividing its Net Operating Income (NOI) by its current market value.

Intermediate14-15 min

6

Down Payment

A down payment is an initial upfront payment made when purchasing a property, representing a portion of the total purchase price and reducing the amount of money borrowed through a mortgage.

Intermediate15-18 min

7

BRRRR Method

The BRRRR Method is an advanced real estate investment strategy (Buy, Rehab, Rent, Refinance, Repeat) designed to build a scalable rental property portfolio by leveraging forced appreciation to recycle initial capital for subsequent investments.

Advanced14-15 min

8

Cash Flow

Cash flow in real estate investing represents the net income generated by a property after all operating expenses and debt service payments have been made. Positive cash flow indicates profitability, while negative cash flow suggests a loss.

Intermediate2-3 min

9

Principal Paydown

Principal paydown is the portion of your mortgage payment that reduces the outstanding loan balance, directly building equity in your real estate investment over time.

Beginner2-3 min

10

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min

11

Return on Investment

Return on Investment (ROI) is a financial metric that measures the profitability of an investment by comparing the net profit to the initial cost, expressed as a percentage.

Beginner13-14 min

12

Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.

Advanced15-18 min

13

Net Operating Income

Net Operating Income (NOI) is a key real estate metric representing a property's annual income after deducting all operating expenses, but before accounting for debt service, income taxes, and capital expenditures.

Intermediate11-12 min

14

Cash-on-Cash Return

Cash-on-Cash Return (CoC) is a real estate investment metric that calculates the annual pre-tax cash flow generated by a property as a percentage of the total cash an investor has invested.

Intermediate15-18 min

Common Questions