The act of acquiring or purchasing something, ie real estate.

The estimated value of a given property upon completion of renovation and/or repair work.

To pay off a debt obligation gradually over time with periodic payments of principal and interest

An opinion of value by a licensed professional appraiser.

The value of a given property before any work is done - as it is at the present moment.

The items on a balance sheet showing the book value of property owned. Assets can be tangible or intangible and may be something other than real property.

The payment required at the end of the loan term, which fully satisfies the debt. Balloon payments differ from early loan payoff in that they’re payment is explicitly specified in the loan contract for a certain date and that date is usually much sooner than the date at which the loan would have fully amortized. 

A statement of a company or individual's assets, liabilities, and owner’s equity at a given period of time, such as the end of a quarter or year. A balance sheet is a record of what a company has and how it has come to have it. A balance sheet is divided into two main sections, one that records assets and one that records liabilities and owner’s equity. The assets should generally equal the liabilities and owner’s equity because the latter two are how the company paid for its assets. Examples of items recorded as assets include real estate, stocks, accounts receivable. Examples of liabilities include accounts payable and short or long-term debt.

A short-term loan used by real estate investors to buy or rehab a property when they wouldn’t have otherwise been able to purchase the property. This loan acts as a “bridge” between acquisition and long term financing for the property. 

Pronounced like “burr.” This acronym stands for Buy, Rehab, Rent, Refinance. These are short-term loans used for renovating a property that will be rented out long term. The borrower will then use the rental income to help qualify for a long term mortgage on the property, which pays off the original short term loan. 

The maximum allowable increase for an adjustable-rate mortgage. There are both payment and interest-rate caps.

A metric expressed as a percentage, calculated by dividing the net operating income an asset produces in a given year by its purchase price. The capitalization rate is used to help determine the rate of return, or how fast an asset pays for itself and begins to make a profit. For example, if an asset costs $100,000 and it produces $10,000 in a given year, the capitalization rate is 10% and it will take 10 years to pay for the asset with the money it produces. It is informally known as the cap rate. Debt on the property does not affect the cap rate. Cap rates are calculated as if the property was bought with cash. The cap rate can change from year to year, based on the income the property produces.

Point in time where the seller of a property legally transfers ownership to the buyer.

 Various fees charged by a title agency, county and/or city governments, an appraiser, a lender, or other professionals in relation to the transfer of ownership of a given property.

A property zoned for commercial purposes. Typically, residential use is not allowed but can vary with specific designations within commercial zonings of different municipalities. 

 Specific language within a contract that determines whether or not the contract will proceed upon the occurrence of some event or action. This language often dictates how earnest money will be handled in the event of a specified occurrence.

Securitization of a loan by a lender utilizing the equity an investor has in a different property. This is done when there is not enough equity in the subject property on which the loan was initially requested to meet the lender’s loan to value requirements and the investor does not want to use cash to cover the difference. 

An instrument recorded in the county register’s office in which the liened property is located. The DOT simply secures the position of the lender in the property. The note actually contains the terms of the loan. A DOT is called a Mortgage in some states.

 Failure of the borrower to pay a financial debt as agreed in the terms of the loan. Typically occurs once a payment is 30 days past due.

A property which is experiencing economic decline or difficulty due to disrepair or to a situation such as foreclosure, divorce, etc. in which the owner finds him or herself. The property can be in perfect condition and still be considered distressed because of exigent circumstances faced by the owner.

 Acronym for Days On Market. The total number of days a given property has been listed for sale on the MLS.

 A schedule used by banks and hard money lenders that outlines a timeframe for payments towards construction or renovation of a property when certain predetermined milestones in the process are reached. 

 The background investigation an investor performs on a property while it is under contract. The due diligence time frame is typically spelled out in the contract. Due diligence typically includes 3rd party inspections, title history, appraisals, environmental, and other factors related to the condition of a given property and its ownership history.

GOI is gross scheduled income less vacancy and credit loss plus income derived from other sources such as coin-operated laundry facilities. Consider GOI as the amount of rental income the real estate investor actually collects to service the rental property.

Gross Scheduled Income

less Vacancy and Credit Loss

plus Other Income

= Gross Operating Income

The monetary difference between the fair market value of a given property at a specific point in time and how much the owner (borrower) owes on a loan or mortgage against said property. Equity can be utilized as leverage in the form of a credit line and can increase net worth on the balance sheet. It’s important to remember that equity can decrease. 

 A separate account solely used to hold money reserved for a given financial transaction. Financial institutions, attorneys, real estate companies, etc., use escrow accounts to hold funds which are later disbursed as payments for property purchases, repair costs, etc. Landlords also hold tenant security deposits in escrow accounts until such time as the lease is fulfilled.

 A real estate investor’s specific plan to pay off a given debt. Selling the property is just one exit strategy. There are multiple exit strategies investors can utilize.

A property purchased with the intent of adding value through improvements and selling at a profit.

 A legal process through which a lender either takes ownership of a property on which they have an outstanding, defaulted loan or recoups principal, interest, and expenses due them through the sale of the property at public auction. 

 Can either be the borrower or a third party who legally obligates themselves for repayment of a given debt.

Costs associated with the purchase, improvement,  or repair of a given property.

A short-term loan used by real estate investors to acquire and/or improve various real estate assets. 

 Loan proceeds retained by the lender until certain predetermined markers are achieved in the life cycle of the property, at which time these funds are released to the borrower. An example of a holdback would be a lender holding rehab funds until part or all of the work is actually complete, at which time some or all of the remaining funds are released to the borrower.

AKA Carrying Costs. Costs associated with ownership of a given property. These can be fixed or variable. Property taxes and HOA fees are generally fixed. Water and electric bills are variable.

A form created by the Department of Urban Housing and Development which details a given transaction between the seller, buyer, and lender of a property.

 AKA Annual Percentage Rate which is the cost of funds or interest rate for an entire year expressed as a single percentage.The APR provides the customer with a convenient number against which to compare the cost of funds for other loans. It’s important to note that Annual Percentage Rate differs from Annual Percentage Yield (APY). APY is the effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate, raising it to the number of periods in a year and then subtracting one. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).

 A written agreement, typically, between two or more entities or individuals to undertake a single project or series of projects. Joint ventures are often used for large scale projects where capital requirements are high. 

The security interest created by a mortgage against a given property.

Cash available to an individual or company at the present time.

An employee of a financial institution, tasked with the responsibility of generating loan business for the institution and assisting with all necessary details in completion of the loan application process.

Fee assessed by the lender for execution of the loan. One point equals one percent of the loan’s principal.

Loan-to-cost (LTC) compares the financed amount of a real estate project to its cost. LTC is calculated as the loan amount divided by the construction cost, in the case of new construction or acquisition and repair cost in the case of a fix and flip. As an example, let's assume that the hard construction costs of a real estate project are $500,000. To ensure that the borrower has some “skin in the game”, the lender provides a $375,000 loan. This helps ensure the borrower sees the project through to the end. The LTC ratio on this project would be calculated as $375,000 / $500,000 = 75%.

An LTV ratio, expressed as a percentage,  is calculated by dividing the loan amount by the appraised value of the property. As an example, a property appraised at $500,000 with a loan against it of $375,000 has an LTV of 75% ($375,000/$500,000). 

The date at which the final payment of a loan is due.

Properties with multiple available zoning uses. Mixed use properties are typically located in city centers and allow for some mixture of retail, office, or residential use.

Acronym for Multiple Listing Service. The central database, owned and controlled by a local Realtor® association, of properties currently for sale. The MLS may contain both residential and commercial properties for sale and/or rent.

An instrument recorded in the county register’s office in which the liened property is located. The mortgage simply secures the position of the lender in the property. The note actually contains the terms of the loan. A mortgage is called a Deed of Trust in some states.

A property that contains 5 or more dwelling units and can only be purchased with commercial or private financing. On the other hand, multi unit properties contain 2 to 4 units and can be purchased with traditional residential mortgage products and can even be purchased with an FHA loan as an owner occupant. 

A nonconforming loan is a loan that does not adhere to government-sponsored enterprises (GSE) guidelines. Freddie Mac and Fanni Mae will not buy these loans, as they will with conforming loans.

Administrative fee charged by a lender to facilitate the underwriting and approval of a loan and subsequent disbursement of proceeds.

As it relates to the title of a property, liens are placed in different “postion” based on when they were recorded against the property title. Most lenders want to be in “First Position” as that puts them ahead of any other lienholders, with the exception of tax liens. If there are multiple loans against a property, those lenders will hold different positions (First, Second, Third, etc.)

Percentage charged by a lender for a loan when paid in full before the agreed upon maturity date. This penalty must be spelled out in the loan docs. Prepayment penalties help lenders recoup lost income that they initially projected to earn based on the loan term.

Lenders not affiliated with a traditional bank or other large financial institution. Private lenders can be hard money lenders, friends, family, hard money lenders, or other sources not directly tied to a bank. 

 A letter from a hard money lender or bank that states an investor has the financial means to close on a financial transaction.

A state licensed individual that represents buyers and sellers in real estate transactions.

The title given to a real estate agent or broker who is a member of the National Association of Realtors. Only current registered members can use this title.

A zoning category for properties primarily used for the housing of individuals or families. 

Itemized list of work a contractor intends to perform on a given construction project.

The age of the mortgage. Typically a mortgage is considered to be fully seasoned when it has been held for at least a year. Refinancing an unseasoned loan is generally not possible as it’s considered too risky by potential lenders. 

A real estate transaction that must be approved by the lender whereby the owner of the property sells the property for less than what’s owed to the lender.

A freestanding structure that can house one family. 

Costs associated with a project such as legal or financial fees. 

The value added to a property through non-financial additions made by the owner or other party.

A group of real estate investors pooling their money and other resources together to buy a much larger property than any one member of the group could have bought alone.

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Some form of a deed showing ownership of a given property.

The amount of time needed for a property to be resold once purchased.

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The risk assessment a lender uses to decide whether or not a loan should be issued. 

The ratio, expressed as a percentage, of unoccupied units of a commercial, mixed used, or multi-family property against the total number of units available to rent in said property.

A provisional agreement typically used in syndications that spells out the order of priorities and any necessary milestones or metrics that must be achieved in relation to distributing profits from the operation of an income property. 

 Putting a property under contract and then assigning your rights in that contract to another investor for a fee. Wholesaling has been outlawed in some states. Check with your local jurisdiction before employing this method.

The rate of return on an investment. Factors like interest payments, purchase price, time until maturity, and redemption value all affect the yield rate. 

The categorization of land made by a governing body for how it can be used. There are typically four standard zone categories: Residential, Commercial, Industrial, and Mixed-Use.