To be a successful apartment syndicator/investor, you have to know the right lingo. I’ve compiled a list to help you navigate through this world and enjoy the many benefits of apartment syndication.


1. 1031 Exchange: Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the form of (like-kind) real estate.

2. Assumption Fee: This is the fee that a buyer pays the lender to take over the mortgage. It is often included in the closing costs with ~1% being common.

3. Capital Expenditure (CapEx): These are the funds used by a company to acquire or upgrade an asset. It should not be confused with operating expenses, which are short-term in nature. These expenditure are depreciated over the life of the asset.

4. Capitalization Rate (CAP): This is the rate of return on a real estate investment property based on the income that the property is expected to generate. When acquiring a property, a higher cap is preferred and vice-versa.

5. Cash-on-Cash Returns: This is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. It is often used to evaluate the cash flow from an income-producing asset.

6. Debt Service Coverage Ratio (DSCR): This is a measure of the cash flow available to pay current debt obligations. The ratio states net operating income as a multiple of debt obligation due within one year, including interest, principal, sinking-fund and lease payments.

7. Defeasance: Allows the cancellation of a mortgage upon repayment of the loan through substitution of collateral.

8. Demographics: These are the characteristics of human population as defined by population size and density of regions, population growth rates, migration, vital statistics and their effect on socio-economic conditions.

9. Due Diligence: The process of examining a property, financial records, related document and procedures conducted by or for the potential lender or purchases to reduce risk.

10. Economies of Scale: Increased cost advantage associated with the increase in number of units.

11. Equity Multiplier: Represents the total cash distributions received from an investment in proportion to the total equity invested. Values less than 1 imply that an investor loses money while a value greater than 1 implies that the investment makes money.

12. Forced Appreciation: The increase in value of an asset over time. It can happen naturally or it can be forced. Natural appreciation or market appreciation occurs when the demands for rental properties outweighs the supply available or because of changes in inflation and interest rates.

13. K-1 Tax Form: This allows the company to utilize a pass-through taxation which shifts the income tax liability from the entity earning the income to those who have a beneficial interest in it.

14. Internal Rate of Return (IRR): This is the discount rate at which the net present value (NPV) of a set of cash flows equals zero. It is the rate at which a real estate investment grows or shrinks. Often times, companies use an IRR of their past projects to develop a “hurdle” rate relative to which they judge future projects.

15. Metropolitan Statistical Area (MSA): Is a geographical region with a relatively high population density at its core and close economic ties throughout an area.

16. Net Operating Income (NOI): The annual income generated by an income-producing property after taking into account all income collected from operations and deducting all expenses incurred from operations.

17. Net Present Value (NPV): The sum of all future cash flows discounted to a present value and netted against the initial investment.

18. Operating Expense Ratio (OER) or Expense Ratio: The cost of operating a property in proportion to the income that the property generates. A general rule of thumb is 50% although this varies from property to property.

19. Preferred Return: This is the first claim on profits (promised to investors) until a target return has been achieved. This helps minimize the risk to investors and thus makes the investment more attractive.

20. Pro-forma: These are the projected financial results over a number of future years.

21. Promote: This refers to the “bonus” of sorts used to motivate the sponsor to exceed return expectations and reward them for their work in finding, managing and adding value to the property.

22. Ratio Utility Billing Systems (RUBS): A method of calculating a resident’s utility bill based on occupancy, apartment square footage, number of beds or some combination of factors.

23. Sensitivity Analysis: Also referred to as what-if or simulation analysis. This is a way to predict a certain outcome based on changing a number of variables. This is often used to showcase returns under a number of varied economic conditions, often times a downturn.

24. Syndicate: A team of individuals or companies that pool their resources in order to raise capital for a multifamily asset.

25. Value-Add: Used to describe a property that offers the opportunity to increase cash flows through renovations, rebranding and/or increase operational efficiencies.

26. Waterfall: A method for splitting profits amongst partners in a multifamily deal.