Investment Glossary

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  • 1031 Exchange
    Under Section 1031 of the IRS Tax Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-free, subject to certain conditions.
  • Absorption
    The amount of inventory or units of a specific commercial property type that become occupied during a specified time period in a given market, typically reported as the absorption rate.
  • Abstract of Judgment
    The summary of a court judgment that creates a lien against a property when filed with the county recorder.
  • Abstract of Title
    Historical summary of all of the recorded instruments and proceedings that affect title to a property.
  • Accelerated Cost Recovery System
    A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property.
  • Acceleration Clause
    A loan provision giving the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision, commonly referred to as the Due on Sale Clause.
  • Acceptance
    A buyers or sellers agreement to enter into a contract and be bound by the terms of the offer.
  • Accredited Investor
    A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Accredited investors include individuals, banks, insurance companies,(...)
  • Accrued Interest
    Interest that has been earned but not paid.
  • Accumulated Depreciation
    In accounting, the amount of depreciation expense that has been claimed to date.
  • Acknowledgment
    A declaration by a person who has signed a document that such signature is a voluntary act, made before a duly authorized person.
  • Acquisition Cost
    The price and all fees required to obtain a property.
  • Acquisition Loan
    Money borrowed for the purpose of purchasing a property.
  • Acre
    A two dimensional measure of land equaling 4,840 square yards or 43,560 square feet.
  • Addendum
    Something added as an attachment to a contract.
  • Additional Principal Payment
    Extra money included in the monthly payment to help reduce the principal and shorten the term of the loan.
  • Adjoining
    Contiguous, attached, sharing a common border.
  • Adjustable Rate Mortgage (ARM)
    A mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan, based on a monitored index.
  • Adjusted Tax Basis
    The original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures.
  • Adjustment Period
    The amount of time between interest rate adjustments in an adjustable-rate mortgage.
  • Administrator
    A person appointed by a court to administer the estate of a deceased person who left no will.
  • Administrator's Deed
    A legal document that an administrator of an estate uses to transfer property.
  • Adverse Possession
    A means of acquiring title to real estate where an occupant has been in actual, open, notorious, exclusive and continuous occupancy of property for the period required by state law.
  • Affidavit
    A written statement, sworn to or affirmed before an officer who is authorized to administer an oath or affirmation.
  • Agency
    The legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on behalf of the principal.
  • Alienation
    To convey or transfer title and possession of property.
  • All Inclusive Trust Deed
    This applies to states that use trust deeds instead of mortgages. It is the same as a wraparound mortgage.
  • Alternative Investment
    An alternative investment refers to any investment which does not qualify as “traditional.” Traditional investments are widely considered to be stocks, bonds, and cash.
  • Amortization
    The repayment of loan principal through equal payments over a designated period of time consisting of both principal and interest.
  • Amortized Loan
    Loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest with each successive payment allocates a larger portion to principal reduction and a smaller portion to(...)
  • Annual Cap
    Maximum amount the interest rate on an adjustable rate mortgage can be raised or lowered in the course of one twelve month period.
  • Annual Debt Service
    The total amount of principal and interest to be paid each year to satisfy the obligations of a loan.
  • Annual Percentage Rate (APR)
    The true annual interest rate payable for a loan in one year taking account of all charges made to the borrower, including compound interest, discount points, commitment fees, and mortgage insurance premiums. The disclosure is required by the Truth-in-Lending Law.
  • Anticipatory Breach
    A communication that informs a party that the obligations of the original contract will not be fulfilled.
  • Appraisal
    An estimate of value, generally made by a professional appraiser, using a systematic approach or process in order to reach a conclusion.
  • Appraised Value
    Opinion or estimate of a value of a property, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial).
  • Appreciation
    An increase in value is referred to as “appreciation”.
  • Appreciation Potential
    The possibility or probability that a real estate investment will increase in value during the holding period.
  • Arrears
    Mortgage payment includes interest for prior month, or overdue payments in default.
  • As-Is
    Without guarantees as to condition.
  • Assessed Value
    The value of real property established by the tax assessor for the purpose of levying real estate taxes.
  • Assignee
    The person to whom an agreement or contract is sold or transferred.
  • Assignment
    The method by which a right or contract is transferred.
  • Assignor
    The person who assigns or transfers an agreement or contract to another.
  • Assumable Mortgage
    An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process(...)
  • Attornment
    A tenant's formal agreement to be a tenant of a new landlord.
  • Average Annual Effective Rate
    The average annual effective rent divided by a tenant’s square footage space.
  • Average Annual Effective Rent
    The tenant’s total effective rent divided by the lease term.
  • Backup Contract
    A contract to buy real estate that becomes effective if a prior contract fails to be consummated.
  • Balloon Loan
    A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).
  • Balloon Payment
    An installment payment which is larger (most often much larger) than the other scheduled payments. It is usually the last payment. If a note is written for $50,000 at a fixed 9.0% rate of interest with payments based on an amortization schedule of 30 years and a balloon payment due in 5 years,(...)
  • Bankruptcy
    The financial inability to pay one's debts when due causes the debtor to seek relief through court action.
  • Bankruptcy Discharge
    The release of a bankrupt party from the obligation to repay debts that were or might have been proved in a bankruptcy proceeding.
  • Basis
    The total amount paid for a property, including equity capital and the amount of debt incurred.
  • Basis Point
    A basis point (bps) is a unit that is equal to 1/100th of 1%, in other words one basis point is equal to 0.01%, similarly a 1% change is equal to a 100 basis point change.
  • Beneficiary
    The person who receives or is to receive the benefits resulting from certain acts.
  • Bilateral Contract
    A contract under which each party promises performance.
  • Bill of Sale
    A written instrument given to pass title of personal property.
  • Bird Dog
    Someone who identifies a potential good real estate investment opportunity and passes that deal on to another investor for a fee.
  • Biweekly Mortgage
    A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.
  • Blanket Mortgage
    A single mortgage which attaches to more than one property.
  • Board Of Equalization
    A state board charged with ensuring that local property taxes are assessed in a uniform manner.
  • Board of Realtors
    A local group of real estate licensees who are members of the state and national association of Realtors.
  • Bond
    A written agreement purchased from a bonding company that guarantees a person will properly carry out a specific act, such as managing funds, showing up in court, providing good title to a piece of real estate or completing a construction project. If the person who purchased the bond fails at(...)
  • Breach of Contract
    A violation of the terms of a legal agreement, default.
  • Bridge Loan
    Mortgage financing between the termination of one loan and the beginning of another loan.
  • Broker
    An individual who acts as an intermediary between two or more parties for the purpose of negotiating a transaction agreeable to all of the parties. In lending, the broker arranges and negotiates loan amounts, interest rates and loan terms between borrowers and lenders. Depending on the type of(...)
  • Broker Price Opinion (BPO)
    Real estate broker provides an estimated value of a property.
  • Building Permit
    Permission granted by a local government or agency to build a specific structure at a specific site.
  • Bundle of Rights
    Ownership in real property implies a group of rights, such as the right of occupancy, use and enjoyment, the right to sell in whole or in part, the right to control the use, the right to bequeath, the right to lease any or all of the rights, the right to the benefits derived by occupancy and(...)
  • Buy Down
    A payment of discounts points in exchange for a lower rate of interest. It has the effect of providing the lender with a greater yield today in exchange for a lower yield in the future.
  • Call Option
    A clause in a loan agreement that allows a lender to ask for the balance at any time.
  • Cancellation Clause
    A contract provision that gives the right to terminate the obligations upon the occurrence of specified conditions or events.
  • Cap
    A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment.
  • Capital
    (1) money used to create income, either as an investment in a business or an income property. (2) the money or property comprising the wealth owned or used by a person or business enterprise. (3) the accumulated wealth of a person or business. (4) the net worth of a business represented by the(...)
  • Capital Call
    A request made to existing equity owners for additional money in order to fund deficits due to construction or operating costs, if cash flow is not otherwise deemed sufficient to do so.
  • Capital Expenditure
    The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are depreciated over their useful life; repairs are subtracted from income for the current(...)
  • Capital Gain
    Gain on the sale of a capital asset like real property. Capital gains enjoyed on assets held for a long term (generally at least one year) often enjoy lower tax rates than ordinary income. Taxable income is derived from the sale of a capital asset. It is equal to the sales price less the cost(...)
  • Capital Gains Taxes
    A capital gains tax is a tax applied to realized capital gains upon the sale of an asset, such as stocks or real estate.
  • Capital Improvement
    Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
  • Capital Stack
    The capital stack refers to the legal organization of all of the capital placed into a company or secured by an asset through investment or borrowing.
  • Capitalization (Cap) Rate
    The capitalization rate, or “cap rate,” is a formula used to determine the value of a real estate investment – without taking into account any debt on the asset. The cap rate percentage is found by dividing the net operating income of a real estate asset (expenses minus income) by the current(...)
  • Carrying Charges
    Expenses necessary for holding property, such as taxes and interest on idle property or property under construction.
  • Cash Flow
    The net cash received in any period, taking into account net operating income (NOI), debt service, capital expenses, loan proceeds, sale revenues, and any other sources and uses of cash. Real estate investments are often structured to deliver steady cash flow with dividends that are(...)
  • Cash Flow Basis
    This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. It does not consider the tax impact or differences in principal balance reduction between your current loan and the refinance suggestions.
  • Cash-on-Cash Return
    A common metric for measuring the performance of a commercial real estate investment, which is sometimes also referred to as the cash yield. The cash-on-cash return rate can provide useful insight into the business plan for a property and the likelihood of receiving regular cash distributions(...)
  • Cash Out
    Cash given to the borrower from the proceeds of a loan. While relatively common as part of a refinance, it is uncommon, but not impossible, as a benefit of a small percentage of non-conforming loans used for a purchase.
  • Cash-Out Refinance
    A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be(...)
  • Caveat Emptor
    The principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.
  • Census Tract
    Census tracts are typically small subdivisions of communities that are delineated for the purposes of the US Census.
  • Certificate of Eligibility
    Issues by the Veterans Administration to those who qualify for a VA loan.
  • Certificate of Insurance
    A document issued by an insurance company to verify the coverage.
  • Certificate of Occupancy (C.O.)
    A document issued by a local government or agency permitting the structure to be occupied by members of the public.
  • Certified Commercial Investment Member (CCIM)
    A designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
  • Certified Residential Broker (CRB)
    A designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
  • Certified Residential Specialist (CRS)
    A designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors.
  • Chain of Title
    A history of conveyances and encumbrances affecting a title from the time that the original patent was granted or as far back as records are available.
  • Class A Office Buildings
    Commercial real estate applies a simple grading system to assets to rate overall quality and key characteristics. Buildings are classified as A, B, or C, and that ranking is an important indicator to gauge a property’s competitive position in a marketplace and where it fits in relation to(...)
  • Clear Title
    A marketable title, one free of clouds and disputed interests.
  • Closing
    The formal meeting where loan documents are signed and funds disbursed. Note, however, that Federal law requires that funds not be disbursed for three business days on certain loans where personal residences serve as the security.
  • Closing Costs
    The expenses which borrowers incur to complete the loan transaction. These costs may include title searches, title insurance, closing fees, recording fees, processing fees and other charges.
  • Closing Date
    The date on which the seller delivers the deed and the buyer pays for the property.
  • Closing Statement (HUD-1)
    A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form gives a picture of the closing transaction, and provides each party with a complete list of incoming and outgoing funds. "Buyers" are referred to as(...)
  • Cloud on Title
    An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.
  • Coinsurance Clause
    A provision in a hazard insurance policy stating the minimum amount of coverage that must be maintained - as a percentage of the total value of the property - in order for the insured to collect the full amount of a loss
  • Collateral
    Property pledged as security for a debt.
  • Collectors Deed
    If the Property has not been redeemed during the one-year redemption period, the holder of the Certificate of Purchase may apply for and receive a Collectors Deed to the property.
  • Combined Loan-to-Value (CLTV)
    The total of all loans relative to the value of the property. If a property has a value of $100,000 and three loans totaling $125,000, the CLTV is 125% ($125,000 / $100,000).
  • Commercial Real Estate
    Property designed for uses other than personal residential purposes. Examples include office, retail, multifamily, industrial, storage, hotel, and medical.
  • Commitment
    The notification that a lender has approved a loan. Virtually all commitments are issued conditionally; that is, subject to some list of conditions that must be satisfied prior to funding actually taking place. Typical conditions include appraisals of a certain value, clean title, verification(...)
  • Common Equity
    Common Equity means that investors have one-to-one (or equal) participation in each dollar invested and any potential profits or losses.
  • Comparable Sales
    As part of the appraisal process, those relatively recently sold properties which will be compared to the subject property (the property being appraised) for the purpose of forming an opinion of value for the subject property. The facts and details of the comparable properties will be compared(...)
  • Conditions, Covenants, and Restrictions (CCR's)
    Promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or prohibiting certain uses of the property.
  • Conforming Loan
    A loan which has underwriting criteria consistent with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie Mac, FHA or VA. These are typically the lowest interest rate loans with very good terms.
  • Consideration
    Anything of value given to induce entering into a contract.
  • Contiguous
    Actually touching, having a common boundary.
  • Contingency
    A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector
  • Contract
    An agreement between competent parties to do or not do certain things for consideration.
  • Contract For Deed
    A real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller until all or a specified part of the sale price has been paid, same as land contract.
  • Contractor
    One who contracts to provide specific goods or services.
  • Conventional Loan
    A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan.
  • Conversion
    Changing property to a different use or form of ownership.
  • Convey
    To deed or transfer title to another.
  • Cooperative (co-op)
    A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
  • Cost Approach
    A method of determining the market value of a property by evaluating the costs of creating a property exactly like the subject.
  • Cost Basis
    The cost basis of an investment is an investor’s initial stake in an investment, which is typically the initial price they pay to acquire that investment.
  • Cost Recovery
    An annual deduction based on the class life of an asset.
  • Counteroffer
    Rejection of an offer with a simultaneous substitute offer.
  • Creative Financing
    Any financing arrangement other than a traditional mortgage from a third party lending institution.
  • Credit Line
    A loan that allows revolving use of the credit; that is, after funds have been borrowed and repaid they may be borrowed again without applying for a new loan. Typically, a credit limit is established and some or all of the available funds can be optionally disbursed at closing. Undisbursed(...)
  • Crowdfunding
    Crowdfunding is a tool for raising money for businesses and an easier way to access such ventures for investors. As a result of the 2012 JOBS Act, real estate developers and owner/operators can rely on crowdfunding sites to solicit investments from high-net-worth investors who are qualified to(...)
  • Deal Flow
    The quantity of investment opportunities available at a given time to a particular company or investor.
  • Dealer
    One who holds real property primarily for sale to customers, merchandise is inventory and gain on sale is treated as ordinary income.
  • Debt
    An obligation of repayment owed by one party (the debtor/borrower) to a second party (the creditor/lender) in most cases this includes repayment of the original loan amount plus interest.
  • Debt Coverage Ratio (DCR)
    A ratio used in underwriting loans for income producing property which is created by dividing net operating income by total debt service. Ratios of at least 1.10 are generally required with ratios of 1.20 and higher considered the norm.
  • Debt Investments
    Debt investments refer to investing in a real estate loan. Those loans are backed by an underlying asset as collateral, such as land or a building.
  • Debt Ratio (DR, D:I)
    Also known as debt to income. The ratio of the total of minimum monthly debt payments to gross monthly income. If minimum monthly payments on a credit card, auto lease, and mortgage (PITI) were $30, $220 and $750 respectively and the gross monthly income was $3000, the debt ratio would be(...)
  • Debt Service
    The periodic required payments of principal and interest due on a loan.
  • Debt-Service Coverage Ratio
    Ratio of net operating income to annual debt-service, expressed as net operating income divided by annual debt service.
  • Decree
    An order issued by one in authority, a court order or decision.
  • Deed
    A written document that conveys title to real property.
  • Deed in Lieu of Foreclosure
    The act of giving property back to the lender without foreclosure.
  • Deed of Trust (DOT)
    DOT's are similar to mortgages in that they serve as security for a loan by encumbering real estate. However, a mortgage is between two parties (borrower and lender) and a deed of trust involves three parties (borrower, lender and trustee). The trustee holds the property in trust as security(...)
  • Default
    Failure to meet all of the commitments and obligations specified in the mortgage or deed of trust. Defaults usually give the lender the right to accelerate payments and start foreclosure.
  • Defeasance
    Clause in mortgage that gives the borrower the right to redeem the property after default by paying the full indebtedness and fees incurred.
  • Deferred Maintenance
    A type of physical depreciation due to lack of normal upkeep.
  • Deferred Payments
    Payments to be made at some future date.
  • Deficiency
    In mortgage finance, a shortfall of funds recovered through the sale of property securing a foreclosed loan compared to the amount of debt, accrued interest, foreclosure expenses, and damages incurred by the lender.
  • Deficiency Judgment
    A court order stating that the borrower still owes money when the security for a loan does not entirely satisfy a defaulted debt.
  • Density
    The intensity of land use.
  • Density Test
    An analysis of soil to determine if the surface can support the foundation of a house.
  • Depreciation
    Depreciation decreases the accounting value of the physical structure of a real estate asset, as most assets decline in value over time, but does not affect the market value of a property. In its most basic form, the physical improvements of a property may be depreciated over a 27.5-year(...)
  • Depreciation Recapture
    When real property is sold at a gain and accelerated depreciation has been claimed, the owner may be required to pay tax at ordinary income rates to the extent of the excess accelerated depreciation.
  • Development
    Development is the process of building or adding to existing structures to increase the value of a property.
  • Discount Points
    One point equals one percent of the loan amount. Paying points has the effect of giving the lender a higher yield. Two points on a $100,000 mortgage would cost $2,000 ($100,000 x 0.02).
  • Discount Rate
    The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium.
  • Distribution Waterfall
    The distribution waterfall is the order in which distributions are made to limited and general partners. It is a hierarchy delineating the order in which funds are distributed and may ensure that different types of investors have priority of payment compared to others within the same investment.
  • Distributions
    Payments made to investors periodically (e.g., monthly, quarterly, or annually), typically over the course of a calendar year, either from profits or interests payments.
  • Diversification
    A method of reducing risk by investing in assets that vary by asset class, duration, location, and risk.
  • Document Preparation
    This fee covers the expenses associated with this process of preparing some of the legal documents that you will be signing at the time of closing, such as the mortgage, note, and truth-in-lending statement.
  • Down Payment
    The portion of the purchase price paid by a buyer to a seller from sources of funds outside of those provided by a lender.
  • Draw
    A periodic advance of funds from a lender.
  • Due Diligence
    The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. By applying a consistent standard of inspection and investigation one can determine if the actual conditions do or do not reflect the information as(...)
  • Due-on-Sale
    Reservation of lender's right to call the loan due and payable upon sale of the property
  • Earnest Money
    A deposit made by a purchaser of real estate to show good faith.
  • Easement
    The right, privilege, or interest that one party has in the land of another.
  • Easement by Necessity
    The right of an owner to cross over another's property for a special necessary purpose.
  • Easement by Prescription
    Continued use of another's property for a special purpose can convert to permanent use if certain conditions are met.
  • Egress
    A means of access or exit.
  • Eminent Domain
    The right of the government or a public utility to acquire property for necessary public use by condemnation, but the owner must be fairly compensated.
  • Employer-Assisted Housing
    A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.
  • Encroachment
    A building, part of a building, or obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another.
  • Encumbrance
    Any right to or interest in land that affects its value, including mortgage loans, unpaid taxes, easements, junior liens, or deed restrictions.
  • Equal Credit Opportunity Act (ECOA)
    A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
  • Equitable Conversion
    A legal doctrine in some states in which, under a contract of sale, buyers and sellers are treated as though the closing has taken place in that the seller in possession has an obligation to take care of the property.
  • Equitable Title
    The interest held by one who has agreed to purchase, but has not yet closed the transaction.
  • Equity
    The value of the unencumbered interest in real estate as determined by subtracting the total of the unpaid mortgage balances plus the sum of any current liens against the property from the property's fair market value. As it relates to real estate syndication, equity can be measured as the(...)
  • Equity Multiple
    In commercial real estate, the equity multiple is defined as the total cash distributions received from an investment, divided by the total equity invested.
  • Escheat
    The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.
  • Escrow
    An agreement between two or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.
  • Escrow Account
    An account from which funds can be disbursed only for specified reasons; i.e. the money is held in trust for a specific use. In lending, these accounts are most often used to hold and disburse real estate taxes and hazard insurance premiums which have been paid in advance (usually on a monthly(...)
  • Escrow Analysis
    The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
  • Escrow Collections
    Funds collected by the loan servicer and set aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowners insurance.
  • Escrow Disbursements
    The use of escrow funds to pay real estate taxes, homeowners insurance, mortgage insurance, and other property expenses as they become due.
  • Escrow Payment
    The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.
  • Estate
    The degree, nature, and extent of interest that a person has in real property.
  • Estate at Sufferance
    The wrongful occupancy of property by a tenant after the lease has expired.
  • Estate Tax
    A tax on the value of property left by the deceased, subject to certain tax rules.
  • Estoppel
    A doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on good faith.
  • Eviction
    Legal proceeding by a lessor (landlord) to recover possession of property.
  • Exclusive Listing
    A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.
  • Exculpatory Clause
    Provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability.
  • Expenditures
    Actual payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document.
  • Facade
    The outside front wall of a building.
  • Face Value
    The dollar amount, shown by words and/or numbers on a document.
  • Fair Credit Reporting Act
    A federal law that allows individuals to examine and correct information used by credit reporting services.
  • Fannie Mae (FNMA)
    Federal National Mortgage Association, a federally chartered corporation that purchases mortgages and packages them to sell as securities.
  • Federal Fair Housing Law
    A federal law that forbids discrimination on the bias of race, color, sex, religion, or national origin in the selling or renting of property.
  • Federal Housing Administration (FHA)
    An agency within HUD that administers many loan programs designed to make housing more available.
  • Fee Agreement
    An agreement between a borrower and a broker which normally specifies the relationship between them and the amount of compensation to the broker.
  • Fee Simple
    A permanent and absolute tenure of an estate in land with freedom to dispose of it at will, especially in full fee simple absolute a freehold tenure, which is the main type of land ownership.
  • Fiduciary Responsibility
    An obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted.
  • Financial Leverage
    The use of borrowed funds to acquire an investment.
  • First Lien
    A mortgage, deed of trust, or other encumbrance on an asset that has priority over all other encumbrances.
  • First Mortgage
    The mortgage which is recorded at the earliest time. The time of recording is the sole criteria. Size of loan and type of mortgage are immaterial. When the first mortgage is paid off and released, the second mortgage (if any existed) becomes the first mortgage.
  • Fixed Expenses
    Costs that do not change with a building’s occupancy rate. They include property taxes, insurance, and some forms of building maintenance.
  • Fixed Lease
    A lease in which the lessee pays a fixed rental amount for the duration of the lease term.
  • Fixed Payment Mortgage
    A loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan.
  • Fixed Rate Mortgage
    A mortgage with an interest rate that remains the same through the life of the loan.
  • Floodplain
    A level land area subject to periodic flooding from a contiguous body of water.
  • Forbearance
    A course of action a lender may pursue to delay foreclosure or legal action against a delinquent borrower.
  • Foreclosure
    The process by which the mortgagor's (borrower's) rights to a property are terminated. While the general process is similar from state to state, the actual procedures tend to vary greatly.
  • Fractional Ownership
    Is a percentage share of an expensive asset or property acquired jointly by a group of persons or businesses. Shares are sold/titled to individual owners. A fractional owner enjoys use or income of such property on an agreed basis. Such as reduced rates, priority access on holidays and income(...)
  • FRBO
    For rent by owner.
  • Freddie Mac (FHMLC)
    Federal Home Loan Mortgage Corporation, a federally chartered corporation that purchases mortgages and packages them to sell as securities.
  • Free Cash Flow (FCF)
    Free cash flow is a measure of a property’s ability to generate cash after setting aside reserves for capital expenditures such as future development, tenant improvements, and leasing commissions.
  • FSBO
    For sale by owner.
  • Fully Amortized Mortgage Loan
    A loan with a repayment schedule of equal periodic payments that completely repay the loan over a scheduled time period.
  • Future Value
    An estimate of what a sum of money today would be worth in the future assuming a specified rate of interest.
  • Gable Roof
    One with a triangle, with the ridge forming an angle at the top and each eave forming an angle at the bottom.
  • Gain
    An increase in money or property value.
  • Gap Analysis
    An evaluation of the difference in the demand and supply of space for a particular type of commercial property in a given market area where gaps are expressed as the amount of square footage demanded less the amount of square footage available in a given period of time.
  • Garden Apartments
    A housing complex whereby some or all tenants have access to a lawn area.
  • General Contractor
    One who constructs a building or other improvement for the owner or developer.
  • General Lien
    A lien that includes all of the property owned by the debtor, rather than a specific property.
  • General Warranty Deed
    A deed in which the grantor agrees to protect the grantee against any other claim to title of the property.
  • Gentrification
    The displacement of lower income residents by higher income residents in a neighborhood.
  • 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 conveyed.
  • 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. If the dwelling unit is a condominium, all or a portion of common fees are excluded, depending on what expenses are covered.
  • Gross Monthly Income
    Income before deductions for taxes, social security, saving plans, court ordered child support, etc.
  • Gross Rent Multiplier
    The sales price divided by the gross annual rental rate.
  • Ground Lease
    One that rents the land only.
  • Habendum Clause
    The "to have and to hold" clause that defines the quantity of the estate granted in the deed.
  • Hard Asset
    A tangible object of worth that is owned by a business or individual.
  • Hard Money Loan
    A loan that is underwritten with the condition and value of the property as the primary criteria for approval. Secondary issues may include the credit of the borrower, the ability of the borrower to repay the loan and/or the ability of the borrower to manage the property or successfully(...)
  • Hazard Insurance
    Insurance to provide compensation if the improvements are damaged or destroyed. It is almost always a requirement of loans.
  • Hereditaments
    Property, personal and real, capable of being inherited
  • Hiatus
    A gap between two parcels of land that is not included in the legal description of either property.
  • Highest and Best Use
    The use that is most likely to produce the greatest net return to the land and/or building over a given period.
  • Hold Period
    A hold period is the anticipated time investors will be involved with the investment until the underlying property is re-sold. It is important to read the offering documents for each investment opportunity for a deeper understanding of the hold period for each investment.
  • Holdover Tenant
    A tenant who remains in possession of leased property after the expiration of the lease term.
  • Home Equity Loan
    In the most literal sense, this expression applies to virtually all loans (first mortgages and second mortgages, fixed and adjustable interest rates, credit lines and fully amortizing loans, etc.) placed on an owner occupied property when the loan-to-value after the Home Equity Loan closes is(...)
  • Homeowner Association (HOA)
    An organization of the homeowners in a particular subdivision, planned unit development, or condominium created to enforce deed restrictions and manage common elements of the development.
  • Homeowner's Insurance
    Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents.
  • Homeowners' Warranty
    A special insurance policy that covers certain home repairs for a specified amount of time.
  • Homestead
    Status provided to a homeowner's principal residence by some state statutes to protect the home against judgments up to specified amounts.
  • Homestead Exemption
    In some jurisdictions a reduction in the assessed value allowed for one's personal residence.
  • Housing and Urban Development (HUD)
    A federal government agency established to implement certain federal housing and community development programs.
  • Housing Code
    Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.
  • Hypothecate
    To pledge something (money) as security without having to give up possession of it.
  • Implied Warranty of Habitability
    A legal doctrine that requires landlords to offer and maintain livable premises for their tenants. If a landlord fails to provide habitable housing, tenants in most states may legally withhold rent or take other measures, including hiring someone to fix the problem or moving out.
  • Improvements
    Additions to raw land such as buildings, streets, sewers, etc. that increase the value of the property.
  • Incidents of Ownership
    Any control over property. If you give away property but keep an incident of ownership. For example, you give away an apartment building but retain the right to receive rent; then legally, no gift has been made. This distinction can be important if you're making large gifts to reduce your(...)
  • Income Capitalization Approach
    A method to estimate the value of an income-producing property by converting net operating income into a value. The cap rate is divided into the net operating income to obtain the estimated value.
  • Indemnify
    To protect another person against loss or damage.
  • Index
    The published cost of money that serves as the minimum basis for determining the interest rate for an adjustable rate mortgage. Among the commonly used indices are the Prime Rate (Prime), the London Interbank Offering Rate (LIBOR), the Cost of Funds (COF) and the 1 year Treasury Bill (1 year(...)
  • Index Lease
    A lease in which the rental amount adjusts accordingly to changes and/or movements in a price index, commonly the consumer price index.
  • Industrial Property
    Commercial properties that are used for the purposed of production, manufacturing, or distribution.
  • Initial Adjustment Interval
    Is associated with an Adjustable Rate Mortgage (ARM), it is the time between changes in the interest rate and/or monthly payment, usually one, three, or five years. The adjustment periods are usually spelled out in your original loan documents.
  • Initial Note Rate
    With regard to an adjustable rate mortgage, the note rate upon origination. This rate may differ from the fully indexed note rate.
  • Installment Sale
    When a seller accepts a mortgage for all or part of the sale, tax on the gain is paid as the mortgage principal is collected.
  • Insurance Binder
    A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
  • Insured Mortgage
    A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.
  • Inter Vivos
    During one's life.
  • Interest Accrual Rate
    The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
  • Interest Rate
    The percentage of the loan amount charged for borrowing money; i.e., the cost of the money expressed as a percentage.
  • Interest Rate Buydown Plan
    A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a(...)
  • Interim Financing
    A loan, including a construction loan, used when the property owner is unable or unwilling to arrange permanent financing.
  • Internal Rate of Return (IRR)
    In real estate, the Internal Rate of Return (IRR) is a metric used to evaluate the profitability of an investment over its lifetime and is represented as the average annual return percentage. The metric most commonly used to measure profitability of a potential real estate investment. The IRR(...)
  • Intestate
    Having made no valid will.
  • Intrastate Crowdfunding
    While the Securities and Exchange Commission regulates public securities on a national level, each state also has its own regulatory entity serving a similar function. Since the passage of the JOBS Act, advocates of equity crowdfunding have moved to legalize intrastate – or in state – crowdfunding.
  • Investment Property
    An investment property is a real estate asset purchased with the sole purpose of earning income. Income from an investment property can be generated through leasing space within an asset or an eventual sale of the asset.
  • Joint and Several Liability
    A creditor can demand full repayment from any and all of those who have borrowed, each borrower is liable for the full debt, not just the prorated share.
  • Joint Tenancy
    Ownership of realty by two or more persons, each of whom has an undivided interest.
  • Joint Venture
    An agreement between two or more persons who invest in a single business or property.
  • Judgment
    A decree of a court stating that one individual is indebted to another and fixing the amount of the indebtedness.
  • Judgment Creditor
    One who has received a court decree or judgment for money due from a debtor.
  • Judgment Lien
    The claim upon the property of a debtor resulting from recording a judgment.
  • Judicial Foreclosure
    Having a defaulted debtor's property sold where the court ratifies the price paid.
  • Jumbo Loan
    A loan larger than the maximum allowed by conforming loans. The threshold amount has traditionally been adjusted more or less on an annual basis and has been in the low $400,000's. Banks and mortgage brokers can quote the current threshold. They are typically available at interest rates(...)
  • Jumpstart Our Business Startups (JOBS) Act
    The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It was signed into law on April 5, 2012. Title III, also known as the Crowd Fund Act, has drawn the most(...)
  • Junior Mortgage
    A mortgage whose claim against the property will be satisfied only after prior mortgages have been repaid.
  • Kicker
    A payment required by a mortgage in addition to normal principal and interest.
  • Land Trust
    A revocable, living trust primarily used to hold title to real estate for privacy and anonymity. Also known as an Illinois Land Trust or Nominee Trust. The land trustee is a nominal title holder, with the beneficiaries having the exclusive right to direct and control the actions of the trustee.
  • Landlocked
    Condition of a lot that has no access to public thoroughfare except through an adjacent lot.
  • Lease
    A contract in which, for a rent payment, the one entitled to the possession of the real property (lessor) transfers those rights to another (lessee) for a specified period of time.
  • Lease Option
    A lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions.
  • Lease Purchase
    A lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions.
  • Leasehold
    The interest or estate on which a lessee (tenant) of real estate has a lease.
  • Leasehold Estate
    A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
  • Legal Blemish
    Blemishes on a piece of property, such as a zoning violation or fraudulent title claim.
  • Legal Description
    Legally acceptable identification of real estate by government survey, metes and bounds, or recorded plat.
  • Lessee
    A person to whom property is rented under a lease.
  • Lessor
    One who rents property to another under a lease.
  • Let
    To rent a property to a tenant.
  • Letter of Intent (LOI)
    Written expression of desire to enter into a contract without actually doing so.
  • Liabilities
    A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.
  • Liability Insurance
    Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
  • Lien
    A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic's liens, mortgages and unpaid taxes.
  • Life Estate
    An interest in property that terminates upon the death of a specified person.
  • Life Tenant
    One who is allowed to use property for life or the lifetime of another designated person.
  • Lifetime Cap
    The highest amount over the initial interest rate that an adjustable mortgage can be raised. Lifetime caps are typically in the range of 5.0% - 7.0%. If the initial interest rate is 5.25% and the lifetime cap is 6.0%, the highest interest rate a borrower could pay during the course of the loan(...)
  • Like-Kind Property
    Property having the same nature.
  • Limited Liability Company (LLC)
    A legal organizational form offering limited liability protection for the owners, which may be treated as a partnership for deferral income tax purposes.
  • Limited Partnership
    A partnership structure where “limited partners” are passive investors whose liability is limited to the amounts invested, but where at least one partner is a “general partner” whose liability is general in nature and not limited.
  • Line Of Credit
    An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application.
  • Linear Income
    Linear income is earned in direct relation to the number of hours you work.
  • Liquidated Damages
    An amount agreed upon in a contract that one party will pay the other in the event of a breach of contract.
  • Liquidity
    Liquidity refers to the ease with which an asset can be purchased or sold. Marketable securities that are traded in high volume tend to be the most liquid, or easy to trade without creating wild fluctuations in price.
  • Liquidity Premium
    The liquidity premium represents the incrementally higher price an investor is willing to pay for a more liquid asset or security, all other factors held equal.
  • Lis Pendens
    Latin for "suit pending", recorded notice of the filing of a lawsuit, the outcome of which may affect title to real property.
  • Listing
    Written agreement between a principal and an agent authorizing the agent to perform services for the principal involving the principal's property.
  • Loan Application (1003)
    A loan application that is required for conforming loans. It has become the standard application for most residential loans, even non-conforming loans.
  • Loan Balance
    The amount of principal remaining to be paid on an amortizing loan at a given time.
  • Loan Origination Fee
    Most lenders charge borrowers an origination fee, or points, for processing a loan. A point is 1 percent of the total loan amount.
  • Loan Package
    The organized group of documents that contains all of the information required to obtain an underwriting decision of loan approval or loan denial. Depending on the type of loan and the particular lender, a package may contain some or all of the following as well as other documents: loan(...)
  • Loan-to-Cost Ratio (LTC)
    The Loan-to-Cost Ratio is the ratio of a loan used to help finance a project compared to the total cost.
  • Loan-to-Value Ratio (LTV)
    The amount of money borrowed in relation to the total market value of a property. Expressed as the loan amount divided by the property value. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000 / $100,000).
  • Lot Line
    A line bounding a lot as described in a property survey.
  • Low-Documentation Loan
    A mortgage that requires only minimal verification of income and assets.
  • Low-Down Payment Loan
    A home loan that requires the borrower to make only a small down payment before obtaining the financing needed to purchase a house.
  • Management Agreement
    A contract between the owner of property and someone who agrees to manage it.
  • Margin
    A constant (fixed) amount over an index that determines a lender's yield on an adjustable rate loan. The interest rate of an adjustable rate loan is determined by adding a margin to an index. The size of the margin is typically a function of the index used and the credit worthiness of the(...)
  • Marketable Title
    A title free from defect.
  • Master Lease
    A controlling lease.
  • Maturity
    The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
  • Maximum Financing
    A loan amount within 5 percent of the highest loan-to-value ratio allowed for a property.
  • Mechanic's Lien
    A lien given by law upon a building or other improvement upon land as security for the payment of labor and materials furnished for improvement.
  • Merged Credit Report
    A report that draws information from the Big Three credit-reporting companies: Equifax, Experian, and Trans Union Corp.
  • Mezzanine
    A loan that is of lesser priority than a first mortgage or deed of trust. It may also have loans subordinate to it (hence "mezzanine"). Generally has the same priority as if it were called a second mortgage.
  • Mezzanine Debt vs. Preferred Equity
    Mezzanine Debt is generally a loan that is secured by a property and senior to any equity, but junior to the senior loan on the property. Preferred Equity, on the other hand, is an equity investment in the property-owning entity. It is not secured by the property but rather by an interest in(...)
  • Minimum Payment
    The minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum payment is principal and interest.
  • Monthly Payment (P&I)
    This is the monthly mortgage payment on a home loan, this includes principal and interest, but excludes any amounts that are applied to taxes and insurance.
  • Monthly Taxes & Insurance (T&I) Payment
    Portion of monthly payment that funds the escrow or impound account for taxes and insurance.
  • Mortgage
    A lien against real property given by a borrower to a lender as security for money borrowed.
  • Mortgage Insurance Premium (MIP)
    The payment made by a borrower of FHA insured mortgages to provide a reserve that protects lenders against losses from very high loan-to-value loans.
  • Mortgage Interest Deduction
    The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans.
  • Mortgage Loan
    A loan which is secured by a mortgage lien filed against real property.
  • Mortgage (Open-End)
    A mortgage that allows additional money to be borrowed (up to the original loan amount) without refinancing the loan or paying additional financing charges.
  • Mortgagee
    The entity to whom the mortgage is given; i.e., the lender.
  • Mortgagor
    The entity who gives the mortgage; i.e., the borrower.
  • Multi-Dwelling Property
    A property that contains individual units for several households but carries only one mortgage.
  • Multi-Family Housing
    Housing units that accommodate more than four families or households.
  • Needs-Based Pricing
    A seller's asking price that is based on factors such as the required funds to pay off the mortgage, the cost of remodeling or the purchase of another house.
  • Negative Amortization
    Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the(...)
  • Negotiation
    The process of bargaining that precedes an agreement.
  • Net Asset Value (NAV)
    The Net Asset Value (NAV) per share represents the estimated value of a single share based on a variety of factors.
  • Net Cash Flow
    Investment property that generates income after expenses such as; principal, interest, taxes and insurance are subtracted.
  • Net Operating Income (NOI)
    In real estate, the net operating income, or NOI, represents the annual income generated by an investment property after annual operating expenses.
  • Net Present Value
    The sum of all future cash flows discounted to present value and netted against the initial investment.
  • No Cash-Out Refinance
    The amount of the new mortgage covers the remaining balance of the first loan, closing costs, any liens and cash no more than 1 percent of the principal on the new loan.
  • No Income Verification Loan (NIV)
    A type of loan generally limited to the self-employed that is underwritten based on the borrower's written representation of their annual income as stated on the loan application. No tax returns, operating statements or other verification of the income is required. Debt ratios are computed(...)
  • Non-Assumption Clause
    A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.
  • Non-Conforming Loan
    A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. I.e., the vast majority of loans.
  • Non-Disclosure Non-Compete (NDNC)
    Common term used in commercial and multi-unit property listings. Sellers can require you to sign a NDNC prior to showing the property financials or scheduling an on-site visit.
  • Non-Qualifying
    Buyer is not required to qualify through traditional bank financing requirements.
  • Non-Recurring Closing Costs
    Costs that are one-time only fees for such items as; an appraisal, loan points, credit report, title insurance and a home inspection.
  • Note
    A written promise to repay a certain sum of money on specified terms.
  • Note Broker
    An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.
  • Notice of Default
    A lender's initial action when a mortgage payment is late and attempts to reconcile the issue out of court have failed.
  • Obligee
    The person in whose favor an obligation is entered into.
  • Obligor
    The person who binds himself or herself to another.
  • Occupancy Cost
    The actual dollars paid out by the tenant to occupy the space. It can be expressed in either pre-tax or after-tax dollars.
  • Off-Market Properties
    An off-market sale is a term used to define a property that is selling, or has already been sold, without any public advertising.
  • Office Building
    A commercial property type used to maintain or occupy professional or business offices.
  • Operating Expenses
    Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt(...)
  • Opportunistic
    An aggressive investment strategy that in real estate generally signifies investing in properties that require a high degree of rehabilitation in order to eventually earn “market” rental rates.
  • Opportunity Zones
    Opportunity Zones are census tracts generally composed of economically distressed communities that qualify for a community development program called the Opportunity Zone program, which was created under the Tax Cuts and Jobs Act of 2017.
  • Option
    The right to purchase or lease a property upon specified terms within a specified period of time.
  • Ordinances
    Municipal rules governing the use of land.
  • Ordinary Income
    Income such as salaries, interest payments, dividends, and many other items that are taxed at regular rates.
  • Original Basis
    The total amount paid for a property, including equity capital and the amount of debt incurred.
  • Origination Fee
    A fee paid to either a broker or a lender for originating a loan. It may be the only compensation for their work in arranging and/or processing the loan or it may be only a portion of the compensation. Not every loan has an origination fee.
  • Originator
    An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers, the originator determines the type of loan a borrower probably qualifies for, helps complete an(...)
  • Other Real Estate Owned (OREO)
    Refers to real property owned by a bank that does generally have a "home lending dept" per se. Its a REO that is the result of foreclosure on a property Refers to real property owned by a bank that does generally have a "home lending dept" per se. It's a REO that is the result of foreclosure(...)
  • Owner Financing (Seller Financing)
    A method in which a buyer borrows from and makes payments to the seller instead of a bank. Sometimes you take over the seller's payments. Can be done when a buyer cannot qualify for a bank loan for the full amount.
  • Participation Mortgage
    A loan secured by real property, with a stated interest rate that also provides for a share to the lender in annual net cash flow, gain on sale, or proceeds from refinancing the property.
  • Partnership
    One or more people or entities pursuing a common business enterprise for profit.
  • Passive Income
    Passive income (also known as residual or recurring income) is commonly used to refer to income that continues to be earned even after the work is done.
  • Passive Real Estate Investment
    In a passive real estate investment, the investor makes an upfront capital investment as an equity-based vehicle and then receives an ownership stake in that investment, from which the investor is paid dividends or other types of regular income that is somewhat automated.
  • Penalty
    Money one will pay for breaking a law or violating part or all of the terms of a contract.
  • Principal, Interest, Taxes, Insurance (PITI)
    The shorthand way of stating the most usual elements of a residential mortgage payment which may consist not only of the Principal and Interest (PI) but the property taxes (T) and hazard insurance (I) as well. In the case where all four elements are part of the payment, the lender escrows the(...)
  • Planned Unit Development (PUD)
    A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.
  • Points
    Loan fees paid by the borrower. One point equals one percent of the loan amount.
  • Portfolio
    A group of investment assets.
  • Portfolio Loan
    A non-conforming loan that is held by the original lender rather than being sold on the secondary market.
  • Preferred Equity
    Typically in a Preferred Equity investment, all cash flow or profits are paid back to the preferred investors (after all debt has been repaid) until they receive the agreed upon “preferred return.”
  • Preferred Return
    A Preferred Return is paid to investors before a sponsor receives any share of the cash flow.
  • Prepayment Penalty
    Fee charged for paying off a loan within a relatively short period of time after the loan has closed.
  • Principal
    The portion of a loan payment used toward reducing the original loan amount.
  • Principal Balance
    Outstanding dollar amount owed on a loan exclusive of accrued interest.
  • Principal Paydown
    For assets that are mortgaged with a fully amortizing loan (in most cases over a 25-30-year period), the property’s revenues service an outstanding debt that reduces with each month’s payment.
  • Private Equity Fund
    A private equity (PE) fund is a collective investment model where money from separate investors is pooled together into a single fund and then used to make investments, most often in various illiquid equity and debt assets.
  • Private Mortgage Insurance (PMI)
    Insurance premium paid by a borrower to protect lenders against losses from loans with loan-to-value ratios higher than 80%, default insurance for lenders.
  • Private Mortgage Insurance (PMI) Payment
    Portion of monthly payment that covers the cost of Private Mortgage Insurance.
  • Private Placement
    The sale of securities to a small number of select investors as a way of raising capital.
  • Private Placement Memorandum (PPM)
    A legal document that states the objectives, risks and terms of an investment involved with a private placement. This document includes items such as a company's financial statements, management biographies, a detailed description of the business operations, and more. An offering memorandum(...)
  • Pro-Forma
    A financial model often used in real estate to predict future cash flows and total investment returns. Refers to the presentation of data, such as a balance of income statement, where certain amounts are hypothetical. For example, a pro forma balance sheet might show a debt issue that has been(...)
  • Probate
    The process of establishing the validity of a will before a duly authorized court or person. Once validity is confirmed, the probate court then administers the sale of property as directed by the will or as authorized by the court to settle any financial obligations.
  • Promissory Note
    A financial document that contains a written promise by one party to pay another party a definite sum of money under specified terms.
  • Purchase Money Mortgage (PMM)
    A mortgage which secures a note written on a loan used in the purchase of real estate.
  • Purchase Subject to Mortgage
    A purchase in which a buyer agrees to make the monthly mortgage payments on an existing mortgage and the original borrower remains liable if the purchaser fails to make the payments as agreed.
  • Qualifying Ratio
    A ratio calculated by a lender to determine how much a potential buyer can borrow.
  • Quiet Enjoyment
    Right of an owner or any other person legally entitled to possession to the use of the property without interference.
  • Quiet Title Action
    A suit in court to remove a defect or cloud on the title, establishes legal ownership.
  • Quitclaim Deed
    A deed that conveys only the grantor's rights or interest in a property, without stating the nature of the rights or interest and with no warranties of ownership.
  • Rate Cap
    The maximum interest rate charge allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.
  • Rate-Improvement Mortgage
    A loan with a clause that entitles a borrower to a one-time interest rate cut without going through refinancing.
  • Real Estate
    Real estate includes a parcel of land and any of its permanent structures (buildings, parking lots, etc.).
  • Real Estate Investment Trust (REIT)
    A REIT (which is pronounced “reet” and stands for Real Estate Investment Trust) is a company which makes investments in and owns income-generating real estate properties and then distributes any profits to the investors.
  • Real Estate Owned (REO)
    Property acquired through a lender through foreclosure and held in inventory.
  • Real Property
    The rights to use real estate.
  • Realtor
    Designation given to licensed real estate agents who are members of the National Association of Realtors.
  • Recourse
    Ability of the lender to make claims against borrower personally in addition to the collateral.
  • Recurring Income
    Also known as residual or passive income, recurring income is earned by creating or acquiring an asset that continues to pay of profits regardless of if there is still active work being done to the asset.
  • Redemption
    In the event of back taxes or unpaid liens, a borrower who pays off those debts may reclaim their property, preventing foreclosure or the auctioning of their property.
  • Redemption Period
    Period during which a former owner can reclaim foreclosed property.
  • Refinance
    Process of a borrower paying off one loan with the proceeds from another.
  • Regression
    The principle that the value of a better-quality property is adversely affected by the proximity of a lesser-quality property.
  • Regulation A+
    Regulation A+ is the SEC’s proposed revision of the current Regulation A, which was mandated by the JOBS Act in 2012.
  • Regulation A
    Regulation A allows unaccredited investors to purchase small offerings of securities that do not exceed $5 million in a 12-month period.
  • Regulation D
    Regulation D permits raises of unlimited amounts from accredited investors without registering a public sale through the SEC, as it’s assumed that accredited investors are financially able to bear the burden of investment decisions without a review by the SEC.
  • Regulation Z
    Federal regulation requiring creditors to provide full disclosure of the terms of a loan.
  • Rescission Period
    A federally mandated period of three business days (beginning on the day after a loan closes) during which the borrower may cancel the new loan, waiting period only applies to loans which are to be secured by a mortgage on a personal residence for which the borrower is in title at the time of(...)
  • Residential Service Contract
    Home warranty or insurance contract, generally for one year, covering plumbing, electrical, and mechanical systems of the home.
  • Residual
    Value or income remaining after deducting an amount necessary to meet fixed obligations.
  • Residual Income
    The term residual income (also known as passive or recurring income) is commonly used to refer to income that continues to be earned even after the work is done.
  • Retail Property
    Properties used exclusively to market and sell consumer goods and services.
  • Reverse Mortgage
    A type of mortgage designed for elderly homeowners with substantial equity by which a lender pays a periodic payment to the borrower; the loan balances increase with interest and payments causing negative amortization.
  • Right of First Refusal
    Opportunity of a party to match the terms of a proposed contract before the contract is executed.
  • Risk
    The probability that actual cash flows from an investment will vary from the forecasted cash flows.
  • Sale Leaseback
    Sale of property by seller and simultaneous leasing of the same property by seller.
  • Sandwich Lease
    Lease held by a lessee (tenant) who becomes a lessor (landlord) by subletting to another lessee (subtenant), typically the sandwich leaseholder is neither the owner nor the user of the property.
  • Schedule K-1
    Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a partnership. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return.
  • Seasoning
    Loan which has been in force for a period of time thus establishing the borrower's payment history, loans are typically deemed to be seasoned after either six months or one year.
  • Second Mortgage
    Mortgage recorded after another mortgage has already been recorded and not yet released, subordinated lien.
  • Section 8
    Privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act.
  • Secured vs Unsecured Position
    A secured position in the Capital Stack retains the right to foreclose on a property in the event of a default, or non-performance. Unsecured creditors do not have the right to foreclose on the property, and therefore have less collateral backing their investment claim.
  • Securities and Exchange Commission (SEC)
    The U.S. Securities and Exchange Commission is an agency of the United States Federal Government.
  • Security Deposit
    Cash payment required by landlord to be held during the term of the lease to offset damages incurred due to actions of the tenant.
  • Self-Directed IRA (SDIRA)
    A retirement account in which the individual investor is in charge of making all investment decisions. The self-directed IRA provides the investor with greater opportunity for asset diversification outside of the traditional stocks, bonds and mutual funds, such as real estate. In addition to(...)
  • Senior Debt
    Senior debt is generally secured at the “base” of the capital stack. Because it sits at the base of the capital stack, it must be repaid first.
  • Short Sale
    A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the(...)
  • Special Warranty Deed
    Deed in which the grantor limits the title warranty given to the grantee, does not warrant against title defects arising from conditions that existed before grantor owned the property.
  • Specific Performance
    Legal action in which the court requires a party to a contract to perform the terms of the contract.
  • Sponsor
    A sponsor is the managing leader of a real estate project who researches the market, identifies a property to be acquired, organizes the investors and bank financing in order to make the purchase, oversees the subsequent management of the property, and determines when it is to be sold.
  • Step-Up In Basis
    A step-up basis is the adjustment of a cost basis for an asset for an investor. Certain factors may initiate a step-up in an investor’s original cost basis, thereby reducing their realized capital gain and associated tax liability.
  • Subject To
    Buyer takes title to mortgaged real property but is not personally liable for the payment of the amount due, buyer must make payments in order to keep the property.
  • Subordination
    A clause or document that permits a mortgage recorded at a later date to take priority over an existing lien.
  • Survey
    Process by which a parcel of land is measured and its area ascertained.
  • Syndication
    A professional financial services group formed temporarily for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks.
  • Tangible Assets
    Another key advantage of real estate investing is that it is a good way to diversify portfolios that are backed by hard assets. Real estate is not the same as buying shares in a company that may be here today and gone tomorrow.
  • Tax and Insurance Escrow
    Account required by a mortgage lender to fund annual property tax assessments and hazard insurance premiums, funded through monthly contributions by the mortgagor.
  • Tax Lien
    A debt attached to the property for failing to pay taxes.
  • Teaser Rate
    Contract interest rate charged on an adjustable rate mortgage for the initial adjustment interval that is significantly lower than the fully indexed rate at the time.
  • Tenancy / Occupancy
    Occupancy is generally referred to as a percentage of the total square feet or units leased – it is a building’s revenue source.
  • Term
    In real estate, the term refers to the lifespan of a given asset or liability. At the end of the term, the loan is or investment is repaid.
  • Terms
    Conditions and arrangements specified within a contract.
  • The Capital Stack
    The Capital Stack orders the seniority of claims to the collateral and cash waterfall of an entity.
  • Time Is Of The Essence
    A phrase that, when inserted in a contract, requires that all references to specific dates and times of day noted in the contract be interpreted exactly, in its absence extreme delays might be acceptable.
  • Title
    The right to the ownership and possession of any item that may be legally recognized as belonging to someone or something. In its most basic sense, title is the recognition of ownership.
  • Title Defect
    An unresolved claim against the ownership of property, prevents seller from providing buyer clear title to the property.
  • Title III Regulation Crowdfunding
    Outlined in the 2012 JOBS Act, Title III instructed the SEC to create an exemption from registration that, when implemented, will enable issuers to engage in crowdfunding equity offerings to the general investing public.
  • Title Insurance
    An insurance policy that protects the holder from loss sustained by defects in the title.
  • Title Search
    An examination of the public records to determine the ownership and encumbrances affecting real property.
  • Title Theory State
    The system in which the lender has legal title to the mortgaged property and the borrower has equitable title. Texas is not a title theory state. Contrast with a lien theory state.
  • 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. Generally done within 45 days and issued in the name of a business(...)
  • Triple Net Lease (NNN)
    A lease agreement that designates the lessee (the tenant) as being solely responsible for all of the costs relating to the asset being leased in addition to the rent fee applied under the lease, so that the landlord receives net rent. Operating expenses paid by the tenant include; taxes,(...)
  • Trust
    A legal entity creating fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.
  • Trust Deed
    Conveyance of real estate to a third party to be held for the benefit of another, commonly used in some states in place of mortgages that conditionally convey title to the lender, same as Deed of Trust.
  • Trustee
    A person or firm that holds or administers property or assets for the benefit of a third party.
  • U.S. Department. of Housing and Urban Development (HUD)
    A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.
  • Unaccredited Investor
    An investor who does not meet the wealth requirements of an accredited investor set forth by the SEC.
  • Underwriting
    The act of applying formal guidelines that provide qualitative and quantitative standards for determining whether or not a loan should be approved.
  • Undivided Interest
    An ownership right to use and possession of a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.
  • Unencumbered Property
    Real estate that is owned free and clear.
  • Unilateral Contract
    An obligation given by one party contingent on the performance of another party, but without obligating the second party to perform.
  • Unimproved Property
    Land that has received no development, construction, or site preparation (raw land).
  • Unrealized Gain
    Excess of current market value over cost for an asset that is not sold.
  • Unrecorded Deed
    Instrument that transfers title from one party (grantor) to another party (grantee) without providing public notice of the change in ownership.
  • Urban Renewal
    Process of redeveloping deteriorated sections of the city, often through demolition and new construction, may be privately funded, but most often associated with government renewal programs.
  • Usufruct
    The right to use property, or income from property, that is owned by another.
  • Usury
    Charging a rate of interest greater than that permitted by state law.
  • Utility Easement
    Use of another's property for the purpose of laying gas, water, electric and sewer lines.
  • V.A. Loan
    Home loan guaranteed by the U.S. Veterans Administration under the Servicemen's Readjustment Act of 1944 and later to compensate lender in the event of default.
  • Valuation
    The estimated worth or price. The act of valuation by appraisal.
  • Value-Add
    Value-add commercial real estate investments typically target properties that have in-place cash flow, but seek to increase that cash flow over time by making improvements to or repositioning the property. This could include making physical improvements to the asset that will allow it to(...)
  • Variable Interest Rate
    Amount of compensation to a lender that is allowed to vary over the maturity of a loan, typically governed by an appropriate index.
  • Variable Rate Mortgage
    Long-term mortgage loan applied to residences, under which the interest rate may be adjusted on a six month basis over the term of the loan, according to certain restrictions.
  • Veneer
    Wood or brick exterior that covers a less attractive and less expensive surface.
  • Waiver
    The voluntary renunciation, abandonment, or surrender of some claim, right or privilege.
  • Warehouse Fee
    A closing-cost fee representing the lender's cost of holding a borrower's loan temporarily before it is sold on the secondary mortgage market.
  • Warranty Deed
    Deed that contains a covenant that the grantor will protect the grantee against any and all claims; usually contains covenants ensuring good title, freedom from encumbrances, and quiet enjoyment.
  • Wholesale
    To contract a property with the intention of reselling it quickly at a higher price.
  • Wild Deed
    An improperly recorded deed.
  • Without Recourse
    Words used in endorsing a note to denote the note holder is not to look to the debtor personally in the event of nonpayment.
  • Wraparound Mortgage
    Loan arrangement in which an existing loan is retained and an additional loan is made that equals or exceeds the existing loan.
  • Writ of Execution
    A court order which authorizes and directs the proper officer of the court (usually the sheriff) to carry into effect the judgment or decree of the court.
  • Yield
    In the context of commercial real estate, yield refers to the annual cash return on the investment, expressed as a percentage of the investment’s initial cost, or less frequently, its estimated current value.
  • Zero Lot Line
    A form of cluster housing development in which individual dwelling units are placed on separately platted lots, but are attached to each other.
  • Zoning
    Legal mechanism for local governments to regulate the use of privately owned real estate to prevent conflicting land uses and promote orderly development.
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