Investment Glossary


Acceleration Clause

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Accredited Investor
An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience.
Active Income
Active income is income earned as a direct result of a specific effort. In other words, input is correlated to output.
After Repair Value (ARV)
In real estate investing, properties are often purchased in less than great condition, with the plan to make repairs or remodel them and resell or flip them at a profit. When an investor looks at the viability of a project, they must be able to estimate the value of the property after all repairs are completed called the after repair value.
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.
As opposed to an interest-only loan in which each repayment installment consists only of interest payments with a single lump-sum principal repayment at the end of the loan period, each repayment installment of an amortizing loan consists of both principal and interest.
An increase in value is referred to as “appreciation”.
Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.


Balloon Payment
The final lump sum payment that is due at the termination of a balloon mortgage.
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.
Bridge Loan
Short term loan, used to bridge the gap. For example a loan used to buy a property until a permanent loan can be secured.


Capital is any financial asset or the value of an asset.
Capital Stack
The Capital Stack orders the seniority of claims to the collateral and cash waterfall of an entity.
Capitalization (Cap) Rate
The capitalization or cap rate measures a property’s yield in a one-year time frame, making it easy to compare one property’s cash flow to another on an equal basis – without taking into account any debt on the asset
Cash-on-Cash Return
Cash-on-cash return is one of the most widely used metrics in commercial real estate. As the name implies, this metric is calculated by dividing annual before tax cash-flow by the total cash invested in a project.
Cash-Out Refinance
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on title to the property.
Common Equity
Common Equity means that investors have one-to-one (or equal) participation in each dollar invested and any potential profits or losses.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Commercial Use
Property that is only used as a business – having no residential component.
Comparable Sales (Comps)
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”
Credit History
A record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
Cross Collateral
A lending technique when an asset or assets are used as collateral for a loan on a different property.
Funding a product, idea, or venture using small amounts of money raised from the “crowd.”


An amount of money (obligation) owed by one party (the debtor) to another party (the creditor).
The legal document conveying title to a property. Example: Grant Deed, Waranty Deed, Quitclaim Deed.
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Deed of Trust
Some states, like Virginia, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Development is the process of building or adding to existing structures to increase the value of a property.
Distressed Properties
Properties that are in poor condition or under siege financially (which may include foreclosure); they usually represent great opportunities for fix and flip investments.
Payments made to investors periodically, typically over the course a calendar year, either from profits or interest payments.
Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Draw Schedule
A payment plan for construction or renovation projects. This schedule helps lenders determine when they are going to distribute funds to their borrower based on the value of the work completed.


A right of way giving persons other than the owner access to or over a property.
As it relates to real estate, equity can be measured as the amount of capital a sponsor (property owner/developer) puts into a property.
Escrow Account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Exit Strategy
How the borrower plans to pay off the loan, as well as turn a profit. Having a clear exit strategy is an important part of developing your overall plan for the project which will help determine the best type of financing for the deal.


Free Cash Flow
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.
Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.


The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
A person who agrees to assume responsibility for any remaining owed amounts on a loan should there be any.


Hard Asset
A tangible object of worth that is owned by a business or individual.
Hard Money Loan
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies.
Hazard Insurance
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home Inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
HUD-1 (HUD) Statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”


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.
Interal 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 IRR of an investment can be calculated forward-looking to estimate potential future returns or backward looking to measure the performance of a completed investment.


Jumpstart Our Business Startups (JOBS) Act
The JOBS Act was a law passed in 2012 in the United States that eased regulations related to funding small businesses. Intended to increase American job creation and foster economic growth, the JOBS Act aims to provide easier access to public capital markets and small, growing companies.


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.
Loan-to-Value (LTV)
A risk assessment ratio that lenders perform when considering a real estate loan. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property.
Loan-to-Cost (LTV)
The Loan-to-Cost Ratio is the ratio of a loan used to help finance a project compared to the total cost.
Loan Points
An origination fee. One point is equal to one percent of the principal loan amount. If the loan is $100,000 with 2 points, then the borrower will pay $2,000 in origination fees.


Maturity Date
Maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.
Mortgage Broker
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
Multiple Listing Services (MLS)
A database where real estate for sale is listed for a given area or region. Brokers from this area work together to compile this list.


Net Operating Income (NOI)
In real estate, the net operating income, or NOI, represents the annual revenue (or income) generated by an investment property after annual operating expenses.


Origination Fee
On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called “discount points.” One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
Owner Financing (Seller Financing)
A property purchase transaction in which the property seller provides all or part of the financing.


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.
Also see “Loan Points”. An origination fee. One point is equal to one percent of the principal loan amount. If the loan is $100,000 with 2 points, then the borrower will pay $2,000 in origination fees.
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
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.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
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 Lender
An individual or group of individuals that lends to real estate investors. They usually lend their own funds.
Property Flipping
Buying a property and then renovating the property in order to increase the value of the asset such that it may be sold at a profit.
Proof of Funds
A document provided by a lender that is intended to document that a borrower has the available funds to complete a transaction.


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.
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.
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.
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 A+
Regulation A+ is the SEC’s proposed revision of the current Regulation A, which was mandated by the JOBS Act in 2012.
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.


Secondary Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secured Position 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.
Scope of Work
This is an outline of all the renovations scheduled to be completed before the house is sold, as well as their anticipated costs. The SOW also gives a timetable of when the service provider expects each component of the rehab to be completed.
Short Sale
This occurs when a seller is selling their house for less than they owe on their mortgage. In order for this to happen, the bank or lending company needs to approve of the sale at the lower price. Short sales are a popular way to find investment properties because of their lower purchase costs.
An individual or firm in charge of finding, acquiring, and managing a piece of real estate.


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.
Transactional Funding
Financing designed for wholesalers. Funding clients acquisition of the property (A-B transaction), given the property is sold in the same attorney’s office on the same day (B-C transaction), typically simultaneous transaction/double closing.
Turnaround Time
The amount of time it takes from when the investment property is purchased to when it is sold.


Unaccredited Investor
An investor who does not meet the wealth requirements of an accredited investor set forth by the SEC.
The assessment of risk and reward for a potential investment. Underwriters determine the credibility of the potential investor and determines if their investment is going to be able to make enough money to be profitable for all parties involved. Hard money underwriters are typically more concerned with the profitability of the deal than the credit history of the borrower.


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.