Unscrambling the Jargon: Investing Terms explained

When speaking to people you can sometimes get overwhelmed by a lot of foreign sounding terms and phrases. We've created a very simple guide to help you make sense of it all.

• Returns | Yield | Profit. These are all used interchangeably to refer to the money you earn on your investment and is "returned" to you. Some of it will be annually, and some will be upon a sale or refinance (a.k.a. a "capital event")

• Cash-on-Cash Yield | Levered Yield | Levered Cashflow. These are all used interchangeably to refer to the annual cash payment or dividend that you are paid from the investment after all expenses, and the mortgage has been paid.

• IRR. This is a way of measuring your total profit from a deal once it has sold, including all the cashflow you received, and any profits made on the sale (exit). This metric accounts for the amount of time it took to realize those profits. See article - "What is an IRR, and why does it matter to me?"

• Equity Multiple. This is how much your initial investment has grown. If you invest $100, and receive a total of $200 back, you have achieved a 2x (two times) Equity Multiple. If you got back $83 plus your initial amount, you have a 1.83x Multiple.

• Leverage | Debt | Mortgage | Loan. These are all used interchangeably to refer to the money that is borrowed in order to enable you to purchase the asset. There are different flavors of Debt, and there can be multiple levels of loans on a property. The most basic thing to remember about Debt is that it gets paid ahead of Investor Equity, and is entitled to foreclose on (take away) the asset if it does not get paid.

• Equity. This is the portion of the capitalization (i.e. the total money used to buy an asset) that comes from Investors and not from Loans. (this can be confusing because sometimes the word can be used to refer to funds in general, and sometimes it gets used to refer to the amount of ownership of each investor).

• GP | General Partner | Sponsor | Syndicator | Manager. These are all used interchangeably to refer to the person (or people) that is responsible for managing all aspects of the investment throughout the entire hold period (ownership), and distributing the returns to investors. The rights and responsibilities of the Sponsor to his investors are detailed in the Operating Agreement that controls the legal entity which owns the asset.

• LP | Limited Partner | Investor. These are all used interchangeably to refer to the individuals who are passive investors in the Asset. They are limited in their rights and responsibilities regarding the asset.

• Refinance. Replacing an existing loan with a new loan. This may be done because the loan is expiring (maturing), and the remaining balance is required to be paid back. Or it can be done voluntarily in order to switch to a lower interest rate, or to get out some more cash from the asset in a situation where the new lender is willing to lend more money than the old loan.

• Basis. This refers to the total actual price at which the asset was bought, usually in reference to where the current true value is. A lower basis is always better because it is the first part of the "buy low, sell high" strategy. The basis cannot only be set upon purchase, and can never be improved, so being in the deal at the right basis is critical.

• Price per door | Price per unit. This is the basis divided by how many "units" you've bought. This is a helpful way of comparing similar assets of different sizes, similar to how meat or vegetables are priced per pound.

• Cap Rate. This a way of describing how much a property is worth. It is somewhat counterintuitive, but a lower cap rate indicates a more expensive asset, and vice versa. See this article for a full explanation.