What We Do Loans FAQ Contact Us Blog Now Hiring Borrower’S Corner REAL ESTATE INVESTMENT TERMS EVERY INVESTOR SHOULD KNOW April 11, 2018 Facebook Twitter LinkedIn When you’re in the business of real estate investing, there is a lot of information in which you need to familiarize yourself. Sherman Bridge is in the habit of making sure you have all the information you need to succeed in your investments, so we here we have brought a comprehensive glossary of all the “need to know” terms for real estate investors. Abstract of Title – summary of all the recorded history of a property. This includes instruments and proceedings that affect title to a property. Acquisition Cost – the total price, including all fees, required to obtain an investment property. Acquisition Loan – to purchase a property, an acquisition loan is the money you borrow to do so. Appraised Value – the opinion estimate of a property’s value, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial). Appreciation – when the value of a property increases. ARV – After Repair Value. Real estate investing, especially flipping properties, requires that a purchased distressed property be rehabilitated. The ARV equates to the property’s worth after cosmetic work, repairs, extensive rehab and remodeling work. Bridge Loan – mortgage financing between the termination of one loan and the beginning of another loan. Capital – (1) money that is used to create income. This can be an investment in a business or an income property. (2) The money or property comprising the wealth owned by a person or business. (3) The accumulated wealth of a person or business. (4) The net worth of a business (by which its assets exceed liabilities). Capital Improvement – any permanent improvement to real property that adds to its value and use. Cash Flow – The net operating income minus the total of all debt service payments. Cash Flow Basis – This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. Comparable Sales – As part of the appraisal process, those relatively recently sold properties will be compared to the property being appraised for the purpose of forming an opinion of value for the subject property. Debt Ratio (DR, D:I) – Also known as debt-to-income. This is the ratio of the total minimum monthly debt payments to gross monthly income. Distressed Property – Real estate that are priced below market value and therefore very desirable to property investors. Distressed properties are sold quickly for reasons as foreclosure, pre-foreclosure, or a short sale. Equity – The value of a property after deducting the number of liabilities owed, if any. Escrow – Pending the fulfillment or performance of a specified act or condition, this is an agreement between two or more parties for certain instruments or property be placed with a third party for safekeeping, FRBO – for rent by owner. FSBO – For Sale By Owner. The sale of a home without the use of a real estate agent. Government National Mortgage Association (Ginnie Mae) –Created by Congress on September 1, 1968, GNMA is a government-owned corporation within the U.S. Department of Housing and Urban Development. GNMA provides funds to lenders for home loans. GNMA operates the same as Fannie Mae and Freddie Mac, but GNMA differs by providing funds for government loans such as FHA and VA. Graduated-Payment Mortgage (GPM) – A mortgage that requires a borrower to make larger monthly payments over the term of the loan. The payment is unusually low for the first few years but gradually rises until year three or five, then remains fixed. Grantee – the party to whom title to real property is given. Grantor – the party who gives the deed. Gross Debt Service – the amount of money needed to pay principal, interest, and taxes, and sometimes energy costs. Hard Money Loan – A loan that is underwritten with the condition and value of the property as the primary criteria for approval. These loans are ideal for property rehabilitation, find out more about hard money loans here. Investment Property – Real estate property that’s purchased in order to earn a return on the investment. Investment property can be either long- or short-term, with profit coming from fixing and flipping or fixing and renting the property. Joint Venture – A contractual agreement that joins together two or more parties to execute a business undertaking with an agreement to share the profits and losses. Liability Insurance – insurance coverage that offers protection against claims that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. Loan Origination Fee – When lenders charge their borrowers an origination fee, or points, for processing a loan. MLS – Multiple Listing Service. Set up by cooperating real estate brokers, the MLS is a database that provides data about properties for sale. Net Cash Flow – Investment property that generates income after expenses such as principal, interest, taxes, and insurance are subtracted. Net Operating Income (NOI) – When a property generates income, NOI is the gross income minus the total of all expenses except for debt service. Net Worth – The calculation of all assets minus all debts. Owner Financing (Seller Financing) – A method in which a buyer borrows from and makes payments to the seller instead of a bank. This can be done when a buyer cannot qualify for a bank loan for the full amount. Pre-approval – When a lender evaluates a potential borrower to determine whether or not the borrower qualifies for the lender’s financing. Pre-approval also determines the maximum amount the lender would be willing to provide and is completed through a look into the borrower’s income, expense, credit report and score. Qualification – When a borrower meets the lender’s guidelines based on debt, income, and creditworthiness. ROI – The percentage of invested money that is returned to an investor after associated costs are deducted. Single-Family Rental – A Single-Family rental unit is a free-standing residence that is a detached dwelling, and is not an apartment, condo, duplex, or a townhouse. Special Warranty Deed – deed in which the grantor limits the title warranty given to the grantee. Transactional Funding – Short term financing or a bridge loan you use to buy a property. Investor arranges for a short-term loan to fund the purchase and then resells the property to earn the profit margin, using the proceeds to repay the loan. Turnkey Investment – When an investor purchases a property, rehabilitates it, then has the property managed by a third party. Underwriting – The act of applying formal guidelines that provide qualitative and quantitative standards for determining the eligibility of a borrower. Unsecured Loan – Financing that is provided to a borrower based on the creditworthiness of the borrower, instead of collateral (use of property). Also called a signature loan or a personal loan. Vendor – a seller of real estate. Vested Interest – A personal stake or involvement in risk or state of affairs for financial gain. Wholesaler – The person or broker who puts the property, often distressed property, under contract and assigns or resells it to another investor. Yield – a measurement of earnings on your investment. Zoning – the legal mechanism for local governments to regulate the use of privately owned real estate to prevent conflicting land uses and promote orderly development. Zero-lot-line – A piece of residential real estate which the structure comes up to, or very near, the property line. PREVIOUS What You Need to Know About Property Comps NEXT Does Your Property Have a Good Foundation The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. SEE YOUR LOAN RATE IN 30 SECONDS OR LESS Get Started Posts By Topic: Industry Insights (19) Marketing (10) Property Management (4) REI Strategy (27) About Us Privacy Contact Us Now Hiring General Information Disclosure (866) 376-4876 Copyright 2021 | All Rights Reserved. Sherman Bridge Fund, LLC. operates via NMLS ID 1303151 Special End Of Year Savings! 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