When you’re in the business of real estate investment, there is a lot of information in which you need to familiarize yourself. Sherman Bridge is in the habit of making sure you have all the information you need to succeed in your investments, so we here we have brought a comprehensive glossary of all the “need to know” terms for real estate investors.
Abstract of Title – summary of all the recorded history of a property. This includes instruments and proceedings that affect title to a property.
Acquisition Cost – the total price, including all fees, required to obtain an investment property.
Acquisition Loan – to purchase a property, an acquisition loan is the money you borrow to do so.
Appraised Value – the opinion estimate of a property’s value, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial).
Appreciation – when the value of a property increases.
Bridge Loan – mortgage financing between the termination of one loan and the beginning of another loan.
Capital – (1) money that is used to create income. This can be an investment in a business or an income property. (2) The money or property comprising the wealth owned by a person or business. (3) The accumulated wealth of a person or business. (4) The net worth of a business (by which its assets exceed liabilities).
Capital Improvement – any permanent improvement to real property that adds to its value and use.
Cash Flow – The net operating income minus the total of all debt service payments.
Cash Flow Basis – This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. Curious about your cash flow?
Comparable Sales – As part of the appraisal process, those relatively recently sold properties which will be compared to the property being appraised for the purpose of forming an opinion of value for the subject property.
Debt Ratio (DR, D:I) – Also known as debt-to-income. This is the ratio of the total minimum monthly debt payments to gross monthly income.
Escrow – Pending the fulfillment or performance of a specified act or condition, this is an agreement between two or more parties for certain instruments or property be placed with a third party for safekeeping,
FRBO – for rent by owner.
Graduated-Payment Mortgage (GPM) – A mortgage that requires a borrower to make larger monthly payments over the term of the loan. The payment is unusually low for the first few years but gradually rises until year three or five, then remains fixed.
Grantee – the party to whom title to real property is given.
Grantor – the party who gives the deed.
Gross Debt Service – the amount of money needed to pay principal, interest and taxes, and sometimes energy costs.
Hard Money Loan – A loan that is underwritten with the condition and value of the property as the primary criteria for approval. These loans are ideal for property rehabilitation, find out more about hard money loans here.
Liability Insurance – insurance coverage that offers protection against claims that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.
Net Cash Flow – Investment property that generates income after expenses such as principal, interest, taxes, and insurance are subtracted.
Net Operating Income (NOI) – When a property generates income, NOI is the gross income minus the total of all expenses except for debt service.
Owner Financing (Seller Financing) – A method in which a buyer borrows from and makes payments to the seller instead of a bank. This can be done when a buyer cannot qualify for a bank loan for the full amount.
Special Warranty Deed – deed in which the grantor limits the title warranty given to the grantee.
Transactional Funding – Short term financing or a bridge loan you use to buy a property. Investor arranges for a short-term loan to fund the purchase and then resells the property to earn the profit margin, using the proceeds to repay the loan.
Underwriting – The act of applying formal guidelines that provide qualitative and quantitative standards for determining the eligibility of a borrower.
Vendor – a seller of real estate.
Yield – measurement of earnings on your investment.
Zoning – the legal mechanism for local governments to regulate the use of privately owned real estate to prevent conflicting land uses and promote orderly development.
Want to learn even more? Sherman Bridge has got you covered.
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