Chart #1 | Typical Personal Expenses
House of AC Real Estate Flywheel
Chart #2 | Find Your FIRE Number
Chart #3 | Amortization Schedule
What Those Words Mean
Appreciation: The value a property has risen either through your improvement of the property, the overall economy, or local exterior changes that made the property more desirable. Example: My spouse appreciated the effort I put forth in renovating the stinky basement into a testosterone-filled man cave since the house appreciated in value because of it.
ARM: Adjustable rate mortgage. If you don’t have a fixed-rate mortgage, your interest rate will adjust (up or down) after a certain number of years. Example: I have a five-year ARM on my investment property because I didn’t fully understand Alan’s book about why this can be a risky way to invest.
ARV: After-rehab value. What you think the house will be worth when you are done with renovations. Example: After Lenny went to rehab, his self-worth increased, just like a house does with some self-love.
Balloon: A balloon payment is the date when the mortgage note is due. You might have a thirty-year fixed amortization note with a five-year balloon, which means you are charged each month as if you have a thirty-year note, but in five years you have to pay the remaining balance in full or refinance to a new loan. Example: My career as a balloon-artist was not stable, so when my balloon payment came due on my mortgage, I had no option but to skip town and join the circus. I’m now working on a book called Clown FIRE about how to fit thirteen people into a car in order to maximize your return as an UberPool driver.
Barista FIRE: Typically defined as you are able to FIRE with a part-time job or if in a couple, one partner works full-time while the other partner is able to FIRE. Example: I get free health insurance by working part-time at the national coffee chain. If I lived in another country that actually provided free national healthcare, I’d be fully FIRE’d.
Billys: Billionaires, the real estate investors who can pay cash for properties but don’t. Example: I know Alan Corey would share his tremendous wealth for good and not evil so I’m going to support him until he becomes a Billy.
BRRRR: What you say when it’s cold outside. Or Buy, Rehab, Rent, Refinance, and Repeat, a strategy by uber-popular real estate investor and BiggerPockets podcaster Brandon Turner. Example: I BRRRR’d this worn-down property with no heat I bought in Alaska by adding a furnace, steam shower, sauna, fireplace, and a solarium to make sure the appraisal came in sky high when I went to refinance.
Cap Rate: Capitalization rate formula to evaluate a property to quickly see the rate of return that will be generated on an investment. Cap Rate = Net Operating Income/Purchase Price of Property. Example: I almost get capped every time I drive by my investment house, but the cap rate is 20% so it’s worth it.
Cash-on-Cash Return: Calculates the return on the actual money you put in yourself. NOI minus mortgage payments/down payment. Example: I put $0 in this property so my cash-on-cash return is infinite like a financial superhero that should be cast in the next Avengers: Infinity War movie.
Coast FIRE: The point in FIRE where you have hit your FIRE number but choose to keep working (coasting) and no longer have to add to savings. Example: I’m a rich bitch, so I’m not going to work late or on weekends anymore, boss. But I do still want to keep working here, so don’t get too offended.
Debt Service Coverage Ratio or DSC: Measurement of how much monthly cash flow covers the amount of monthly debt payments on a property. Example: LOL, ICYMI my DSC is 1.5, YMMV. HTH.
Equity: Your property value minus what you owe on it. Example: I earned my equity in the property via sweat equity of my hard work to renovate it unlike Lenny’s sweatpants equity where he just sat back and put in money but didn’t lift a finger.
FIRE: Financial independence, retire early. The topic of this book, in case you didn’t know. Start reading from the front of the book next time. Check out my free basic FIRE course at www.TheHouseOfAC.com if you want to be financially independent and retire early.
Fat FIRE: $100,000 in expenses or a FIRE number of $2.5 million. Example: Being fat and happy is what my tycoon corporate mentor taught me before his cardiac arrest.
FIRE Number: Typically calculated as your annual expenses x 25. If you have this amount in savings, you have reached FIRE and can live off a 4% withdrawal rate per year moving forward. Example: I hit my FIRE Number because I wanted to go the slow route to financial independence instead of the simpler and faster way of House FIRE.
HELLFIRE: Having Every Luxury in Life FIRE. Having $500,000 annual expenses or $41,666 a month in expenses covered by passive income. Example: They call it HELLFIRE because in this hell you are still 2,000 years away from being a Billy.
HELOC: Home equity line of credit is a way to withdraw money from the equity of your property. Example: Using a HELOC as a down payment on another property is what a real estate investor would do. Using a HELOC to lease a Lamborghini is what a social media influencer would do.
HOA: Homeowners association. Example: I like to surround myself with power-hungry volunteers who like to impede my progress in real estate, so I only invest in neighborhoods with HOA restrictions.
House FIRE: A way to FIRE (be financially independent and retire early) using mortgages to leverage your wealth. Cash flow of a property is used to cover your bills and allows you to FIRE with about one-fifth the money of other forms of FIRE. It also is the only FIRE method where your living expenses can increase in retirement as your cash flow increases simultaneously as your debt obligations decrease over time. Example: Because he House FIRE’d at forty, I now have to deal with Alan Corey’s midlife crisis via his ubiquitous books, courses, and podcasts.
Lean FIRE: Typically defined as having $25,000 a year in living expenses and a FIRE number of $625,000. Example: While on shrooms, I gained empathy and denounced capitalism so my boomer parents don’t really understand my Lean FIRE life.
LLC: Limited liability company. Example: I created an LLC to protect me from getting sued for providing too much Viagra to my jacuzzi-hopping tenants once they got erections lasting more than four hours.
LTV: Loan to value. Typically a bank will lend 75 to 80% loan to value on a property. Example: My bank said they’d give me 75% LTV on my ARV of my BRRRR, which means I’ve now cracked the code of investor speak.
MLS: Multiple Listing Service is the database where real estate agents list properties for sale that eventually populates to all the other real estate websites. Example: I know you saw a house on Zillow that is for sale but the MLS says it sold two weeks ago, so unfortunately you don’t have the most accurate information.
NOI: Net operating income. Gross or total income minus expenses. Example: I make $100,000 in gross rental income, but what I capture after filtering it through an expensive net is what I really make in profit.
PITI: Principal, interest, tax, and insurance. A mortgage payment often includes all four areas. Example: It’s a pity when my tenant’s rental income does not cover my PITI payments in full.
PMI: Private mortgage insurance, or an extra fee the bank charges when you put a low down payment on a property. Example: I have to pay a little extra for PMI to borrow more money, but no big deal if the numbers still make sense as an investment.
REI: Real estate investing. Example: I avoid Taco Tuesday nights at Dia’s REI events because it’s just bad food with loan sharks attending.
REI Flywheel: Real Estate Investing Flywheel. A four-part way to visualize your investing efforts and something to which you can refer and keep track of your progress. Consists of knowledge, confidence, action, and experience. Created by Alan Corey who can’t let a moment go by without giving himself credit for things. Example: The REI Flywheel is so simple, I ended up House FIRE’ing after five rentals.
ROI: Return on investment. The whole point of this book. Example: The reward of my efforts into House FIRE returned the ROI I knew I could achieve.