Investment Glossary.

The ratio of a property's Net Operating Income (NOI) to its current market value or purchase price. Used to estimate the return on a real estate investment before debt is factored in. A higher cap rate indicates higher potential return — and typically higher risk.

The annual pre-tax cash flow an investor receives relative to the cash they've invested. Unlike IRR, it doesn't account for equity growth or time value of money — it measures the current income yield on your invested capital.

A tax strategy that accelerates depreciation deductions by identifying personal property assets within a real estate investment. Instead of depreciating the entire property over 27.5 years (residential), cost seg allocates portions to 5, 7, or 15-year asset classes — creating larger, front-loaded tax deductions.

The IRS allows real estate investors to deduct a portion of a property's value each year as an expense — even though the property may be appreciating in value. Residential properties depreciate over 27.5 years. This "paper loss" can offset real income, reducing tax liability.

Measures a property's ability to cover its debt payments with its operating income. Calculated as NOI divided by annual debt service. Lenders typically require a DSCR of 1.20–1.35x. A DSCR below 1.0 means the property cannot service its debt from income alone.

The total cash returned to an investor divided by the total cash invested, measured at the end of the investment. Unlike IRR, it doesn't factor in time — it simply shows how many times your investment was returned. Also called MOIC (Multiple on Invested Capital).

Value creation driven by improving a property's Net Operating Income — through rent increases, expense reduction, or both — rather than waiting for market values to rise. Commercial multifamily is valued based on income (not comparable sales), making NOI improvements directly translatable to equity.

The operating partner in a real estate syndication — responsible for sourcing, underwriting, acquiring, managing, and eventually selling the asset. The GP typically co-invests capital, earns an acquisition fee, asset management fee, and a promoted interest (carried interest) on profits above a preferred return threshold.

The annualized rate of return that makes the net present value of all cash flows equal to zero. IRR accounts for the time value of money — meaning returns received earlier count for more. It's the most common return metric used in real estate private equity and syndication deals.

SEC designation for investors permitted to participate in unregistered securities offerings (including real estate syndications). Qualifications include: $200K individual income / $300K joint income for 2+ years with expectation to continue; or $1M net worth excluding primary residence; or Series 7/65/82 license holder; or Knowledgeable Employee of a qualifying fund.

A passive investor in a real estate syndication or fund. LPs contribute capital and receive distributions but are not involved in operations or management. Their liability is limited to their invested capital — they cannot lose more than they put in. LP returns are typically earned through preferred return distributions and a share of sale proceeds.

The ratio of loan amount to the total project cost (purchase + renovation). Lenders use LTC to assess how much leverage a deal carries. Lower LTC = less debt relative to total investment = lower risk profile.

Total revenue generated by a property minus all operating expenses, before debt service and taxes. NOI is the primary driver of value for commercial multifamily assets. It includes rental income, laundry, parking, and ancillary fees — minus property management, maintenance, insurance, taxes, and vacancy reserves.

The minimum annual return LPs receive before the GP receives any profit share. A preferred return of 8% means LPs receive 8% annually on their invested capital before profits are split with the GP. It's a measure of investor protection and alignment.

A legal document provided to prospective investors before they invest in a private offering. The PPM discloses all material information about the investment — including risks, financials, the operating agreement, and investor rights. Always read it in full before investing.

The GP's profit share in excess of their equity ownership percentage, earned after LPs receive their preferred return. A typical structure might be 70/30 (70% LP, 30% GP) on profits above the preferred return threshold. The promote aligns GP incentives with LP returns.

Replacing existing debt with a new, larger loan — typically after value has been added to the property. The "cash-out" portion represents equity extracted from the property. In syndications, a cash-out refi can return a portion of LP capital mid-hold while the asset continues to appreciate.

A structure in which multiple investors pool capital to acquire a real estate asset that would be too large to purchase individually. The GP manages the deal; LPs provide capital passively. Securities laws (Reg D) govern most syndications, which is why most are limited to accredited investors.

An investment strategy focused on acquiring underperforming properties and improving them through renovation, repositioning, or better management — then capturing the value created. Value-add multifamily is Northwind's primary strategy: we buy Class B and C apartments that have management problems, deferred maintenance, or below-market rents.

The order in which investment returns are distributed between LPs and the GP. Typically: (1) return of LP capital, (2) preferred return to LPs, (3) catch-up to GP (if applicable), (4) split of remaining profits per the agreed promote structure. The waterfall protects investors by ensuring capital and preferred return are paid before GPs participate in upside.