After Rehab Value (ARV): The amount that the investment property is expected to be worth after all of the planned renovations are completed.
Appraisal: A professional assessment of how much a house is currently worth or going to be worth, after a renovation is completed.
Bridge-loan: A bridge loan is a short-term loan used until permanent financing is secured or an existing obligation is removed (property sold and lien satisfied). This type of financing allows the user to meet current obligations by providing immediate cash flow.
Commercial Use: Property that is only used as a business – having no residential component.
Crowdfunding: A group of investors, who don’t necessarily know each other, buy a percentage interest in an asset and/or loan through a single portal..
Distressed Properties: Properties that are in poor condition or under siege financially (which may include foreclosure); they usually represent great opportunities for fix and flip investments.
Draw Schedule: A payment plan for construction or renovation projects. This schedule helps lenders determine when they are going to distribute funds to their borrower based on the value of the work completed.
Exit Strategy: How the borrower plans to pay off the loan, as well as turn a profit. Having a clear exit strategy is an important part of developing your overall plan for the project which will help determine the best type of financing for the deal.
Hard Money Loan: A loan typically secured by a hard asset such as residential or commercial real estate. Such loans usually have high interest rates relative to bank loans. Hard money lenders typically look more to asset value rather than at the credit characteristics of the potential borrower as the primary loan underwriting factor. Hard money lending is very useful to those who are in need of quick financing since these loans can be closed in as little as a few days. Hard money loans have higher interest rates due to their higher risk and quick service.
Holdback: Portion of a construction loan amount that is not released until a certain stage (such as completion of the foundation) is reached.
Holding Costs: Costs attributed to owning an investment property for a period of time. This includes interest payments, property taxes, house maintenance, insurance and utilities.
Liquidity: A measure of the speed that an asset can be sold.
Loan to Value (LTV): This is a ratio derived from the formula (Loan Amount) / (Appraisal Value).
Maturity (Loan Term): Maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.
Private Lending: An individual or group of individuals that lends to real estate investors. They usually lend their own funds.
Real Estate Investor: Someone who purchases properties with the intention of making a profit, either through holding for rental income or reselling it at a premium to cost.
Return on Investment (ROI): A measure of the amount of return on an investment relative to the investment’s cost. This is a % derived from the formula: (Net Profit / Cost of Investment) x 100 | for example, if your net profit is $100,000 and your investment costs are $300,000, your ROI would (.33) x 100 = 33%.
Short Sale: This occurs when a seller is selling their house for less than they owe on their mortgage. In order for this to happen, the bank or lending company needs to approve of the sale at the lower price. Short sales are a popular way to find investment properties because of their lower purchase costs.
Underwriting: The assessment of risk and reward for a potential investment. Underwriters determine the credibility of the potential investor and determines if their investment is going to be able to make enough money to be profitable for all parties involved. Hard money underwriters are typically more concerned with the profitability of the deal than the credit history of the borrower.