Real Estate Investing Glossary

The gradual repayment of a loan through scheduled payments of principal and interest over a set period.

A professional assessment of a property's market value conducted by a licensed appraiser, required by most lenders.

The increase in a property's value over time due to market conditions, improvements, or inflation.

A mortgage program that qualifies borrowers by dividing their liquid assets over the loan term to create a synthetic income stream.

Buy, Rehab, Rent, Refinance, Repeat — a strategy for recycling capital through value-add rental acquisitions.

A large lump-sum payment due at the end of a loan term that has not been fully amortized through regular payments.

A mortgage that uses bank statements instead of tax returns to verify income, ideal for self-employed investors.

A single mortgage that covers multiple properties under one loan, simplifying portfolio management for investors.

A short-term loan used to bridge the gap between purchasing a new property and selling or refinancing an existing one.

The capitalization rate measures a property's potential return, calculated by dividing NOI by the purchase price or market value.

The net income remaining after all expenses, debt service, and reserves are paid from a property's rental income.

The annual pre-tax cash flow divided by the total cash invested, measuring the actual return on out-of-pocket investment.

The fees and expenses paid at settlement beyond the purchase price, including lender fees, title insurance, and recording fees.

A short-term loan that finances the building of a new property, converting to permanent financing upon completion.

A mortgage that conforms to Fannie Mae or Freddie Mac guidelines, typically requiring higher credit scores and down payments for investment properties.

A loan qualified by the property's income rather than the borrower's personal income, using the debt service coverage ratio.

A ratio measuring whether a property's income covers its debt payments, calculated as NOI divided by annual debt service.

Net operating income divided by the total loan amount, used by commercial lenders to assess risk independent of interest rates.

A legal entity that holds real estate for investors, commonly used as replacement property in 1031 exchanges.

A tax deduction allowing investors to write off the cost of an investment property over 27.5 years for residential or 39 years for commercial.

The investigation period after a property goes under contract, during which the buyer verifies all aspects of the deal.

The difference between a property's market value and the outstanding mortgage balance, representing the owner's actual ownership stake.

A neutral third-party arrangement where funds and documents are held until all conditions of a transaction are met.

A government-insured mortgage with low down payment requirements, usable for house hacking with 1-4 unit owner-occupied properties.

Short-term financing designed specifically for purchasing, renovating, and reselling investment properties for profit.

A quick valuation metric calculated by dividing the property price by its annual gross rental income.

A revolving credit line secured by equity in an existing property, commonly used by investors to fund down payments or renovations.

An asset-based loan from a private lender, secured by the property itself rather than the borrower's creditworthiness.

Living in one unit of a multi-unit property while renting out the others to offset or eliminate housing costs.

The annualized rate of return that makes the net present value of all cash flows from an investment equal to zero.

A mortgage exceeding conforming loan limits, used for higher-value investment properties in expensive markets.

A limited liability company structure used by investors to protect personal assets from property-related lawsuits and liabilities.

Using borrowed capital to increase the potential return on investment, allowing investors to control more property with less cash.

The percentage of total project cost covered by financing, used in construction and renovation loans.

The percentage of a property's value that is financed by debt, calculated by dividing the loan amount by the appraised value.

A hybrid debt-equity instrument that sits between the senior mortgage and the borrower's equity in the capital stack.

Total property income minus operating expenses, excluding debt service, depreciation, and capital expenditures.

Operating expenses divided by gross operating income, showing what percentage of income goes to property operations.

A fee charged by lenders for processing a new loan application, typically expressed as a percentage of the loan amount.

Upfront fees paid to a lender, where one point equals 1% of the loan amount, used to buy down the interest rate or as an origination fee.

A loan held by the originating lender rather than sold on the secondary market, allowing more flexible underwriting.

A fee charged by lenders when a borrower pays off a loan before its maturity date, common in commercial and investor loans.

Insurance required by conventional lenders when the down payment is less than 20%, protecting the lender against borrower default.

A Real Estate Investment Trust that owns and operates income-producing real estate, offering investors liquid exposure to property markets.

Total profit divided by total investment, expressing the overall percentage gain or loss on an investment.

A tax election allowing a corporation to pass income through to shareholders, sometimes used for real estate management companies.

A federal housing assistance program where the government subsidizes rent payments for qualifying low-income tenants.

A property rented on a nightly or weekly basis through platforms like Airbnb or VRBO, typically generating higher per-night revenue than long-term rentals.

A partnership structure where a sponsor pools capital from multiple investors to acquire and manage larger real estate assets.

An insurance policy protecting the buyer and lender against claims or defects in the property's title that existed before purchase.

A legal arrangement where property is held by a trustee for the benefit of designated beneficiaries, used for estate planning and privacy.

A fully renovated and tenanted investment property sold ready to generate income with minimal buyer involvement.

The lender's process of evaluating the risk of a loan by analyzing the borrower's finances, the property, and the market.

A zero-down mortgage available to eligible veterans and service members, usable for owner-occupied multi-unit investment properties.

A strategy focused on acquiring underperforming properties and increasing their value through renovations, better management, or operational improvements.