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Glossary
The numbers behind a rental deal, in plain English. Start with DSCR and cap rate, the two ratios that decide whether a property pays its own mortgage.
Most of these terms feed the Investor Yield Index, which scores U.S. metros on cash flow. At today’s 6.80% financing, even the top market (Cleveland, OH) sits near a 1.22 DSCR, under the 1.20 most lenders want. Knowing what each ratio means is how you read that gap. Index figures use live Zillow data, recomputed weekly.
DSCR (Debt Service Coverage Ratio)
Net operating income divided by annual debt service. It measures whether a property’s rent covers its loan payments. Lenders set a minimum of 1.20 for a DSCR loan, so 1.20 is the bar a market has to clear. A ratio below 1.0 means rent does not cover the mortgage. At a 6.8% 30-year rate with 25% down, very few metros clear 1.20 today, which is why our Index ranks markets on how close they come. Compute yours →
Cap Rate (Capitalization Rate)
Net operating income divided by property value. The unlevered yield of an income property, the return if you owned it free and clear. Used to compare properties and markets on a like-for-like basis, since it ignores how the deal is financed. Our Index scores cap rate on a 3.5% to 6.0% band, where higher is stronger cash flow. Formula and calculator →
Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested. The levered return on the money you actually put in (down payment, closing, and rehab). Unlike cap rate, it counts financing, so it is the metric that decides whether a deal pays you each month. Our Index scores it on a band from negative 3% to positive 3%, which reflects how thin cash flow is at today’s rates. Calculator →
NOI (Net Operating Income)
Gross annual rental income minus operating expenses (taxes, insurance, management, maintenance, and vacancy). NOI excludes the mortgage payment, capital expenditures, and depreciation. It is the numerator for both cap rate and DSCR. Our Index models a 40% operating-expense load, so NOI runs at roughly 60% of gross rent.
Gross Yield
Gross annual rent divided by property value, before any expenses. The top-line rent-to-price ratio, and the fastest way to compare markets. The 1% rule is a gross yield of about 12% (1% monthly rent times 12). Our Index scores gross yield on a 5.5% to 10% band, so a 1% rule property would top the scale.
GRM (Gross Rent Multiplier)
Property price divided by gross annual rent. A quick screening ratio, lower is better. Under ~8 is often attractive in cash-flow markets; over ~12 usually signals weak rental yield. Ignores expenses and financing, so confirm with cap rate. Calculator →
LTV (Loan-to-Value)
Loan amount divided by property value. A 75% LTV means the loan covers 75% of the price (25% down). DSCR and hard-money lenders typically cap LTV at 70 to 80%. The Investor Yield Index assumes 25% down, which is a 75% LTV. Lower LTV usually earns a better rate, since the lender takes less risk.
ARV (After-Repair Value)
The estimated value of a property after renovations are complete. The basis for fix-and-flip and hard-money lending, lenders typically cap total loan-to-ARV near 70%. The “70% rule” sets a flip’s max offer at roughly ARV × 0.70 minus rehab costs.
Have a specific property? Skip the theory and run the math on your own numbers with the DSCR calculator or the full deal analyzer.