- Acquistion Cost: The amount you paid for the property
- Rehab Cost: Materials, Labor, Carrying costs such as insurance, electricity, and interest.
- Principle: The amount of your funds only. Can also include equity from co-investors.
- Loan: Money you've BORROWED from a third party for your project. (Must not be seller financing.) Could be private money loans or hard money loans. (Banks l do not lend for rehabs in 401Ks.)
- ARV or Net Proceeds of Sale: If you've yet to complete your project, use the After Repair Value (ARV). If you've sold the project, use your proceeds net seller's costs.
- Net Profit: Profit left to your IRA after all costs, but before UBIT has been deducted.
- Loan to Value (LTV) or Unrelated Debt Financed Income (UDFI): Real estate investors are familiar with the term LTV, which represents the amount borrowed incomparison to the entire cost of the project. The IRS calls it UDFI. When you hear "UDFI" think "LTV".
- Taxable Profit: This is LTV (UDFI) times Net Profit. In short, this calculates the percentage of the total profit that is subject to Unrelated Business Income Tax.
- Unrelated Business Income Tax (UBIT): This is a tax applied to trusts, and an IRA is a trust. It's a graduated tax that starts at 10% and maxes out a 39.6% after the first $12,400. Includes the $1,000 exemption. (2017 rules).
- Profit net tax: The amount left in your IRA after UBIT is paid.
- Effective tax rate: The percentage of tax as applied to your entire profit.
- ROI: Return on investment - simply your profit divided by your principle times 100. This allows you to compare results of a particular investment to any other investment.
- ROI net UBIT: Your ROI after UBIT has been deducted.
- ROI without UBIT: Your ROI as it would have been in a 401K.
*NOTE: UBIT may apply in a 401k if you use seller financing or if the number of fix-n-flips performed qualifies as a business.