Glossary
Multifamily real estate glossary
If you've heard a multifamily term and want a plain-language explanation, start here. Each entry defines the term, explains how it shows up in a sale conversation with Kallpa, and links to related concepts.
Terms
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1031 exchange
Sell one investment property, buy another, and defer the capital gains. You have 45 days to identify replacement properties and 180 days to close. The proceeds have to flow through a qualified intermediary, never your own bank account. Get the timing or paperwork wrong and the deferral collapses.
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B/C class
B-class is older workforce housing in solid neighborhoods, often 1970s-1990s vintage with light renovation. C-class is older still, more wear, often 1960s-1970s vintage in working-class submarkets. Both serve the workforce-rental tenant base. B/C is the sweet spot for value-add direct buyers like Kallpa.
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Cap rate
Cap rate is net operating income divided by price. A 24-unit building generating $200K of NOI sold for $2.5M trades at an 8% cap. Higher cap rate means lower price per dollar of income, which usually means more risk or more value-add work to do.
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Capex reserve
Capex is the periodic large-spend categories that don't repeat annually: roofs, water heaters, parking lot resurfacing, unit turnovers, plumbing risers. A reserve sets aside money each year so the cash is there when the work is needed. Sellers with no capex reserve in their P&L often produce optimistic NOI.
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DSCR
DSCR is NOI divided by annual debt service. A 1.25x DSCR means the building's NOI is 25% larger than the mortgage payment. Lenders typically require 1.20x to 1.30x on multifamily. The ratio drives both how big a loan you qualify for and what rate you'll get.
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Installment sale
If you sell on installments (collecting principal over multiple years), you only pay capital-gains tax on the principal you receive each year. The structure is governed by IRC Section 453 and is the tax mechanism that makes seller financing attractive for long-held appreciated property.
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NOI
NOI is the building's income before financing costs. Gross rents minus operating expenses (insurance, taxes, management, maintenance, utilities, vacancy) equals NOI. NOI drives valuation. Underwriting it honestly is where most price disagreements start.
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Off-market
Off-market means the property never hits the MLS or a broker's marketing list. There's no listing photo shoot, no open inspections, no rent roll circulating. The transaction goes directly between the owner and the buyer. For it to work, the buyer has to actually have the capital and the will to close.
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Seller financing
In a seller-financed sale, you don't get the full price at close. You get a down payment plus monthly payments (with interest) over 5 to 10 years. The property collateralizes the note. You spread your capital-gains tax, earn interest, and often get a higher headline price.
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Value-add
Value-add means there's a path to grow NOI from where it is today. The most common levers: below-market rents that can be brought to market over time, operational inefficiencies the next owner can fix, or condition upgrades that justify higher rents.
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Want a term added?
If you've run into a term in your multifamily transaction work that isn't here, email Jose and we'll add it. The glossary stays alive based on what sellers actually ask about.