CRE and RE Investment Glossary

For novice real estate investors unfamiliar with the terminology, navigating the realm of real estate investment can be daunting. We simplify the process of obtaining a hard money loan and stress the importance of understanding loan types and terminology. Whether seeking financing for income-producing real estate, having a comprehensive grasp of industry-specific terms is crucial for success.

After Rehab Value (ARV): The estimated market value of an investment property after it has undergone improvements or renovations.
Alternative Lender: A private company that offers real estate loans, including non-traditional options, outside of conventional banks.
Apartment Complex: A collection of income-producing buildings with multiple units managed by a single entity.
Appraisal: A professional evaluation of a property's current value or its anticipated worth post-improvements.
Acquisition Funding: Capital used by a company to acquire another entity, often a smaller one.
Asset: A tangible item, such as a car or home, that can be used as collateral to secure a loan.
Assumability: The ability to transfer a mortgage loan to another individual without altering its terms.
As-Is Value: The current value of real estate or property at the time of appraisal.
Borrower: An individual seeking funding for a real estate venture with an agreement to repay the loan.
Bridge Loan: A short-term loan designed to cover financial gaps between obligations, commonly used in real estate transactions.
Capital: Wealth in the form of money or assets owned by an individual or entity.
Capitalization Rate: A metric used to evaluate the return on investment for real estate assets.
Cash Out Loan: A loan that allows borrowers to access cash by increasing the amount owed on their loan.
Collateral: Assets pledged to a lender as security for loan repayment, often real estate.
Commercial Banking: Traditional financial institutions that offer various banking services, including loans for commercial purposes.
Commercial Property Loans: Loans intended for commercial real estate ventures, such as office buildings or shopping centers.
Commercial Use/Space: Property exclusively used for business purposes, without residential components.
Condo/Townhouse: Privately owned residential units within a shared complex or building.
Construction Loans: Short-term financing for building or renovating residential or commercial properties.
Construction Type: The method and purpose of construction for a real estate project.
Conventional Loan/Lender: Standard loans from traditional lenders, typically banks.
Credit Score (Credit Check): A numerical rating indicating an individual's creditworthiness based on their credit history.
Cross-Collateralize: Using collateral from one loan to secure another.
Default: Failure to meet the obligations of a loan for an extended period.
Distressed Properties: Real estate assets in poor condition, often nearing foreclosure.
Draw Schedule: A payment plan for construction projects based on project milestones.
Due Diligence: Investigation or review of a potential investment to confirm its viability.
Equity: Ownership interest in a property after deducting liabilities.
Escrow Account: Third-party account for managing payments according to loan agreements.
Exit Strategy: Plan for repaying a loan and reducing liabilities.
Fix-and-Flip: Strategy involving purchasing, renovating, and selling properties for profit.
Foreclosure: Legal process whereby a lender repossesses a property due to loan default.
Foreign National: International investor involved in real estate transactions in the United States.
Guarantor: Individual responsible for repaying a loan if the borrower defaults.
Hard Costs: Direct expenses related to construction or renovation projects.
Hard Money: Financing from non-traditional lenders, often used for real estate investments.
Hard Money Loan: Asset-based loan secured by real estate, provided by alternative lenders.
Holdback: Portion of a loan not disbursed until certain conditions are met.
Holding Costs: Expenses associated with property ownership over time.
Homestead: Primary residence of an individual or family.
HUD-1: Document detailing financial transactions in a real estate sale.
Income-Producing Property: Real estate asset generating rental income.
Industrial/Warehouse: Properties used for manufacturing or storage purposes.
Interest Rate: Percentage charged by a lender for borrowing money.
International Investor: Foreign individual investing in real estate.
Investment Property: Real estate asset purchased for generating income.
Investment Rehab: Renovating a property for investment purposes.
Lease Assignment: Transfer of lease payment obligations to a lender.
Lien: Legal claim on property as security for loan repayment.
Liquidity: Ease of converting assets into cash.
Loan: Sum of money borrowed, expected to be repaid with interest.
Loan Limit: Maximum amount of money a borrower can borrow.
Loan Officer: Individual responsible for processing loan applications.
Loan Points: Origination fee, typically a percentage of the loan amount.
Loan Term: Duration and conditions of a loan.
Loan to Cost (LTC) Ratio: Ratio comparing loan amount to construction costs.
Loan-to-Value (LTV) Ratio: Ratio comparing loan amount to property value.
Maturity: Date final loan payment is due.
Medical Office/Condo: Commercial property housing medical offices.
Mixed-Use Property: Real estate asset with both commercial and residential units.
Mortgage: Agreement between borrower and lender for property purchase.
Mortgage Broker: Intermediary connecting borrowers and lenders.
Multi-Family Rentals: Properties with multiple residential units.
Net-Operating-Income (NOI): Calculation measuring property profitability.
Non-Conventional Loan: Loans with alternative criteria for approval.
Non-Homestead: Property not used as a primary residence.
Non-QM Loan: Mortgage not meeting agency requirements.
Office: Building or space for commercial purposes.
Owner-Occupied: Property where owner resides.
Points (Loan Discount Points): Lender fees paid at loan origination.
Primary Residence: Main home of an individual or family.
Principal: Initial loan amount borrowed.
Private Lenders: Individuals or companies providing private loans.
Private Real Estate Loan: Alternative loan funded privately.
Proof of Funds: Documentation proving financial capability.
Real Estate Broker: Facilitator of real estate transactions.
Real Estate Investor: Individual investing in real estate for profit.
Real Property: Fixed property, including land and buildings.
Refinance: Replacing an existing loan with a new one.
Rehab Loan: Loan financing property purchase and renovation.
Redevelopment: Construction or renovation of existing structures.
Retail Property: Commercial property for retail purposes.
Return On Investment (ROI): Measure of investment profitability.
Scope of Work: Detailed plan for property renovations.
Short Sale: Property sale below loan amount, with lender approval.
Short-Term Loan: A loan with a limited duration, often a year or less, sometimes spanning weeks or months. Typically utilized when capital is needed for investments, these loans are often granted with minimal collateral requirements.
Soft Costs: Expenses unrelated to construction, such as legal fees, financing charges, architect fees, etc., necessary for project initiation or completion.
Title: Documentation serving as proof of ownership for a real estate investment property.
Traditional Loan/Lender: Conventional loans obtained from traditional lenders, featuring fixed interest rates and structured repayment plans until the loan is fully paid off. Typically secured from mainstream banks.
Turnaround Time: The duration from the initial purchase of an investment property to its eventual sale.
Underwriting/Underwriter: The process by which individuals or institutions assume financial risk for a fee. Underwriters evaluate the risk level of a real estate investment loan, verifying borrower income, assets, debt, and property details before granting funding.