Financial Glossary

The process of paying off a loan through regular instalments. Each payment covers interest and a portion of the principal. Early payments are mostly interest; later payments are mostly principal.

The ratio of the mortgage amount to the property's appraised value, expressed as a percentage. A lower LTV means less risk for the lender and typically better interest rates. Most lenders cap at 80–90% LTV.

Total monthly debt payments divided by gross monthly income. Lenders use this to assess borrowing capacity. Generally, 36% or below is considered healthy; above 43% may make it difficult to qualify.

Euro Interbank Offered Rate — the benchmark interest rate at which European banks lend to each other. Variable-rate mortgages in the Eurozone are typically indexed to the 3-month or 12-month Euribor.

A fixed rate stays the same for the entire loan term, providing payment certainty. A variable rate changes with a benchmark (e.g. Euribor), which can lower or raise your payments over time.

Net Operating Income divided by property purchase price, expressed as a percentage. Measures the potential return on an investment property regardless of financing. Higher cap rates indicate higher potential returns but often higher risk.

Annual rental income divided by the property purchase price, expressed as a percentage. Does not account for expenses. A quick metric to compare properties.

Annual rental income minus all operating expenses (management fees, insurance, maintenance, void periods, taxes), divided by the property price. A more realistic measure of actual returns.

Annual pre-tax cash flow divided by total cash invested (down payment + closing costs + renovation). Unlike cap rate, this accounts for your financing structure. A 10% cash-on-cash return means you earn €10 annually for every €100 invested.

Buy, Rehab, Rent, Refinance, Repeat. A real estate investment strategy where you buy a distressed property, renovate it to increase its value, rent it out, then refinance to pull out equity and repeat the process.

The gain or loss from an investment relative to the amount invested, expressed as a percentage. In real estate: (profit ÷ total investment) × 100. Includes both rental income and capital appreciation.

The estimated market value of a property after all planned renovations are completed. Used in Fix & Flip and BRRRR calculations to determine the maximum purchase price and expected profit.

The highest price you can pay for a property and still achieve your target profit. Typically calculated as: ARV × 70% − Renovation Costs. The 70% rule is a common guideline in Fix & Flip investing.

Portuguese property transfer tax paid by the buyer. Rates range from 0% to 7.5% for residential properties, depending on the purchase price and whether it's a primary residence. Urban land is taxed at 6.5%, rural land at 5%.

UK tax paid by the buyer on property purchases. Rates from 0% to 12% for residential properties (2025). First-time buyers get relief up to £500k. Additional property (buy-to-let) attracts a 5% surcharge on top of standard rates.

German property transfer tax paid by the buyer. Rates vary by federal state (Bundesland), ranging from 3.5% (Bavaria, Saxony) to 6.5% (Brandenburg, Schleswig-Holstein, North Rhine-Westphalia). One of the highest acquisition costs in Germany.

Spanish property transfer tax on second-hand properties, paid by the buyer. Rates vary by region (Comunidad Autónoma), typically 6–10%. New properties are subject to IVA (VAT) at 10% instead.

Tax on the profit made from selling a property. Rates and exemptions vary significantly by country. In Portugal, 50% of the gain is taxed at marginal income tax rates. In Germany, gains are tax-free after 10 years of ownership.

All costs beyond the purchase price paid when buying a property. Typically includes transfer taxes, notary fees, legal fees, and agent commissions. Varies significantly by country: ~7–8% in Portugal, ~10–15% in Germany, ~2–5% in the UK.

Legal fees for the property purchase transaction. In continental Europe, a notary (public official) is required to authenticate the deed. In the UK, a solicitor handles conveyancing.

A professional assessment of a property's condition and/or market value. A mortgage valuation confirms the lender's security. A full structural survey (HomeBuyer Report or Building Survey in the UK) identifies defects.

The difference between a property's market value and the outstanding mortgage balance. As you pay down the mortgage and/or the property appreciates, your equity grows. Equity can be accessed through remortgaging or a home equity loan.

Short-term financing (typically 6–24 months) used to bridge the gap between buying a property and securing long-term financing. Common in Fix & Flip and BRRRR strategies. Rates are typically 0.5–1.5% per month.

Replacing an existing mortgage with a new one, either with the same or a different lender. Done to get a better interest rate, release equity, or change the loan term. Key step in the BRRRR strategy.

Net Operating Income divided by annual debt service (mortgage payments). A DSCR above 1.0 means the property generates enough income to cover its debt. Lenders typically require 1.2 or higher for investment property loans.

The period when a rental property is unoccupied and generating no income. Investors typically budget 4–8% of annual rent for void periods. Higher in seasonal markets (holiday lets) and lower in high-demand urban areas.

Fees charged by a letting agent to find tenants and/or manage a rental property. Tenant-find only: typically 50–100% of one month's rent. Full management: typically 8–15% of monthly rent.

A property rented to 3 or more unrelated tenants who share facilities (kitchen, bathroom). HMOs typically generate higher rental yields than single-let properties but require a licence and have stricter regulations.

A property purchased specifically to rent out to tenants rather than to live in. BTL mortgages have different criteria than residential mortgages: typically require 25% deposit, rental income must cover 125–145% of mortgage payments.

The S&P 500 is the standard benchmark for comparing real estate returns against financial markets. It tracks the 500 largest US companies and has delivered a nominal CAGR of ~10.5–11% (real ~7%) over the long term. When evaluating a property investment, the key question is: does the risk-adjusted return beat a passive S&P 500 index fund? Property offers leverage, rental income, and inflation hedging; the S&P 500 offers liquidity, diversification, and zero management effort. A fair comparison must account for leverage, taxes, vacancy, and transaction costs on the property side.

Total rental income minus all operating expenses (taxes, insurance, management, maintenance, vacancy), but before mortgage payments. Used to calculate cap rate and DSCR. Does not include financing costs.