Glossary

AFFORDABLE HOUSING: Section 8, Rent-stabilized housing and Rent-control. These are all forms of government-subsidized housing. The tenant generally pays a portion of the monthly rent and the government writes a check to the landlord for the balance of the monthly rent.

AIR RIGHTS: A type of property interest referring to the “space” above a property. Generally, developers purchase air rights from the neighboring buildings and transfer them to a property in order to build more floors. “The developer bought and transferred 20,000 SF in air rights to his property”

AMORTIZATION: – Full (as in “30-yr Fixed Rate Mortgage (Fully Amortizing)”)
– Partial

ARV: When it comes to fixing and flipping, which we’ll define further down the list, ARV stands for “after repair value.” This term is used to refer to the projected value of a property after it has been fully renovated.

ASSET: A sophisticated way to describe a property. “Where is the Asset located?”

BASIS POINTS (BPS or BIPS): A way to describe interest rate and or fees.1% of the loan amount = 1 Point = 100 basis points or 100 bps.
Example: A broker says “throw me 50 bps”. A loan officer says: I can shave 100 bps off the rate.

BRIDGE LOAN: A bridge loan is a short-duration loan that borrowers use to purchase or refinance properties. Bridge loans are often used to quickly purchase a property that the borrower will then refinance with a bank. Hence the term “bridge loan”. Bridge loans are secured by a lien on one or more real estate properties.

BRRRR: BRRRR stands for buy, rehab, rent, refinance, repeat. This acronym describes an investment cycle that applies to a long-term real estate investing strategy for acquiring and holding a portfolio of residential properties.

BUY AND HOLD REAL ESTATE: This term refers to a long-term real estate investment strategy in which the investor buys a property with the intention of renting the property and holding onto it for the long term. During this extended period of time, the investor typically rents out the property with the ultimate goal of keeping the asset for the long term. If investors can afford it, this strategy is great for generating cash flow in the short term and reaping the long-term benefits.

CAP RATE: Capitalization rate, or cap rate for short, is used to measure the annual rate of return on a real estate investment based on the profit that property is expected to generate. Simply put, it’s the ratio between the net operating income (NOI) and purchase price. Cap rate is calculated by dividing net operating income (NOI) in the first year by the property purchase price. (NOI excludes loan costs if you used financing).Say you purchase a property for $150,000. The expected NOI in the first year is $12,000.
$12,000/$150,000 = 0.08
Cap rate: 8%

Short for capitalization rate, this term is used to predict how long it will take for a real estate investment to pay for itself over time. To determine a cap rate, you take a property’s net operating income – all the revenue for the property minus operational expenses – and divide it by the property’s current market value.
Cap rates vary from region to region. They typically range from 5% to 10%. A real estate property with a 5% Capitalization rate will take 20 years for the asset to pay for itself. A real estate property with a 10% Capitalization rate will take 20 years for the asset to pay for itself.

CAPEX: CapEx, or Capital Expenditures, are defined as new purchases or major improvements/renovations that extend the life of a property, such as replacing a roof, adding an extension or finishing the basement. This term also covers equipment and supplies required to make these improvements. Generally these are one-time, major expenses. Think of it this way: Routinely re-painting your rental hGome after tenants move out is not a capital expenditure. Installing a new furnace is. Why it matters: Most parts of a house will eventually need replacing. Though the big-ticket items may only be needed every 20 years, it’s important to know there will come a time where you have to pay $1,200 to replace a bathroom floor, or $4,500-$10,000 to replace the roof. Just remember—these repairs/improvements ultimately extend the overall life and value of your investment property.

Capex is short for capital expenditures. This is the amount that investors anticipate it will cost to renovate a property. This may include repainting a house or even adding a vertical or horizontal extension to the property.

CAPEX (CAPEX BUDGET): Capital expenditure budget – this refers to the total renovation budget for a value-add property.

CAPITAL GAINS TAX: Capital gain or loss is the difference in the value of a property compared to its purchase price. If there is a gain, it is realized after the asset is sold. A short-term capital gain is one year or less; a long-term gain is more than a year. Both must be claimed on your income taxes, but short-term capital gains have a higher tax rate than long-term capital gains.Why it matters: Understanding how your real estate investments are taxed is important if you’re looking to optimize performance and returns.

Capital gains tax applies to profits from the sale of an asset held for more than a year, this is referred to as “long-term capital gains.” The rates range between 0%, 15%, or 20%, depending on the taxpayer’s tax bracket for that year.
On the other hand, short-term capital gains tax relates to assets held for a year or less – they are taxed as ordinary income. For most, that is a higher tax rate than the capital gains rate.

CAPITAL STACK: The total amount of capital invested in a real estate deal or project. In Multifamily real estate, these “stacks” typically include: common equity, preferred equity, senior debt, mezzanine debt or preferred equity.

CASH-OUT REFINANCE: This term refers to a type of mortgage in which the borrower is pulling out capital by replacing their current mortgage with a new mortgage that is larger in size.Often, the new mortgage will provide better terms for the borrower including a lower interest rate.

CLOSING COSTS: Closing costs are the expenses that buyers incur when purchasing a property. These include appraisal fees, title insurance, surveys, origination fees, attorney fees, and more!

CMA: Comparative Market Analysis (CMA) is a report that shows active and sold listings, listings taken off of the market, and listings that expired without being sold during a specific time period and in a specific neighborhood or geographic area. CMAs are usually generated by real estate agents using data from the MLS. Because not every property bought and sold is listed on the MLS, a CMA may lack some specific property data, but normally will serve as an accurate guide for current market trends.
CMA stands for comparative market analysis. There are several online tools that will offer this for you. It helps investors estimate a home’s value based on the price of similar properties in the area. Real estate agents often use CMAs to set listing prices.

COMMON AREA: The generally accessible areas are found on each floor of a multifamily building such as mechanical rooms, elevator lobbies and public corridors that are available for use by all tenants on that floor.

COMMON EQUITY: A form of ownership in a building that is held by ordinary owners/investors. Preferred equity is considered senior to common equity.

CONSTRUCTION LOAN: It is a short-term loan, generally running from 18 to 36 months. Its purpose is to cover the construction costs related to a building/renovating a property.

CONVERSION: A building that is changed from one use to another (i.e., an office building that is converted to a multifamily building).Space being converted is removed from current inventory and included in the under-construction category for the planned future use (i.e., an office building being converted to an apartment building will be removed from office inventory and included under apartment space, or number of units, under construction).

CRE: CRE simply stands for Commercial Real Estate. This covers all types of real estate related to businesses or organizations, with no link at all to residential property.

Cash Flow: Cash flow is the amount of money you can pocket at the end of each month, after all operating expenses (including loan payments) have been paid. If you spend less money than you earn, your cash flow will be positive. If you spend more money than you earn, your cash flow will be negative.Rental income minus all operating expenses (including loan payments) = Cash flow

DUE-DILIGENCE: The DD period is usually the first 10-30 days of a contract period. The DD period is the period that the buyer has to do research on the property to find any issues. As a lender, we must perform our due diligence (DD) on every loan to determine if there is any fraud, title issues or other legal issues that would prevent us from doing a loan.

EQUITY: Equity refers to the ownership of assets. They might have debt or other liabilities attached to them. In accounting, equity can be estimated by subtracting liabilities from the total value of the assets.

FIX AND FLIP: It is an investment strategy that involves purchasing a typically distressed property, adding value — usually by renovating — it and selling it for a profit as quickly as possible.

FMV: FMV FMV stands for Fair Market Value and is the value at which a real estate asset would sell on the open market.

Fair Market Value (FMV) is the reasonable price that a property would sell for on the open market when both buyer and seller are reasonably knowledgeable, free of undue pressure to complete the transaction, and are behaving in their own individual best interest. So, FMV should reflect an accurate valuation of value or worth at a specific point in time.
Why it matters: Knowing what the FMV of a property is helps a buyer understand if they are paying the right price for a property, and a seller understand if they are leaving money on the table. There are several ways for an investor to determine the FMV of real estate including a third-party appraiser, a CMA done by a real estate agent, and a BPO (broker price opinion). Oftentimes an agent or broker will offer to provide a free CMA or BPO as a way of gaining future prospective business. Property tax assessments and insurance claims often use FMV, although it’s important to note that there is a difference between Appraised Value for property tax purposes and Fair Market Value for buying and selling real estate.

FORECLOSURE: A real estate foreclosure is a legal process that occurs when borrowers can no longer afford to pay their mortgage payments. Therefore the lender, usually a bank, initiates a forced sale of the property. Foreclosure properties are often in demand among fix and flippers as they can often be bought at bargain prices at auctions.

FSBO: For Sale by Owner (FSBO) is a term used to describe a real estate owner that is selling his or her property without using a real estate agent or listing the property on the MLS. FSBO listings are often seen toward the peak or bottom of the real estate market cycle. Owners selling at the top of the market don’t see the need to pay a real estate commission when there is more demand from buyers than there is supply of houses. On the other hand, FSBOs selling at the bottom of the market may have little or no equity in their property, and simply can’t afford to pay a real estate agent commission.

This acronym stands for “for sale by owner”. It is a category under which owners can list a house for sale if they are not using a listing agent or a broker.

Full recourse: When a loan is secured by the borrower. A full recourse loan will not allow the borrower to get out of a loan unless it is paid in full. The borrower is still fully responsible for repaying this loan in the event the collateral loses value

GRI: Gross Rental Income (GRI) is the amount of money collected in rent plus any additional income such as application fees, pet fees, parking fees, advance rent, or any expenses paid by the tenant to the landlord that are not required as part of the lease. Security deposits paid by the tenant are not considered to be income. Instead, refundable deposits are treated as a short-term liability on the balance sheet for the rental property because the deposit will eventually be returned to the tenant.

GRM: GRM stands for “gross rent multiplier.” GRM is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross rent received.

GROSS OPERATING INCOME: The gross operating income equals the property’s actual annual gross scheduled income less vacancy and credit loss. GOI is not the property’s potential income but represents instead the actual income that you collect every year.

GROSS RENTAL YIELD: Gross rental yield is the total income generated by a property, divided by the price paid for the property and associated closing costs. This is what you get before deducting operating costs (maintenance, property management, insurance, HOA fees, etc).Why it matters: Gross rental yield provides investors with a quick reference for an annualized return on an investment.
Monthly rent x 12 / purchase price and associated closing costs = Gross yield
Gross rental yield is annual rental income divided by the value of the property, multiplied by 100.
The total property value includes the price of the property as well as closing costs and renovation costs. This shows investors what percentage of the property purchase price that they could earn on rent per year.

HARD COST BUDGET: Hard costs include all of the materials that go into the physical construction or renovation of a space, such as building walls, electrical, plumbing, appliances, flooring, etc. Hard costs also the labor that goes into the construction. Hard costs will likely make up the majority of project costs – about 90% to 95% of the total project cost

IE REPORT – AN INCOME AND EXPENSE REPORT: This is a report showing all of the actual income and all of the actual expenses for a property.

INFILL: Infill is the development of one or more buildings on underutilized land situated between existing buildings. Infill development is typically done in dense environments where land is scarce. The slightly broader term “land-recycling” is sometimes used.

IO PAYMENTS / PARTIAL IO: IO means Interest-Only payments. All of our bridge loans are IO payments. Many borrowers prefer IO payments because they are less money out of pocket on a monthly basis when compared to P+I Payments.

IRR – INTERNAL RATE OF RETURN: This is a common real estate investment term you’ll see when browsing rental properties or crowdfunding websites. The internal rate of return (IRR) is a measurement of a property’s long-term profitability that takes into account the annual net cash flow and the change in equity over time. Why it matters: IRR is the single best estimate of your asset’s performance over the entire time that you plan to hold it. It allows you to evaluate investments that may have different cash flows or appreciation potential.

The internal rate of return helps investors estimate how much they will profit from a particular investment. This is done by predicting how much returns are expected to grow per year as a percentage.

ITV REAL ESTATE: In real estate, ITV stands for the ‘investment to value ratio’. As a percentage, it tells the investor the likelihood of getting their money back in the event the payor defaults on payments.

LEVERAGE: The use of borrowed funds to help finance an investment, to increase either the potential rate of return or one’s purchasing power. For example, “borrower wants to max out the leverage”

LIQUIDITY: The total amount of cash, cryptocurrency, stocks and other easily sold securities that the borrower has available.

LTC: Loan-to-Cost (LTC) is a percentage that measures the total loan amount compared to the construction cost.

LTV: Loan-to-Value (LTV) is a percentage that measures the total debt or leverage on a property compared to the market value. In most cases, real estate investors will use a conservative LTV of no more than 75% to 80%. A property with an LTV greater than 80% can be described as being over leveraged, creating the risk of potential negative cash flow due to a larger mortgage payment.
Example: LTV = $75,000 loan / $100,000 market value = 75% LTV

Why it matters: In general, the lower the LTV is the less risk there is of having negative cash flow from a rental property. A low mortgage payment gives an investor the opportunity to set more net cash aside for capital repairs or a period of extended vacancy if the property takes longer to rent than anticipated. A conservative LTV also minimizes the risk of an investor having negative equity – sometimes described as being “upside down” – in the property during a downward real estate cycle where market values decrease but the loan amount stays the same.

MEZZANINE LOAN OR MEZZ: A mezzanine loan is additional debt an investor will take on to finance an acquisition or expansion project. They come in second position behind senior liens. We don’t allow borrowers to get Mezzanine loans behind our loans.

MIXED-USE: A building or land development that includes both residential and commercial space

MULTIFAMILY: Multifamily refers to any building that contains 5 or more residential units. A true multifamily building does not contain any retail or commercial component.

NET OPERATING INCOME: Net operating income (NOI) is a measure of a real estate investment property’s potential to be profitable. It’s calculated by estimating the property’s revenue and subtracting all operating expenses such as repairs, maintenance, property taxes, HOA fees, etc. NOI does not include mortgage payments.Why it matters: NOI allows you to analyze properties of all different types without looking at financing terms. NOI is also required to calculate cap rate.
Revenue – all reasonably necessary operating expenses = NOI
The net operating income is a calculation used to determine how much income a property will generate. It’s the value of the property’s revenue minus all operating expenses.

NET WORTH: The amount of money that a Sponsor is worth. The general formula is Assets – Liabilities = Net worth

NOI (NET OPERATING INCOME): NOI is simply the GOI minus the property expenses and taxes. NOI is the total amount of income left over after paying all the expenses.

Non-recourse: When a loan is secured by collateral (usually the subject property). A nonrecourse loan does not allow a lender to pursue anything other than the specific collateral in the event a borrower defaults on the loan. The lender is backing it’s loan based on the value of the collateral.

OM – OFFERING MEMORANDUM: A document containing details about a property and proforma financials. An OM is put together by the sales broker who is representing a seller.

P+I PAYMENTS – PRINCIPAL + INTEREST PAYMENTS: The borrower’s monthly payment is composed of both a fraction of the principal loan balance and interest payment.

PFS – PERSONAL FINANCIAL STATEMENT: A report that states all of the assets and liabilities of a Sponsor. A PFS will show a borrower’s Net worth and liquidity. Some Sponsors will include their SREO in their PFS. Meaning that the PFS may be utilized at times to show all of the real estate assets that a Sponsor owns.

PHASE I: A Phase I Environmental Site Assessment, commonly referred to as an ESA, or Phase I ESA, is completed to research if current or historical property uses have impacted the soil or groundwater beneath the property and could pose a threat to the environment and/or human health. If these issues are found, it presents a potential liability for the lender and/or owner, as well as affecting the value of the property.

PHASE II: When a Phase I Environmental Site Assessment (ESA) identifies a potential environmental issue, lenders require an evaluation of the potential impacts by performing Phase II Environmental Testing. A Phase II ESA is a subsurface investigation that tests soil, soil gas and/or groundwater to identify sources of environmental impacts.

PITI REAL ESTATE: PITI is an acronym for a mortgage payment that includes Principal, Interest, (Real Estate) Taxes, and Insurance. The monthly payment of most residential mortgages is PITI.Example: $1,000 / month principal and interest payment + $40 / month homeowner’s insurance + $200 / month property taxes = $1,240 PITI per month
Why it matters: PITI has a significant effect on your total monthly cash flow, in addition to normal operating expenses. Sometimes real estate investors only calculate the monthly mortgage payment based on loan interest, but forget about the additional expenses of property tax and insurance on the house. When this happens, cash flow is overstated along with the profit potential of the rental property. Other extra monthly costs to add to the PITI include any mortgage insurance premium (MIP) and the monthly HOA fee if the property is in a homeowners association.
PITI stands for ‘principal, interest, taxes, and insurance’, which compose a mortgage payment. Mortgage lenders generally require the PITI to be less than or the same as 28% of the gross monthly income of a borrower.

PREFERRED EQUITY OR PREF EQ: Preferred equity is an alternate form of financing that is provided either instead of, or subordinate to, mezzanine financing in commercial real estate transactions. It is an equity investment in a joint venture, which is, typically, a direct or indirect owner of a property owning entity.

PREFERRED RETURN (PREF): A profit distribution preference whereby profits, either from an Asset’s operations, sale, or refinance, are distributed to one class of equity before another until a certain rate of return on the initial investment is reached.

PRO-FORMA FINANCIALS: Pro-forma means projected. So Pro-forma financials refer to the income and expense projections for an asset

PSA – PURCHASE AND SALE AGREEMENT: A synonym for contract.

REAL ESTATE APPRAISAL: This is an evaluation carried out by a real estate appraiser on a property to calculate its current market value or ARV.

REAL ESTATE JOINT VENTURE: A real estate joint venture is a term used to describe what happens when two or more individuals partner up to work on a real estate investment.

REAL ESTATE LLC: In real estate, an LLC refers to an established legal entity that investors can use to invest in real estate instead of investing on their own behalf. This protects them from personal liability.

REAL ESTATE TRUST: A real estate trust is a company that owns, operates, or finances real estate assets held for the purposes of generating income.

REAL ESTATE WHOLESALER: A real estate wholesaler is a person who gets a property under contract and then assigns the contract to a third-party buyer. The buyer closes on the purchase and pays the wholesaler an assignment fee.

REDEVELOPMENT: A building or site that involves teardown and rebuilding of most—if not all— structures on that site. This change typically occurs in sought-after areas that are usually well located, where buildings have become unattractive or obsolete, or where there is a demand for different uses.

REO REAL ESTATE: The acronym REO stands for “real estate owned.” It is used to describe foreclosure properties owned by a lender.
Real Estate Owned (REO) is property owned by the bank or lender that has already been foreclosed on but hasn’t been sold at auction. Many banks have REO departments whose job it is to get the property off of the bank’s balance sheet by selling it through a real estate agent who specializes in REO listings or through online platforms operated by FHA or HUD.

RR – RENT ROLL: A report that shows various details for each unit in a multifamily property. These details include each unit number, the tenant name, monthly rent, etc. This report does not include the actual income, but only the projected monthly income for each unit.

SENIOR LIEN (SENIOR LOANS): A senior lien is considered to be the first and primary mortgage on a property. Typically, this is the original loan amount and is secured by the value of the property. This amount will be paid first and only tax obligations can potentially interfere. We only provide senior loans.

SOFT COST BUDGET: Soft costs include all of the planning and permitting costs associated with a renovation project. A typical soft cost budget is about 5% to 10% of the total project cost.

SREO – SCHEDULE OF REAL ESTATE OWNED: A list of all of the real estate properties that a Sponsor owns including the address, existing debt, units and other information.

STABILIZED PROPERTY: A building that is fully rented is also called a stabilized asset. The term is derived from being “stable”.

TRANSIT-ORIENTED DEVELOPMENT (TOD): Real estate projects that are built around transit to maximize access to shared transportation modes. Typically, the TOD project is dense and walkable, and it includes a mix of uses such as residential, office, retail, hotel and entertainment.

TRIPLE NET LEASE (NNN LEASE): A lease agreement for a commercial or multifamily property whereby the tenant pays all taxes, maintenance and property insurance as well as all operating costs associated with the tenant’s occupancy. The landlord is responsible for the roof and the structure. In general, McDonalds and other major restaurants/retail chains use NNN leases.

YIELD MAINTENANCE / DEFEASANCE: Derived from the CMBS market, this term is a fancy way to describe a Prepayment Penalty. It is very important to MF borrowers that we have no Yield Maintenance/Prepayment penalty. Always mention that we have no Yield maintenance or Prepayment penalty to prospective MF borrowers!

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