Glossary · 1000 terms

The language of private capital.

A working dictionary of real estate, mortgage, finance, and private lending terms — the vocabulary every operator should speak fluently.

Showing 1000 of 1000 terms

Underwriting & Metrics

46 terms

ARV (After Repair Value): The projected market value of a property once all planned renovations are complete. The cornerstone metric for any fix & flip underwriting.
LTV (Loan-to-Value): Loan amount divided by the property's current market value. The primary measure of leverage and lender risk exposure on stabilized assets.
LTC (Loan-to-Cost): Loan amount divided by total project cost (purchase + rehab + soft costs). Used in construction and rehab financing in place of LTV.
ARV-LTV: Loan amount divided by the projected after-repair value. The key leverage metric for fix & flip and rehab loans.
DSCR (Debt Service Coverage Ratio): Net operating income divided by annual debt service. Lenders typically want ≥ 1.20x; investor-friendly DSCR loans may go to 1.00x or below.
Debt Yield: NOI divided by loan amount, expressed as a percentage. A leverage-independent risk measure favored by CMBS lenders. Floors typically 8-10%.
Cap Rate (Capitalization Rate): NOI divided by property value. The market-implied unlevered yield on an income property — the rosetta stone of commercial real estate valuation.
NOI (Net Operating Income): Gross rental income minus operating expenses, before debt service and capital expenditures. The income-side foundation of every commercial valuation.
Cash-on-Cash Return: Annual pre-tax cash flow divided by total cash invested. Measures the actual yield on dollars deployed, after debt service.
IRR (Internal Rate of Return): The discount rate at which the net present value of all cash flows equals zero. The standard time-weighted return metric for real estate investments.
Equity Multiple: Total cash distributions divided by total equity invested. Tells you how many times you got your money back; ignores time.
GRM (Gross Rent Multiplier): Property price divided by gross annual rent. A quick, expense-blind valuation shortcut used to triage deals.
OpEx Ratio: Operating expenses divided by gross income. Apartments typically run 35-50%; office and retail vary by lease structure.
Stabilized NOI: Projected NOI once a property reaches normalized occupancy and market rents. Used to size permanent debt on lease-up deals.
Pro Forma: A forward-looking projection of a property's income, expenses, and returns. Essential for any underwriting — but only as good as its assumptions.
Sensitivity Analysis: Stress-testing a deal by flexing key inputs (cap rate, vacancy, rent growth) to see how returns change. Separates serious sponsors from optimists.
FICO Score: A credit score (300-850) from Fair Isaac that lenders use as a borrower risk proxy. Most private lenders want 660+; conventional lenders prefer 720+.
DTI (Debt-to-Income Ratio): Monthly debt payments divided by gross monthly income. Conventional lenders typically cap DTI at 43-45%.
Vacancy Rate: Percentage of rentable units sitting empty. Underwriters typically pencil in a 5-10% vacancy and credit-loss assumption even for fully leased buildings.
Break-Even Ratio: Operating expenses plus debt service, divided by gross income. Below 1.0 means the property loses money at current rents.
Operating Expense Ratio: OpEx divided by effective gross income. A quick measure of how efficiently a property is run.
Net Effective Rent: Quoted rent adjusted downward for concessions like free months. The true economic rent the property is collecting.
Replacement Cost: Estimated cost to rebuild a property today. Lenders use it to compare to purchase price — buying below replacement cost is a margin of safety.
Capex (Capital Expenditures): Long-life building improvements (roof, HVAC, parking lot) — not regular operating expenses. Usually budgeted as a per-unit annual reserve.
T-12 (Trailing Twelve Months): Actual operating performance over the last 12 months. The lender's preferred income reference, not the sponsor's forecast.
T-3 / T-6 Annualized: Performance of the most recent 3 or 6 months, multiplied to a full-year equivalent. Captures recent rent growth a T-12 would miss.
Stressed DSCR: DSCR calculated using a higher hypothetical interest rate (often +200 bps) to test the property's ability to absorb rate shocks.
Going-In Cap Rate: The cap rate at acquisition, based on the current trailing NOI and the purchase price. The starting point of any income-deal underwriting.
Exit Cap Rate: The cap rate assumed at sale to project a property's future value. Usually underwritten 25-75 bps higher than the going-in cap.
Mortgage Constant: Annual debt service divided by the loan balance. A leverage-blind metric for comparing debt cost to property cap rate.
EGI (Effective Gross Income): Potential gross income minus vacancy and collection losses, plus other income. The top line of an operating statement.
Schedule of Real Estate Owned (SREO): A list of every property a borrower owns, with debt, equity, NOI, and ownership percentages. Required on most commercial loan applications.
Personal Financial Statement (PFS): A snapshot of a borrower's assets, liabilities, and net worth. Lenders require it to underwrite personal guarantees and recourse.
Verification of Deposit (VOD): A lender request to a bank confirming a borrower's account balances. Used to verify reserves and down-payment funds.
Verification of Employment (VOE): A lender request to a borrower's employer confirming income, position, and length of employment.
Letter of Explanation (LOX): A short borrower-written letter explaining anomalies — late payments, credit inquiries, large deposits, employment gaps.
Liquidity Test: A lender check that the borrower holds enough liquid assets to cover X months of debt service after closing — typically 6-12 months.
Net Worth Covenant: A loan covenant requiring the guarantor maintain a minimum net worth (often = loan amount) for the life of the loan.
Bad Boy Carve-Out: Exceptions to non-recourse where the guarantor becomes personally liable for fraud, misrepresentation, voluntary bankruptcy, or waste.
Springing Recourse: Loan structure where non-recourse converts to full personal recourse if a triggering event occurs (e.g., unauthorized transfer).
Loss Reserve: Capital the lender or sponsor sets aside for anticipated losses on a portfolio of loans or properties.
Debt Constant: The annual debt service as a percentage of the original loan amount. Used to compare loans across different terms and rates.
Sponsor Track Record: A lender's review of a borrower's prior successful (or unsuccessful) deals. Typically the single largest qualitative underwriting factor.
Stress Test: Underwriting analysis that flexes rates, occupancy, and expenses to see how a deal performs in a downside scenario.
Underwriting Memo: The internal lender document summarizing the loan, sponsor, property, and approval recommendation. Reviewed by the credit committee.
Credit Committee: The lender's internal panel that approves or rejects loans above a threshold size. Final gatekeeper for major deals.

Mortgage Loans

53 terms

Conventional Mortgage: A mortgage not backed by a government agency, conforming to Fannie Mae / Freddie Mac guidelines. Standard 30-year fixed product for owner-occupants.
FHA Loan: A mortgage insured by the Federal Housing Administration. Lower down payment requirements (3.5%) but with mortgage insurance for the life of the loan.
VA Loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible service members. Often zero down with no PMI.
Jumbo Loan: A mortgage exceeding the conforming loan limit set by the FHFA. Requires stronger credit and reserves; held in lender portfolios.
Non-QM Loan: A mortgage that does not meet Qualified Mortgage standards. Includes bank-statement, asset-depletion, and DSCR products for non-traditional borrowers.
Interest-Only Loan: A loan where the borrower pays only interest for an initial period, with principal deferred. Boosts cash flow but builds no equity during the IO period.
Amortization: The schedule by which a loan's principal is repaid over time. A 30-year amortization is standard for residential; 25 or 30 years for commercial.
Balloon Payment: A large lump-sum principal payment due at the end of a loan term, typically because the loan amortizes over a longer period than the term.
ARM (Adjustable-Rate Mortgage): A mortgage whose interest rate adjusts periodically based on a benchmark index (SOFR, Treasury). 5/1, 7/1, and 10/1 ARMs are common.
Fixed-Rate Mortgage: A mortgage with a constant interest rate for the entire term. Predictable payments, immune to market rate moves.
PMI (Private Mortgage Insurance): Insurance required on conventional loans with LTV above 80%, protecting the lender if the borrower defaults. Falls off automatically at 78% LTV.
Escrow (Mortgage): A monthly portion of the mortgage payment held by the servicer to pay property taxes and insurance when due.
Origination Fee: An upfront fee charged by a lender for processing a loan, typically 0.5-2% of the loan amount. Sometimes negotiable on private deals.
Prepayment Penalty: A fee for paying off a loan ahead of schedule. Common on commercial debt and DSCR products to protect the lender's expected yield.
Discount Points: Upfront fees paid to lower the interest rate. One point = 1% of the loan amount and typically reduces the rate by ~0.25%.
Recourse Loan: A loan where the lender can pursue the borrower's personal assets beyond the collateral if the loan defaults. Standard on residential; varies on commercial.
Non-Recourse Loan: A loan where the lender's only remedy is the collateral. Common on stabilized commercial assets, with carve-outs for fraud and key sponsor acts.
Bad Boy Carve-Outs: Standard exceptions to non-recourse that trigger personal liability — fraud, misrepresentation, environmental contamination, or unauthorized transfers.
Cash-Out Refinance: Refinancing into a larger loan than the existing balance, taking the difference in cash. The primary tool for unlocking trapped equity.
Rate-and-Term Refinance: Refinancing with no new cash to the borrower — only the rate, term, or both change. Used to capture lower rates or extend the runway.
Bank Statement Loan: A Non-QM loan that qualifies borrowers off 12-24 months of bank deposits instead of tax returns. Popular with self-employed buyers.
Asset-Depletion Loan: A Non-QM loan that qualifies a borrower based on liquid assets divided by an assumed depletion period rather than income.
P&I (Principal and Interest): The two components of a fully amortizing loan payment. Excludes taxes and insurance (PITI is the full payment).
PITI: Principal, Interest, Taxes, Insurance — the four components of a complete mortgage payment used for DTI calculation.
USDA Loan: A zero-down mortgage backed by the US Department of Agriculture for properties in eligible rural and suburban areas.
Conforming Loan Limit: The maximum loan size eligible for Fannie Mae / Freddie Mac purchase, set annually by the FHFA. Loans above this are jumbo.
Rate Lock: An agreement with a lender to fix an interest rate for a set period (15-90 days) while the loan is processed.
Float-Down Option: A clause allowing the borrower to take a lower rate if market rates drop during the lock period, usually for a fee.
Discount Points: Upfront fees paid to the lender to buy down the interest rate. Each point typically equals 1% of the loan and lowers the rate ~0.25%.
Assumable Mortgage: A loan a buyer can take over from the seller, inheriting the existing rate and terms. Most common on FHA, VA, and USDA loans.
Refinance: Replacing an existing loan with a new one — usually to lower the rate, change the term, or pull cash out.
Rate-and-Term Refinance: A refinance that adjusts only the rate or term, without taking out additional equity. Cheaper and easier to qualify for than cash-out.
Streamline Refinance: A simplified refinance program (FHA, VA) with reduced documentation and no appraisal required for eligible borrowers.
Loan Origination: The full process of creating a new mortgage — application, processing, underwriting, approval, closing.
Loan Processing: The administrative stage where documentation is gathered, verifications run, and the file is prepared for underwriting.
Loan Estimate (LE): A standardized 3-page form lenders must deliver within 3 days of application disclosing all costs and terms of the proposed loan.
RESPA: Real Estate Settlement Procedures Act — federal law governing closing disclosures, kickback prohibitions, and escrow rules.
TRID: TILA-RESPA Integrated Disclosure — the combined disclosure framework requiring the Loan Estimate and Closing Disclosure.
Subprime Mortgage: A loan to a borrower with weak credit (FICO < 620). Carries higher rates and fees to compensate for elevated default risk.
Prime Borrower: A borrower with strong credit (FICO 720+), low DTI, and verifiable income — eligible for the best rates and terms.
Lender Credit: A credit the lender gives toward closing costs, paid for by accepting a slightly higher interest rate.
Rate Sheet: A lender's daily-published table of rates and points for various loan products and credit profiles.
Pre-Approval Letter: A lender's commitment to fund a specific loan amount, subject to property appraisal and final underwriting. Signals a serious buyer.
Pre-Qualification: A lender's informal estimate of loan eligibility based on borrower-stated info. Weaker than pre-approval; not relied on by sellers.
ARM Index: The benchmark rate to which an adjustable-rate mortgage is tied (SOFR, 1-Year CMT, etc.) plus the lender's margin.
ARM Margin: The fixed spread a lender adds to the ARM index to set the borrower's rate at each adjustment. Disclosed at origination.
Initial Rate Cap: The maximum rate change at the first adjustment of an ARM. Typically 2% or 5% above the start rate.
Periodic Rate Cap: The maximum rate change at each subsequent adjustment of an ARM, typically 2%.
Lifetime Rate Cap: The maximum rate the ARM can ever reach above its start rate, typically 5-6%.
Recast: Re-amortizing a loan after a large principal paydown, lowering future payments without refinancing.
Loan Servicer: The company that collects mortgage payments, manages escrow, and handles defaults — separate from the loan's owner.
Mortgagee: The lender in a mortgage transaction — the party receiving the lien on the property.
Mortgagor: The borrower in a mortgage transaction — the party granting the lien on their property.

Private & Hard Money

40 terms

Hard Money Loan: An asset-based, short-term loan funded by private capital, prioritizing the property's value over the borrower's credit profile. Closes in days.
Private Money Loan: A loan funded by an individual or non-bank entity. Broader than hard money — can include longer terms, relationship-based pricing, and bespoke structures.
Bridge Loan: A short-term loan used to bridge a funding or timing gap, typically between an acquisition and a longer-term take-out loan or sale.
Fix & Flip Loan: Short-term financing for the purchase and renovation of a property intended for resale. Funded in initial advance plus rehab draws.
Transactional Funding: Ultra-short-term capital that funds A-B closings for simultaneous B-C same-day sales. Pricing is per-transaction, not per-annum.
Earnest Money Loan: Short-term capital funding the earnest money deposit on a contract, allowing investors to tie up properties without depleting working capital.
Gap Financing: Short-term capital filling the gap between available funding and total project need. Often subordinate to senior debt.
Rehab Loan: A loan structured around purchase price plus rehab budget, funded via initial advance and milestone-based draw releases.
Draw Schedule: The staged release of construction or rehab funds tied to verified completion milestones, typically with lender inspections at each stage.
Origination Points: Fees charged at loan funding, typically 1-3% on private money. A 3-point loan on $1M means $30,000 at closing.
Exit Fee: A fee charged at loan payoff, often 0-2% of the original loan amount. Sometimes used in lieu of higher rate or points.
Term Sheet: A non-binding document outlining proposed loan terms before formal documentation. The opening salvo of any private debt negotiation.
DSCR Loan: An investor mortgage qualified on the property's debt service coverage rather than the borrower's personal income. The dominant rental product post-2020.
Asset-Based Lending: Lending where the loan is sized to the value of an asset rather than the borrower's income. The defining feature of hard money.
Blanket Loan: A single mortgage covering multiple properties under one lien. Common for portfolio investors and developers with multiple lots.
Points (Origination Points): Upfront fee charged by private lenders, expressed as a percentage of the loan. Hard money loans typically run 1-4 points.
Holdback (Rehab Holdback): Renovation funds held back at closing and released as draws against completed work. Standard on fix & flip loans.
Draw Schedule: The pre-agreed milestones at which a construction or rehab lender releases held-back funds to the borrower.
Inspection Draw: A draw triggered after a third-party inspector verifies work has been completed. Common on hard money rehab loans.
Cross-Collateral Loan: A loan secured by two or more properties simultaneously. Allows higher leverage but ties the borrower's portfolio together.
Term Sheet: A non-binding written summary of proposed loan terms — rate, fees, LTV, term length. The starting point of any private lending deal.
Hard Money: Short-term, asset-based real estate financing from private capital. Typically 1-3 year terms, 8-13% rates, 65-75% LTV.
Soft Money: Private lending that adds layers like income or credit verification — pricier than bank debt but cheaper than hard money.
Lender Servicing: The ongoing administration of a loan — collecting payments, escrowing taxes, handling payoffs. Private lenders may self-service or outsource.
Cure Period: A grace window after a default in which a borrower can fix the issue (catch up on payments, restore insurance) before foreclosure begins.
Asset-Based Lending: Lending decisions driven primarily by the collateral's value, not the borrower's income or credit profile.
No-Doc Loan: A private loan requiring no income documentation. Common in fix & flip and rental investor lending.
Stated Income Loan: A loan where the borrower's stated income is accepted without W-2 or tax verification. Used for self-employed and investor borrowers.
Interest Reserve (Hard Money): A loan structure where interest payments are pre-funded from loan proceeds, avoiding monthly cash service during rehab or construction.
Bridge-to-Sell: A bridge loan whose intended exit is the sale of the property — typical for flips and short-hold investors.
Bridge-to-Refi: A bridge loan whose intended exit is refinancing into a permanent loan — typical for BRRRR and stabilization plays.
Take-Out Lender: The permanent lender that refinances a bridge or construction loan after the property stabilizes.
Junior Lien: Any loan in second or lower position behind a senior mortgage. Priced higher because it absorbs losses before the senior.
Wraparound Mortgage: Owner-financed mortgage that wraps around the seller's existing first mortgage — the buyer pays the seller, who continues paying the original.
Land Contract: A seller-financed installment sale where the seller retains title until the buyer makes all agreed payments. Also called a contract for deed.
Seller Financing: An arrangement where the property seller acts as the lender, accepting payments over time instead of cash at closing.
Owner-Occupied Hard Money: Rare hard-money product for primary residences — subject to consumer disclosures and Dodd-Frank ATR rules.
Loan Renegotiation: Modifying terms of an existing private loan mid-stream — typical when a project goes over budget or schedule.
Exit Strategy: The pre-agreed plan for how a short-term private loan will be paid off — sale, refinance, or capital raise.
Lender's Fee Sheet: An itemized list of all private-lender fees in a deal — origination, processing, underwriting, doc prep, inspection.

Capital Structure & Equity

42 terms

Capital Stack: The ordered layers of financing on a project — senior debt, mezzanine, preferred equity, common equity — determining repayment priority and risk.
Senior Debt: The most senior, first-lien loan on a property. Paid first in any liquidation or refinance. Lowest cost, lowest risk.
Mezzanine Debt: Subordinate debt sitting between senior debt and equity, often secured by a pledge of equity rather than a property lien.
Preferred Equity: An equity position with a preferred return and priority over common equity, but junior to all debt. Hybrid of debt and equity.
Common Equity: The bottom of the capital stack — last paid, first to take losses, but unlimited upside. The sponsor's and investors' true ownership stake.
Pari Passu: Equal footing between two or more capital positions, sharing distributions and losses on the same terms.
Subordination: The act of placing one capital position behind another in the payment waterfall. Required of mezz and pref behind senior debt.
Waterfall: The contractual order of cash distributions among debt and equity participants. Defines who gets paid what, and when.
Promote (Carried Interest): The disproportionate share of profits a sponsor earns above a hurdle rate. The classic real estate '8 pref / 80-20 promote' structure.
Hurdle Rate: A return threshold that must be met before promote is paid. Common hurdles: 8%, 12%, 15%, then a sponsor-favorable split.
Catch-Up: A waterfall mechanism that lets the sponsor receive 100% of cash flow until they've caught up to a target promote split.
JV Equity: Joint venture equity — capital deployed in exchange for a partnership stake, sharing both upside and risk with the sponsor.
GP / LP: General Partner (sponsor, manages the deal) and Limited Partner (passive investor, capital only). Standard real estate syndication structure.
Convertible Debt: Debt that converts into equity under specified conditions, blending downside protection with upside participation.
Equity Participation Loan: A loan whose return is partly tied to project performance, typically through a percentage of profits or appreciation.
Senior Debt: The first-lien loan in a capital stack — first to get paid, lowest cost, lowest LTV. Almost always non-recourse if institutional.
Subordinate Debt: Any loan that sits behind senior debt in the capital stack. Higher priced and higher risk because it absorbs losses first.
Sponsor Equity (GP Equity): The general partner's own cash investment in a deal — typically 5-15% of the total equity, sometimes earned through a promote.
LP Equity: Limited partner equity — passive investor capital that earns preferred return and a slice of profits but has no operational control.
Preferred Return (Pref): A priority annual return paid to LPs before any profit splits. Typical: 7-9% per year, sometimes cumulative.
Promote / Carry: A disproportionate share of profits the sponsor earns after LPs receive their preferred return and capital back.
Waterfall: The pre-agreed order of cash distributions in a partnership — pref to LPs, return of capital, then promote tiers to the sponsor.
Catch-Up Provision: A waterfall step that lets the sponsor 'catch up' to a target promote split once LP returns have been paid.
Capital Call: A request from the sponsor to LPs to fund their unfunded equity commitment, typically for renovation overruns or carrying costs.
Cap Stack (Capital Stack): The full layered financing of a deal — senior debt, mezzanine, preferred equity, common equity. Each layer has different risk, cost, and rights.
Loan-to-Value Stack: The combined LTV of all debt layers (senior + mezzanine + pref). Total stack rarely exceeds 80-85% even on aggressive deals.
Intercreditor Agreement: Contract between senior and subordinate lenders defining each lender's rights on default. Mandatory in mezzanine deals.
UCC Lien: A lien filed under the Uniform Commercial Code against personal property (membership interests, equipment) — used by mezzanine lenders.
Pledge of Membership Interest: Security structure where the borrower pledges the LLC membership rather than the property itself. Foreclosure happens via UCC, not the courthouse.
Equity Kicker: A lender's right to share in upside (refi or sale proceeds) beyond fixed interest — common in mezzanine debt.
Profit Participation: Lender or investor right to a share of property profits, distinct from regular interest. Aligns the lender with sponsor success.
Class A / Class B Shares: Different classes of equity in a real estate LLC with distinct priorities, distributions, and voting rights.
Operating Agreement: The governing document of an LLC — capital contributions, distributions, voting, transfer restrictions, dissolution.
Member-Managed LLC: An LLC where every member has decision-making authority — typical for small partnerships of 2-3 operators.
Manager-Managed LLC: An LLC where designated manager(s) make decisions while members are passive. Standard structure for syndications.
Special Purpose Entity (SPE): A single-asset LLC created to hold one property — isolates liability and required by institutional lenders.
Bankruptcy Remote: An SPE structured so that one property's bankruptcy cannot drag down the sponsor's other entities. A lender requirement on CMBS.
Repayment Guaranty: A guarantor's commitment to repay the loan personally if the borrowing entity defaults. The strongest form of recourse.
Completion Guaranty: Guarantor commitment to complete a construction project regardless of cost overruns. Required on most construction loans.
Carry-Cost Guaranty: Guarantor commitment to cover operating shortfalls (debt service, taxes, insurance) during lease-up.
Reg D 506(b) Offering: A private securities offering allowing up to 35 non-accredited sophisticated investors, with no general solicitation permitted.
Reg D 506(c) Offering: A private securities offering allowing general advertising but limited to verified accredited investors only.

Real Estate Fundamentals

40 terms

Title: The legal evidence of ownership of real property. Transferred at closing via a deed and verified through a title search.
Deed: A written instrument that transfers title from one party to another. Common types: warranty deed, special warranty deed, quitclaim deed.
Lien: A legal claim on a property securing a debt. Mortgages, mechanic's liens, and tax liens are common examples.
Easement: A right granted to a non-owner to use part of the property for a specific purpose — utility access, driveway, or shared boundary.
Encumbrance: Any claim, lien, or restriction on a property that affects its value or transferability. Liens and easements are both encumbrances.
Zoning: Local government rules dictating how land can be used — residential, commercial, mixed-use, industrial — and density limits.
Variance: An approved exception to a zoning rule, granted case-by-case when strict compliance would create hardship.
Entitlements: The bundle of legal rights to develop a property — zoning, density, height, parking — secured before construction.
FAR (Floor Area Ratio): The ratio of a building's total floor area to the size of its lot. The single most important zoning metric for development feasibility.
Setback: The minimum distance a building must sit from a property line, set by zoning code.
Comparable Sales (Comps): Recent sales of similar properties used to estimate a subject property's market value. The foundation of every appraisal.
Appraisal: A professional opinion of value, required by most lenders. Methods include sales comparison, income capitalization, and cost approaches.
BPO (Broker Price Opinion): A real estate broker's estimate of value, less rigorous than an appraisal. Used by lenders for quick valuations on smaller or distressed assets.
Rent Roll: A document listing all current rental units, tenants, lease terms, and income on a property. The backbone of multifamily and commercial underwriting.
Vacancy Rate: The percentage of unoccupied rentable square feet or units. Stabilized assumptions typically use market vacancy plus a small frictional reserve.
Comps (Comparable Sales): Recent sales of similar nearby properties used to estimate market value. The appraiser's primary valuation tool for residential.
Highest and Best Use: The most profitable legal use of a property — the lens appraisers use to value land and development sites.
Easement: A non-ownership right to use part of someone else's property (utility, access, drainage). Disclosed on title and may limit future development.
Encroachment: When a structure (fence, driveway, building) crosses into a neighboring property without permission. Must be resolved before closing.
Setback: The minimum distance a structure must sit from property lines, set by zoning. Variances are sometimes available.
FAR (Floor Area Ratio): Building floor area divided by lot area — the zoning lever that controls building density on a parcel.
Plat Map: A surveyed map of a subdivided parcel showing lot boundaries, easements, and rights of way. The definitive record of how land is divided.
Riparian Rights: Ownership rights to water adjacent to or running through a property. Critical in waterfront and rural land deals.
Mineral Rights: The right to extract minerals beneath the surface. Often severed from surface rights, especially in oil, gas, and mining regions.
Mello-Roos / Special Assessment: Extra property tax levied to fund a specific public improvement (schools, roads) in a defined district.
MLS (Multiple Listing Service): The regional database brokers use to list and search properties. The largest single source of listing data in residential real estate.
Listing Agent: The real estate agent representing the seller in a transaction. Owes fiduciary duty to the seller, paid by commission.
Buyer's Agent: The real estate agent representing the buyer. Compensation traditionally paid by the seller but increasingly negotiated separately.
Dual Agency: When one agent represents both buyer and seller in the same transaction. Legal in some states with disclosure; banned in others.
Fiduciary Duty: The legal obligation an agent or trustee owes to act in their principal's best interest — loyalty, full disclosure, accounting.
Encumbrance: Any claim, lien, restriction, or liability that affects a property's title — mortgages, easements, deed restrictions, judgments.
Restrictive Covenant: A deed clause limiting how a property can be used or developed. Runs with the land and binds future owners.
Deed Restriction: A specific restrictive covenant written into a deed — for example, no commercial use, no fences over 6 feet, no subdivision.
HOA (Homeowners Association): A governing body of a residential community that enforces CC&Rs, manages common areas, and collects monthly dues.
CC&Rs: Covenants, Conditions & Restrictions — the master rulebook governing a planned community or condo association.
Lot Coverage: The percentage of a lot that can be covered by building footprint, set by zoning. Drives developable density.
Buildable Area: The portion of a lot where a structure may legally be built — total area minus setbacks, easements, and unbuildable zones.
Density Bonus: Additional buildable units a zoning code allows when the developer provides public benefits (affordable units, open space, etc.).
Inclusionary Zoning: A zoning rule requiring a percentage of new development units be priced affordable to low- or moderate-income households.
By-Right Development: Development that complies with all current zoning and may proceed without discretionary approval. The fastest path to a permit.

Property Types

35 terms

Single-Family Residential (SFR): A standalone home for one household. The largest and most liquid asset class in US real estate.
Multifamily: Properties with multiple residential units. Subdivides into 2-4 units (residential lending) and 5+ units (commercial lending).
Office: Commercial space leased for business operations. Subclasses: Class A (trophy), Class B (mid-tier), Class C (older, value-add).
Retail: Properties leased to consumer-facing tenants — strip centers, neighborhood shopping, lifestyle, regional malls, single-tenant net-lease.
Industrial: Warehouse, distribution, manufacturing, and flex space. The strongest-performing commercial sector of the past decade.
Mixed-Use: A property combining two or more uses — typically residential over retail. Increasingly favored by zoning codes in urban infill.
Self-Storage: Facilities renting individual storage units. Recession-resistant, low operating intensity, and historically high margins.
Hospitality: Hotels and short-term lodging. Highest operational intensity of any asset class — closer to operating a business than holding real estate.
Land: Undeveloped or partially-developed real property. Categories: raw land, entitled land, paper lots, finished lots.
Mobile Home Park (MHP): Land leased to mobile-home owners. Capital-light operations and sticky tenancy make this a long-time institutional favorite.
SFR (Single-Family Rental): A detached one-unit residential property held as a rental investment. The bedrock asset class for first-time investors and BRRRR.
Multifamily 2-4 Unit: Duplex, triplex, fourplex — eligible for conventional residential financing and ideal for house-hacking owner-occupants.
Class A / B / C / D: Property quality grades. A = newest, premium location; D = oldest, distressed neighborhood. Returns and risk scale inversely with class.
Mixed-Use: A building combining two or more uses — typically ground-floor retail with apartments above. Common in urban infill development.
STR (Short-Term Rental): Furnished residential property rented nightly or weekly via Airbnb, Vrbo, etc. Higher gross income, higher operating intensity, regulatory risk.
Build-to-Rent (BTR): Single-family rental communities purpose-built as rentals rather than for-sale. A fast-growing institutional asset class.
Self-Storage: Income-producing storage facility leased to consumers and businesses. Low operating intensity, recession-resilient cash flow.
Manufactured Housing Community: A community of manufactured (mobile) homes on leased lots. Stable, low-capex cash flow but heavy regulatory scrutiny.
Triple-Net (NNN) Property: A commercial property where the tenant pays all taxes, insurance, and maintenance. The most passive form of real estate ownership.
Owner-Occupied: A property where the borrower personally lives. Qualifies for the best mortgage terms but excludes pure investment loan products.
Garden Apartment: Low-rise multifamily (typically 2-3 stories) on landscaped grounds, often suburban. Lower density than mid-rise, lower cost basis.
Mid-Rise Apartment: Multifamily building of roughly 4-7 stories. Wood-frame construction common in this height band.
High-Rise Apartment: Multifamily building 8+ stories. Concrete or steel construction, higher cost basis, premium urban locations.
Townhome: Multi-story attached residence sharing walls with neighbors. Each unit usually has its own ground entrance and small yard.
Condominium: Individually owned units within a multi-unit building, with shared common areas governed by an HOA.
Cooperative (Co-op): A corporation that owns the building; residents own shares granting the right to occupy a specific unit. Common in NYC.
Senior Housing: Multifamily designed for 55+ residents — independent living, assisted living, memory care, or continuing care campuses.
Student Housing: Multifamily marketed to college students, typically leased by the bed rather than the unit. Seasonal turnover risk.
Medical Office Building (MOB): Commercial office leased to medical practices. Long leases, low tenant turnover, recession-resilient.
Big-Box Retail: Large single-tenant retail (>50,000 SF) — Target, Costco, Home Depot. Long-term leases, regional draw.
Strip Center: An unanchored or grocery-anchored retail center, typically 10,000-100,000 SF, leased to small national and local tenants.
Power Center: A retail center anchored by three or more big-box stores, typically 250,000+ SF total.
Lifestyle Center: An open-air retail center mimicking a downtown experience — restaurants, boutiques, entertainment, often with residential above.
Flex Industrial: Industrial buildings with mixed office and warehouse use, divisible into smaller bays. Popular with small-business tenants.
Cold Storage: Refrigerated and freezer warehouse space. Higher build costs, higher rents, growing demand from food and pharma.

Closing & Transactions

38 terms

Closing: The final step of a real estate transaction where title transfers, funds are disbursed, and documents are recorded.
Earnest Money Deposit (EMD): A good-faith deposit a buyer puts down with their offer to demonstrate seriousness. Typically 1-3% of the purchase price.
Escrow: A neutral third-party account that holds funds or documents until all conditions of a transaction are satisfied.
Title Insurance: Insurance protecting the owner or lender against defects in title. Issued at closing, premium paid once for the life of the policy.
Settlement Statement: The itemized accounting of all funds in a closing — purchase price, prorations, fees, lender disbursements. Federally standardized as the Closing Disclosure (CD) for residential.
Due Diligence Period: The contractual window during which a buyer can inspect the property and exit the contract for any reason — typically 10-30 days.
Contingency: A condition in a contract that, if not satisfied, allows a party to terminate. Common ones: financing, inspection, appraisal, title.
1031 Exchange: A tax-deferred swap of one investment property for another under IRC Section 1031. Strict identification (45 days) and closing (180 days) windows apply.
Double Close: Two back-to-back closings on the same property, usually funded by transactional capital, allowing an investor to flip a contract to an end buyer same-day.
Assignment: Transferring contractual rights to purchase a property to a new buyer for a fee. The wholesaler's bread and butter.
Wholesale (Real Estate): Contracting a property at a discount and assigning the contract to an end buyer for a fee, without taking title. Typically requires a real estate license depending on state.
Recording: The act of filing a deed, mortgage, or lien with the county recorder, putting the world on notice of the interest.
Prorations: The split of recurring costs (taxes, HOA, rent) between buyer and seller at closing based on the closing date.
Earnest Money Deposit (EMD): Buyer's good-faith deposit held in escrow when an offer is accepted. Typically 1-3% of purchase price; forfeited if buyer defaults.
Closing Disclosure (CD): The final regulated form summarizing all loan terms and closing costs, delivered to the borrower at least 3 business days before closing.
Settlement Statement / ALTA Statement: The itemized accounting of every dollar in a real estate closing. Required by federal law and reviewed by both sides.
Wire Fraud Warning: A protocol confirming wire instructions over the phone before sending closing funds. Real estate wire fraud is one of the largest financial scams.
Due Diligence Period: A negotiated window after contract during which the buyer inspects the property and can back out without losing earnest money.
Contingency: A condition that must be met for a contract to remain binding — financing, inspection, appraisal, sale of buyer's home.
Appraisal: A licensed third-party valuation of a property. Required on most lender-financed transactions to confirm the loan is properly collateralized.
BPO (Broker Price Opinion): A lighter-weight valuation by a real estate broker, often used by lenders for default servicing rather than originations.
Quitclaim Deed: A deed transferring whatever ownership interest the grantor has, with no warranties. Used to transfer property between known parties (LLCs, family).
Warranty Deed: A deed in which the seller warrants clear title against any prior claims. Standard for arm's-length sales.
Escrow Account: A neutral account holding funds or documents until closing conditions are met. Managed by an escrow officer or attorney.
Escrow Officer: The neutral third party who manages the closing — holds funds, collects signatures, records the deed, disburses proceeds.
Notary: A state-licensed official who witnesses signatures on closing documents. Required on deeds, mortgages, and many other instruments.
Recording: Filing a deed or mortgage with the county recorder, making it part of the public record and establishing priority.
Grantor: The party transferring ownership in a deed — typically the seller.
Grantee: The party receiving ownership in a deed — typically the buyer.
Chain of Title: The documented history of property ownership transfers. A break or gap can render title unmarketable.
Bill of Sale: A document transferring ownership of personal property (appliances, furniture) included in a real estate sale.
Estoppel Certificate: A tenant-signed statement confirming key lease terms — rent, term, deposits, defaults. Required when buying leased property.
SNDA Agreement: Subordination, Non-Disturbance & Attornment — a tri-party agreement letting a tenant stay in possession even if the lender forecloses.
ALTA Survey: A boundary and improvement survey to ALTA/NSPS national standards, required for most commercial closings.
Phase I Environmental: A non-intrusive environmental site assessment reviewing records and visual conditions. Required by most commercial lenders.
Phase II Environmental: Soil and groundwater sampling done when a Phase I identifies recognized environmental concerns. Expensive and slow.
Property Condition Assessment (PCA): A capital-needs report on building systems (HVAC, roof, plumbing) with replacement timelines and cost estimates.
Zoning Letter: A municipal letter confirming a property's zoning designation and permitted uses. Often required at closing.

Investment Strategies

27 terms

BRRRR: Buy, Rehab, Rent, Refinance, Repeat. The dominant single-family rental strategy of the past decade — uses cash-out refis to recycle capital.
Buy and Hold: Long-term ownership of a property for cash flow and appreciation. The classic landlord strategy.
Fix and Flip: Buying a distressed property, renovating, and reselling at a profit within months. Capital-intensive, time-sensitive, margin-driven.
Value-Add: Acquiring an underperforming asset and forcing appreciation through renovations, lease-up, expense reduction, or repositioning.
Core / Core-Plus: Stabilized, low-leverage real estate strategies with modest returns. The institutional pension-fund favorite.
Opportunistic: High-risk, high-reward strategies — ground-up development, distressed assets, repositioning. Targets 18%+ IRRs.
Ground-Up Development: Building a new structure from raw land. Highest risk-adjusted return potential and the longest cash-deployment timeline.
Adaptive Reuse: Converting a property from one use to another — office to residential, warehouse to lofts, church to event venue.
House Hacking: Buying a multi-unit property, living in one unit, and renting the others. Lets owner-occupants access better residential financing on rental real estate.
Subject-To: Acquiring a property by taking over the seller's existing mortgage payments without formally assuming the loan. Legal but specialized.
Wholesaling: Putting a property under contract at a discounted price and assigning the contract to an end-buyer for a fee. Capital-light, networking-heavy.
Double Close: Two simultaneous closings — A→B and B→C — in which a wholesaler briefly owns the property between transactions. Often funded by transactional lending.
Live-In Flip: Buying a fixer, living in it 2+ years while renovating, then selling tax-free under the IRS Section 121 exclusion (up to $250K/$500K gain).
Turnkey Rental: A fully renovated and tenanted rental property sold to investors ready to collect cash flow on day one — typically at a premium price.
Tax Lien / Tax Deed Investing: Buying delinquent property tax obligations from municipalities. Returns range from steady single-digit interest to occasional property acquisition.
Note Investing: Buying performing or non-performing mortgages from banks at a discount and collecting payments — or workouts — directly from borrowers.
Syndication: Pooling LP capital under a sponsor (GP) to acquire a deal too large for any one investor. Structured as a Reg D 506(b) or 506(c) offering.
Buy and Hold: A long-term strategy of acquiring rental properties for cash flow and appreciation, typically held 10+ years.
Master Lease: Leasing an entire property from the owner and subleasing to end-users for the spread. Low capital, high operating intensity.
Lease Option: A tenant's contractual right to purchase a property at a pre-set price within a defined window. Combines renting with a future purchase right.
Sandwich Lease Option: Acquiring a lease option on a property and subleasing it under another lease option, profiting on both spread and option premium.
Bird Dog: An investor who finds deals and refers them to other investors for a fee, without taking ownership risk.
Probate Investing: Sourcing deals from estates going through probate — often motivated, off-market, and below retail.
Co-Wholesaling: Two wholesalers splitting a deal — one brings the contract, the other brings the buyer, fee is shared.
Driving for Dollars: Physically driving target neighborhoods to find distressed properties with absentee owners, then mailing acquisition offers.
Hedge Fund Buy-Box: The narrow set of property characteristics institutional buyers will purchase. Investors who match it can sell quickly at premium.
Self-Directed IRA (SDIRA): An IRA that allows investing in alternative assets including real estate. Tax-advantaged but with strict prohibited-transaction rules.

Finance & Returns

29 terms

NPV (Net Present Value): The sum of all future cash flows discounted to present value, minus the initial investment. Positive NPV = value-creating.
Discount Rate: The rate used to convert future cash flows to present value. Real estate sponsors typically use 8-15% depending on risk.
Yield on Cost: Stabilized NOI divided by total project cost. The development version of cap rate; the spread to market cap rate is the developer's margin.
Spread (in Real Estate): The difference between two yields — typically yield on cost vs. exit cap rate, or going-in cap rate vs. interest rate.
Leverage: Using borrowed capital to amplify returns on equity. Magnifies both gains and losses.
Positive / Negative Leverage: Positive leverage: cap rate exceeds debt cost (debt boosts returns). Negative: debt cost exceeds cap rate (debt drags returns).
Hedging: Reducing risk by taking offsetting positions, typically using interest-rate caps, swaps, or forward contracts on floating-rate debt.
Rate Cap: An option-like instrument capping a floating rate at a strike price. Required by most lenders on floating-rate loans.
SOFR: Secured Overnight Financing Rate — the post-LIBOR benchmark for floating-rate loans. Most commercial bridge debt is priced at SOFR + spread.
Yield Maintenance: A prepayment penalty calculated to keep the lender whole on expected interest income. Common on fixed-rate commercial debt.
Defeasance: Replacing real estate collateral with a portfolio of US Treasuries that replicate the loan's cash flows. The CMBS-era prepayment workaround.
Securitization: Pooling many loans and selling tranches to investors as bonds. The basis of CMBS, RMBS, and most institutional mortgage finance.
CMBS: Commercial Mortgage-Backed Securities — bonds backed by pools of commercial mortgages. The largest source of fixed-rate non-recourse commercial debt.
Seasoning: The amount of time a property or loan has been held, often required by lenders before refinance eligibility.
Reserves: Cash held by the lender or sponsor for future expenses — replacement reserves for capex, interest reserves for debt service, lease-up reserves for rent abatement.
Cash Flow: Net rental income after operating expenses AND debt service. The dollar amount in the owner's pocket each month.
GOI (Gross Operating Income): Potential gross income minus vacancy and credit losses, before operating expenses. The starting line of any pro forma.
Refinance Cash-Out: Pulling equity out of a property with a new larger loan. Tax-free liquidity and the engine of the BRRRR strategy.
Compounding Returns: Earning returns on prior returns. The reason real estate held long-term outperforms most asset classes despite lower headline yields.
WACC (Weighted Avg Cost of Capital): The blended cost of all capital in a deal — debt plus equity, weighted by share — used as the discount rate for value creation.
Cost of Equity: The return investors demand on equity capital. Typically 12-20% for value-add real estate, higher for opportunistic.
Cost of Debt: The all-in interest rate (plus fees) paid on borrowed capital. Cheaper than equity, the source of leverage.
Risk-Free Rate: The yield on short-term US Treasuries — the theoretical return on a zero-default-risk investment. The base of all return analysis.
Risk Premium: The expected return above the risk-free rate that compensates investors for accepting risk.
Yield Curve: The plot of Treasury yields across maturities. Its shape signals expected economic conditions and shapes mortgage pricing.
Forward Curve: Market-implied future interest rates derived from current swap and futures prices. Used to underwrite floating-rate cost.
Hurdle Rate: The minimum return a sponsor must deliver to LPs before earning a promote. Often equal to the preferred return.
Refinance Risk: The risk that a property won't qualify for or won't be able to afford permanent debt when its bridge loan matures.
Interest Rate Risk: The risk that changes in market rates erode property value (via higher cap rates) or refi pricing.

Legal & Title

25 terms

Title Insurance: A one-time-premium policy protecting the buyer and lender against undiscovered title defects, liens, or ownership disputes.
Title Commitment: A title company's preliminary report listing all liens and exceptions affecting title, used to clear issues before closing.
Lien Position: The order in which liens are paid if a property is foreclosed and sold. First position = senior mortgage; second = HELOC, mezz, etc.
Mechanic's Lien: A statutory lien filed by contractors or suppliers who have not been paid for work or materials on a property.
Foreclosure: The legal process by which a lender takes back collateral when a borrower defaults. Judicial vs. non-judicial depending on state.
Deed in Lieu of Foreclosure: A voluntary deed-back to the lender that avoids the cost and credit damage of formal foreclosure proceedings.
Right of Redemption: A statutory period after foreclosure during which the former owner can reclaim the property by paying the full debt plus costs.
Power of Attorney (POA): A legal authorization for one party to sign on another's behalf — commonly used by remote investors at closing.
Land Trust: A revocable trust holding title to a property anonymously, often used by investors for privacy and probate avoidance.
Series LLC: An LLC with multiple internal 'series,' each holding separate assets with separate liability shields. Permitted in select states.
Affidavit of Title: A sworn statement by the seller affirming there are no undisclosed claims, judgments, or possessions affecting title.
Cloud on Title: Any unresolved claim or encumbrance that prevents title from being marketable. Must be cleared before closing.
Marketable Title: Title free of significant defects, liens, or claims — title a reasonable buyer would accept without contest.
Adverse Possession: Acquiring legal title to property by openly occupying it without the owner's permission for a statutory period (5-20 years).
Eminent Domain: The government's power to take private property for public use upon paying just compensation. The constitutional basis for condemnation.
Condemnation: The legal process by which a government exercises eminent domain — formally taking property and determining compensation.
Inverse Condemnation: A property owner's lawsuit forcing the government to pay for de-facto takings caused by regulation or nuisance.
Acceleration Clause: A loan clause letting the lender demand the entire balance due on default, sale, or other triggering events.
Due-on-Sale Clause: An acceleration clause triggered by sale of the property — preventing buyers from assuming the seller's mortgage.
Subordination Agreement: A contract reordering lien priorities — typically pushing one lender behind another with the consent of both.
Lis Pendens: A recorded notice that litigation affecting title is pending. Effectively freezes the property's marketability until resolved.
Notice of Default (NOD): The first formal step in a non-judicial foreclosure, recorded in the county records and mailed to the borrower.
Notice of Sale: The formal notice setting a foreclosure auction date, typically published in newspapers and posted at the property.
Quiet Title Action: A lawsuit to resolve disputed claims and establish clear ownership. Common after tax-deed purchases and old liens.
Power of Sale Clause: A mortgage clause allowing non-judicial foreclosure — the lender can sell the property at auction without court oversight.

Tax & 1031

21 terms

1031 Exchange: A tax-deferred swap of one investment property for another of equal or greater value. Defers all capital gains and depreciation recapture.
Qualified Intermediary (QI): A neutral third party who holds the proceeds of a 1031 sale to keep the transaction tax-deferred. The investor cannot touch the funds.
Identification Period (45 Days): The 45-day window after a 1031 sale during which the investor must identify replacement properties in writing.
Exchange Period (180 Days): The 180-day window after a 1031 sale during which closing on the replacement property must occur.
Boot: Any non-like-kind consideration received in a 1031 exchange (cash, debt relief). Boot is taxable to the extent of the gain.
Depreciation: The annual tax deduction recovering a property's basis over its useful life — 27.5 years residential, 39 years commercial.
Bonus Depreciation: An accelerated deduction allowing immediate expensing of qualified shorter-life property components identified by a cost segregation study.
Cost Segregation: An engineering-based study reclassifying property components into shorter MACRS lives (5, 7, 15 yr) to front-load depreciation deductions.
Section 121 Exclusion: IRS rule excluding up to $250K ($500K married) of capital gain from the sale of a primary residence held and lived in 2 of the last 5 years.
Opportunity Zone: A federally designated low-income census tract where capital gains reinvested into qualifying funds receive deferral and step-up benefits.
Passive Activity Loss Rules: IRS limits on deducting rental losses against non-rental income. Real estate professional status (REPS) breaks the limits.
Long-Term Capital Gains Tax: Tax on profits from selling assets held over 1 year. Top federal rate 20% (plus 3.8% NIIT) — much lower than ordinary income.
Short-Term Capital Gains Tax: Tax on profits from assets held under 1 year, taxed at ordinary income rates up to 37% federal.
Depreciation Recapture: Tax owed on the accumulated depreciation when a property is sold. Up to 25% federal rate on Section 1250 property.
Step-Up in Basis: When heirs inherit property, the cost basis 'steps up' to fair-market value at death, wiping out unrealized capital gains.
Like-Kind Property: Any real property held for investment or business use. Almost any US real estate qualifies as like-kind for 1031 purposes.
Reverse 1031 Exchange: A 1031 structure where the replacement property is bought before the relinquished property is sold — requires a parking entity.
Improvement Exchange: A 1031 variant where exchange funds pay for improvements to the replacement property within the 180-day window.
Delaware Statutory Trust (DST): A fractional-ownership vehicle qualifying for 1031 exchange. Lets exchangers diversify into institutional-quality assets passively.
Tenancy in Common (TIC) 1031: Direct fractional ownership of real estate where each owner holds an undivided interest. Used for 1031 exchanges into larger deals.
Real Estate Professional Status (REPS): IRS designation allowing real estate losses to offset ordinary income. Requires 750+ hours and >50% of work time in real estate.

Construction & Development

24 terms

Hard Costs: Physical construction costs — labor, materials, sitework. Typically 70-85% of a total project budget.
Soft Costs: Non-construction project costs — architecture, engineering, permits, financing fees, marketing, insurance during construction.
Contingency (Construction): A reserved budget line item (typically 5-10% of hard costs) for unforeseen cost overruns. Lenders require it on every project.
GMP (Guaranteed Maximum Price): A construction contract structure where the GC commits to a not-to-exceed price and absorbs overruns above it.
Cost-Plus Contract: A construction contract paying actual costs plus a fee — flexible but exposes the owner to overrun risk unless capped.
Punch List: The final list of incomplete or defective items a contractor must finish before final payment and project close-out.
Certificate of Occupancy (CO): Municipal sign-off that a building is safe and code-compliant for occupancy. Required before tenants can move in.
Lien Waiver: A signed document from a contractor releasing lien rights for work already paid for — collected at every draw to keep title clean.
Substantial Completion: The point at which a project is sufficiently complete to be used for its intended purpose, even if punch-list items remain.
Stabilization: When a newly built or repositioned property reaches the lease-up occupancy and rents projected in the pro forma.
Lease-Up Period: The window after construction during which a property fills to stabilized occupancy. Lenders size interest reserves to cover it.
Mini-Perm Loan: Short-term debt (2-5 years) that bridges between construction and permanent financing, typically while the property reaches stabilization.
Pre-Development: The earliest stage of a project — land acquisition, due diligence, design, entitlement, financing. Highest risk, lowest spend.
Site Plan Approval: Municipal sign-off on the proposed building layout, parking, drainage, landscaping. A common entitlement milestone.
Entitlements: All government approvals required to build a project — zoning, site plan, environmental, building permits.
Variance: Municipal approval to deviate from a specific zoning rule (setback, height, density). Requires a hardship showing.
Conditional Use Permit: Permission to use property in a way not otherwise allowed by zoning, subject to specific conditions imposed by the municipality.
Special Use Permit: Similar to a CUP — a discretionary approval for uses that require case-by-case review (drive-thrus, gas stations, group homes).
Spec Construction: Building without a pre-committed buyer or tenant. Higher risk; banks finance only experienced builders for spec.
Build-to-Suit: Construction designed and built for a specific end-user under a pre-signed long-term lease. Lower risk than spec.
Shell + TI: A building delivered as a structural shell, with the tenant funding interior buildout — common in flex industrial and small office.
Vanilla Box: A retail or office space delivered with basic finishes (walls, flooring, HVAC) ready for tenant-specific buildout.
Warm Shell: A building delivered with HVAC and utilities stubbed in but no interior finishes. Pricier than cold shell, faster to occupy.
Cold Shell: A building delivered with structure, exterior, and roof only — no HVAC, no interior walls, no finishes.

Leasing & Operations

20 terms

Lease Term Sheet (LOI): A non-binding summary of proposed lease terms — rent, term, options, TI, free rent — used to negotiate the lease before legal drafting.
TI (Tenant Improvement): Landlord-funded buildout for an incoming tenant, typically expressed as $/SF. A major driver of net effective rent.
Concessions: Free rent, reduced rent, or move-in allowances given to attract tenants — common in soft markets and on new lease-ups.
Renewal Option: A pre-negotiated tenant right to extend a lease at agreed rent terms. Increases retention and reduces re-leasing risk.
Right of First Refusal (ROFR): A clause giving a party the chance to match any third-party offer to lease or buy. Common in commercial leases and JVs.
CAM (Common Area Maintenance): Tenant reimbursements covering shared expenses — landscaping, parking lot, common-area utilities — in commercial leases.
Gross Lease: A lease in which the tenant pays one flat rent and the landlord absorbs operating expenses. Common in residential and small office.
Modified Gross Lease: A hybrid lease where the tenant pays base rent plus a share of certain expense increases above a base year.
Property Management Fee: Compensation paid to a third-party manager — typically 4-8% of collected rents on multifamily, 2-5% on commercial.
Trailing Vacancy: The vacancy a property is experiencing right now — separate from underwriting assumptions or historical averages.
Face Rent: The headline rent quoted in a lease, before concessions like free months or TI. Misleading without context.
Tenant Estoppel: A signed statement by an existing tenant confirming lease terms — required during sale or refinance closings.
Sublease: A tenant renting out all or part of their leased space to a third party. Usually requires landlord consent.
Assignment of Lease: A tenant transferring their entire lease to another party. Different from sublease — the original tenant typically remains liable.
Holdover Tenant: A tenant who remains in possession past the lease term. May be charged holdover rent (often 150%+) or evicted.
Eviction: The legal process by which a landlord removes a tenant for nonpayment, lease violation, or holdover. Court-driven; state-specific timelines.
Loss-to-Lease: The gap between in-place rents and current market rents. A key metric showing how much upside exists in a rent roll.
Mark-to-Market Rent: Bringing in-place rents to current market levels through renewals or turnover. The core driver of value-add returns.
Lease Concessions: Free rent, reduced rent, or move-in credits offered to attract tenants. Reduces net effective rent below face rent.
Renewal Probability: The estimated likelihood a tenant will renew at lease expiration. Drives underwriting assumptions on TI and downtime.

Insurance & Risk

15 terms

Homeowners Insurance (HO-3): Standard insurance policy for owner-occupied single-family homes, covering dwelling, contents, and liability.
Landlord Policy (DP-3): Insurance for non-owner-occupied rental properties — covers the structure, lost rents, and liability. Required by most lenders.
Builder's Risk Insurance: Coverage for buildings under construction — protects against fire, theft, vandalism, and weather. Required on all construction loans.
General Liability Insurance: Coverage for third-party bodily injury and property damage claims arising from owning or operating a property.
Umbrella Policy: Excess liability coverage that kicks in after primary policies hit their limits. Cheap protection for investors with multiple properties.
Loss of Rents Coverage: Insurance that replaces rental income while a damaged property is being repaired. Standard add-on for rental policies.
Lender's Title Policy: Title insurance protecting the lender's interest up to the loan amount. Required at every mortgage closing.
Owner's Title Policy: Title insurance protecting the buyer's equity. Optional but strongly recommended; pays the difference if title defects surface.
Flood Insurance (NFIP): Coverage through the National Flood Insurance Program, required by lenders in FEMA-designated flood zones.
Earthquake Insurance: Separate policy covering earthquake damage — standard policies exclude it. Common in California and other seismic zones.
Wind / Hurricane Deductible: A separate, percentage-based deductible (2-5% of dwelling value) that applies specifically to named-storm losses in coastal areas.
Replacement Cost Coverage: Insurance settlement based on the cost to rebuild new — no depreciation deduction. The recommended valuation method.
Actual Cash Value (ACV) Coverage: Insurance settlement based on depreciated value of damaged property. Cheaper premiums but lower payouts at claim.
Co-Insurance Penalty: Reduction in claim payout when a property is insured below the policy's required percentage (typically 80%) of replacement cost.
Force-Placed Insurance: Insurance a lender buys on a borrower's behalf — and bills the borrower for — when required coverage lapses. Expensive and minimum-coverage.

Appraisal & Valuation

12 terms

Sales Comparison Approach: Valuation method based on recent sales of similar properties, adjusted for differences. The primary approach for residential.
Income Capitalization Approach: Valuation method dividing stabilized NOI by a market cap rate. The primary approach for income-producing commercial property.
Cost Approach: Valuation method estimating the cost to rebuild plus land value, minus depreciation. Best for new or unique properties.
Direct Capitalization: Calculating value by dividing single-year NOI by a market cap rate. Simple, widely used for stabilized commercial property.
Discounted Cash Flow (DCF): Valuation projecting 10+ years of cash flows, discounting to present value. Used for non-stabilized or complex deals.
Effective Age: An appraiser's estimate of a property's age given its condition, often differing from chronological age.
Functional Obsolescence: Loss of value from outdated design or features — small closets, awkward layouts, no en-suite bathrooms.
External Obsolescence: Loss of value from factors outside the property — adjacent freeway, declining neighborhood, new airport flight path.
Comparable Adjustments: Dollar adjustments an appraiser makes to comp sale prices to account for differences (size, condition, location).
Appraisal Contingency: A buyer's contract right to back out if the appraisal comes in below contract price. Standard in conventional residential deals.
Appraisal Gap: The shortfall when a property appraises below contract price — buyer must bring extra cash or renegotiate.
AVM (Automated Valuation Model): A computer-generated estimate of a property's value based on sales data, public records, and statistical models. Faster but less accurate than human appraisal.

Foreclosure & Distressed

15 terms

NPL (Non-Performing Loan): A loan where the borrower has stopped making scheduled payments. Often sold at a discount to specialized buyers.
REO (Real Estate Owned): Property a lender has taken back through foreclosure and now holds for resale. Often sold below market to clear inventory.
Short Sale: A sale where the lender accepts less than the outstanding loan balance to avoid foreclosure. Requires lender approval, slow process.
Loan Modification: Permanent changes to loan terms (rate, term, principal) to help a struggling borrower avoid foreclosure.
Forbearance: A lender's temporary agreement to pause or reduce payments while the borrower recovers — does not forgive principal.
Deficiency Judgment: A court judgment for the shortfall when foreclosure sale proceeds don't cover the loan balance. Available in some states but not others.
Trustee's Sale: A non-judicial foreclosure auction conducted by a trustee, typical in states using deeds of trust rather than mortgages.
Sheriff's Sale: A judicial foreclosure auction conducted by the county sheriff, used in states requiring court oversight.
Auction Sale (As-Is): Foreclosure sales conducted with no warranties, no inspection, often cash-only or with very short financing windows.
Workout: Negotiated resolution of a defaulted loan — modification, short sale, deed-in-lieu — typically avoiding formal foreclosure.
Receivership: Court appointment of an independent manager to operate a distressed property during foreclosure. Common on commercial assets.
Strict Foreclosure: A foreclosure procedure in a few states where the lender takes title directly without auction if the borrower fails to redeem.
Pre-Foreclosure: The period between a notice of default and a foreclosure sale. Many investor acquisition strategies target this window.
Distressed Asset: A property or loan trading well below par due to financial, physical, or operational problems. Investor target for upside.
Loss Mitigation: Lender's department or process for minimizing losses on defaulted loans — modifications, short sales, REO sales.

Property Management

10 terms

Tenant Screening: Process of verifying a prospective tenant's credit, income, employment, rental history, and background before approval.
Lease Renewal: Extending an existing lease for an additional term, often at a rent increase. The cheapest source of occupancy.
3-Day Notice: A statutory eviction notice giving a tenant 3 days to pay rent or vacate. The first step in most eviction processes.
Notice to Quit: A formal demand requiring a tenant vacate by a specific date, typically issued for lease violations beyond unpaid rent.
Security Deposit: Funds collected from a tenant at move-in to cover unpaid rent or damages at move-out. Capped by state law.
Pet Deposit: A separate refundable or non-refundable deposit covering potential pet damage. Some jurisdictions cap or prohibit it.
Maintenance Request: A tenant's reported issue requiring repair. Responsive handling drives renewal rates and online reputation.
Make-Ready: The process of preparing a unit for a new tenant after move-out — cleaning, painting, repairs, replacing fixtures.
Move-In Checklist: A documented condition report signed at move-in protecting both parties from later disputes about damage.
Yield Management: Dynamic rent pricing based on demand, vacancy, seasonality, and competition. Standard practice in modern multifamily operations.

Affordable Housing & Government

9 terms

LIHTC (Low Income Housing Tax Credit): Federal tax credits awarded competitively to finance affordable rental housing. The largest source of new affordable production.
HUD (Department of Housing and Urban Development): The federal agency overseeing housing programs — FHA insurance, Section 8 vouchers, public housing, fair housing enforcement.
Section 8 Voucher: Federal rental assistance paid directly to landlords on behalf of low-income tenants. Tenant-based, portable.
Project-Based Section 8: Federal rental subsidies tied to specific units in a property rather than to individual tenants. Often used in deal underwriting.
CRA (Community Reinvestment Act): Federal law requiring banks to lend in low-income communities. Drives some bank participation in affordable housing finance.
Workforce Housing: Housing affordable to households earning 60-120% of area median income — teachers, nurses, first responders.
Naturally Occurring Affordable Housing (NOAH): Older market-rate properties that are affordable without subsidy. A growing target for impact investors.
Area Median Income (AMI): HUD's annually published median income figure for a region, used to set affordable rent and income limits.
Rural Development Loan (USDA RD): USDA financing for properties in eligible rural areas — guaranteed and direct loan programs.

Payment Processing & Merchant Services

61 terms

Merchant Account: A bank account that lets a business accept credit and debit card payments. Required to process card transactions.
MID (Merchant ID): A unique number issued by the acquiring bank that identifies a merchant in the card processing network.
Acquiring Bank: The bank that holds the merchant account, deposits card sales into it, and assumes the merchant's transaction risk.
Issuing Bank: The bank that issues a credit or debit card to the cardholder and is responsible for paying the acquiring bank when a card is used.
Card Networks: Visa, Mastercard, American Express, Discover — the rails that route transactions between issuing and acquiring banks.
Interchange Fee: The fee paid by the merchant's bank to the cardholder's bank for each transaction. The largest single component of card processing cost.
Assessment Fee: A small per-transaction fee paid to the card network (Visa, Mastercard, etc.) on top of interchange. Set by the network, non-negotiable.
Processor Markup: The processor's profit margin layered on top of interchange and assessments. The only piece a merchant can negotiate.
Interchange-Plus Pricing: A transparent pricing model where the merchant pays actual interchange + a fixed processor markup. Generally the cheapest model.
Flat-Rate Pricing: One blended rate (e.g. 2.9% + $0.30) regardless of card type. Simpler but typically more expensive than interchange-plus.
Tiered Pricing: A pricing model bucketing cards into qualified / mid-qualified / non-qualified tiers. Opaque and often overpriced.
Dual Pricing: A compliant pricing display showing both a cash price and a card price at checkout, with the card price covering processing costs.
Surcharging: Adding an explicit fee to credit card transactions to recover processing costs. Capped by network rules, banned in some states.
Cash Discount Program: Posting card prices on the menu and offering a discount for cash. Functionally similar to dual pricing but legally distinct.
Chargeback: A forced reversal of a card transaction initiated by the issuing bank at the cardholder's request. Costs the merchant the sale plus a chargeback fee.
Chargeback Ratio: Chargebacks divided by total transactions. Visa and Mastercard cap this around 1%; exceeding it triggers fines and account review.
Representment: The merchant's process of disputing a chargeback with supporting evidence to recover the funds.
Friendly Fraud: A cardholder disputing a legitimate purchase they actually made — the single biggest source of merchant chargebacks.
Retrieval Request: An issuing bank's request for transaction documentation, often a precursor to a chargeback.
PCI Compliance: Adherence to the Payment Card Industry Data Security Standard — required of every merchant accepting cards. Non-compliance fees apply.
PCI DSS: Payment Card Industry Data Security Standard — the 12-domain ruleset governing how merchants handle, store, and transmit cardholder data.
Tokenization: Replacing card numbers with random tokens so the merchant never stores actual PAN data. Reduces PCI scope and breach exposure.
PAN (Primary Account Number): The 13-19 digit number printed on a card. PCI rules govern how this can be displayed, stored, and transmitted.
EMV: The chip-card global standard (Europay, Mastercard, Visa). Liability for fraud shifts to whichever party — issuer or merchant — failed to support EMV.
NFC Payment: Near-Field Communication tap-to-pay technology used by Apple Pay, Google Pay, and contactless cards.
Tap to Pay on iPhone: Apple's iPhone-as-terminal capability letting any iPhone accept contactless cards without a separate reader.
Card Present (CP): A transaction where the card is physically swiped, dipped, or tapped. Lower interchange rates due to lower fraud risk.
Card Not Present (CNP): An online or keyed-in transaction where the card is not physically present. Higher interchange and chargeback risk.
AVS (Address Verification Service): A fraud check matching the cardholder's billing address against the issuer's record. Used to reduce CNP fraud.
CVV / CVC: The 3 or 4 digit verification code on a card. Required for most CNP transactions; cannot be stored under PCI rules.
3D Secure (3DS): An authentication layer (Verified by Visa, Mastercard SecureCode) that shifts CNP fraud liability to the issuer when used.
Gateway: Software that connects an e-commerce site or terminal to the payment processor. Examples: Authorize.net, Stripe, NMI.
POS Terminal: Point-of-sale hardware that reads cards and submits transactions. Modern terminals are EMV + NFC + chip-and-PIN capable.
Virtual Terminal: Browser-based software that lets a merchant manually key in card transactions. Used for phone orders and back-office charges.
Batch: A group of card transactions submitted together at the end of the business day for funding. Most processors fund the next business day.
Settlement: The transfer of funds from the acquiring bank to the merchant's bank account after a batch is submitted.
ACH (Automated Clearing House): The US bank-to-bank network for batch electronic transfers. Used for direct deposit, bill pay, and merchant funding.
ACH Return: A failed ACH transaction returned by the receiving bank — insufficient funds, closed account, invalid routing number.
NSF (Non-Sufficient Funds): An ACH return code indicating the customer's account didn't have enough funds. Triggers a return fee and remediation flow.
Statement Fee: A monthly fee processors charge for issuing a statement, even on no-volume months. Easily negotiated out.
PCI Non-Compliance Fee: A monthly fee processors charge merchants who haven't completed their annual PCI self-assessment. $20-$40/month.
Early Termination Fee (ETF): A processor's contract penalty for canceling before the term ends. Often $200-$500; modern processors waive it.
Reserve Account: Funds held back by the acquirer to cover potential chargebacks. Common for new merchants in high-risk categories.
Rolling Reserve: A percentage of each settlement held for a defined period (e.g. 10% for 6 months) before release. Risk-based, refundable.
High-Risk Merchant: A merchant in an industry with elevated chargeback or regulatory risk — gambling, CBD, nutraceuticals. Requires specialized processing.
MATCH List: Mastercard's database of terminated merchants. Listing makes it very difficult to open a new merchant account for 5 years.
MCC (Merchant Category Code): A 4-digit code classifying a business's industry, set when the merchant account opens. Drives interchange rates and risk profile.
Auth (Authorization): A real-time check at the time of sale confirming the cardholder has available credit. Reserves funds but doesn't yet move money.
Capture: Converting an authorization into a settled transaction. Most card transactions auth and capture in one step; some industries split them.
Void: Canceling a transaction before settlement. Cleaner than a refund — neither party sees a settled charge.
Refund: A merchant-initiated reversal of a settled transaction. The merchant pays processing on both the original sale and the refund.
Card Brand Fees: Network-set fees beyond interchange — assessments, NABU, APF, kilobyte fees, cross-border. Small individually, meaningful in aggregate.
Recurring Billing: Automated repeat charges to a stored payment method on a fixed schedule. The engine of subscription businesses.
Account Updater: A Visa/Mastercard service that pushes new card numbers and expirations to merchants when a stored card is reissued. Reduces involuntary churn.
Dunning: The sequence of retries and notifications when a recurring payment fails — designed to recover the customer without canceling them.
Pre-Auth Hold: An authorization held longer than a normal transaction — common for hotels, gas pumps, car rentals — to cover potential final amount.
Convenience Fee: A flat fee charged for an alternative payment channel (online, phone) regardless of payment type. Distinct from a surcharge.
Reg E (Regulation E): The US federal rule protecting consumers in electronic fund transfers. Sets chargeback rights and merchant obligations for debit cards.
PIN Debit: A debit transaction routed through PIN networks (STAR, NYCE) instead of the card brand rails. Lower interchange but requires a PIN pad.
Signature Debit: A debit card processed like a credit card — runs over Visa/Mastercard rails. Higher interchange than PIN debit but no PIN required.
BIN (Bank Identification Number): The first 6-8 digits of a card identifying the issuing bank, card type, and country. Used for routing and risk decisions.

Business Lines of Credit

50 terms

Revolving Line of Credit: A credit facility that replenishes as the borrower repays. Funds can be drawn, repaid, and re-drawn up to the approved limit.
Credit Limit: The maximum outstanding balance a borrower may carry on a line of credit. Set at origination, can be increased with payment history.
Draw: Pulling cash out of a line of credit, up to the available limit. Each draw starts accruing interest immediately.
Draw Fee: A flat or percentage fee charged each time the borrower draws funds. Distinct from interest; varies 1-3% per draw.
Available Credit: The unused portion of a credit limit. Available credit = limit − outstanding balance.
Draw Period: The window during which a borrower can pull from a line of credit. Typically 6-24 months, then converts to repayment.
Repayment Period: The phase after the draw period when the borrower pays down the outstanding balance and no longer draws.
Maturity Date: The contractual deadline by which the full balance on a line of credit must be repaid.
Soft Credit Pull: A credit inquiry that doesn't affect the borrower's credit score. Standard for BLOC pre-qualifications.
Hard Credit Pull: A formal credit inquiry that affects the borrower's score by a few points. Required at final BLOC underwriting on most products.
Personal Guarantee: The owner's personal commitment to repay if the business defaults. Standard on virtually all small-business credit lines.
Limited Personal Guarantee: A personal guarantee capped at a fixed dollar amount or percentage. Common in larger BLOCs with multiple owners.
Blanket Lien: A UCC-1 filing securing the lender against substantially all of a business's assets. Standard collateral on BLOCs.
Specific Lien: A UCC-1 filing securing the lender against named assets only (e.g. equipment, AR). Less restrictive than a blanket lien.
UCC-1 Financing Statement: The document filed with the state to perfect a lender's lien against a business's assets. Searchable public record.
Lien Subordination: An agreement where one lender allows another to take a higher-priority lien on the same collateral. Often required for stacked credit.
Stacking: Taking out multiple business loans or credit lines from different lenders against the same business. Often violates loan covenants.
Loan Covenant: A condition in the loan agreement the borrower must maintain — minimum revenue, no additional debt, financial reporting. Breach triggers default.
Affirmative Covenant: A loan rule requiring the borrower to DO something — file financials quarterly, maintain insurance, pay taxes on time.
Negative Covenant: A loan rule restricting what the borrower CANNOT do — no new debt, no asset sales, no major distributions.
Borrowing Base: A formula tying a BLOC's available credit to the value of qualifying collateral (AR, inventory). Common on asset-based lines.
Advance Rate: The percentage of qualifying collateral value a lender will lend against. Typical: 80% on AR, 50% on inventory.
Aging Report: A breakdown of accounts receivable by how long they've been outstanding. Lenders exclude AR over 90 days from the borrowing base.
Eligibility Test: A periodic check confirming the borrowing base still supports the outstanding balance. Triggers paydown if collateral falls short.
Lockbox: A bank-controlled account where the borrower's customers send payments. The bank sweeps funds against the BLOC balance daily.
Cash Dominion: The lender's right to control the borrower's cash collections directly via lockbox. Standard on distressed or asset-based deals.
Loan-to-Value (BLOC): The outstanding balance divided by the borrowing-base value of pledged collateral. Lenders enforce a ceiling, typically 80%.
Cleanup Period: An annual requirement that the BLOC be paid down to zero for 30-60 consecutive days. Proves the line is not a long-term loan.
Origination Fee (BLOC): A one-time fee at loan opening, typically 1-3% of the limit. Sometimes waived for strong borrowers.
Annual Renewal Fee: A fee charged each year to keep the credit line open, regardless of usage. Typical 0.5-1.5% of the limit.
Unused Line Fee: A small fee (0.25-0.50% annually) on the undrawn portion of a credit line. Compensates the lender for reserving the capital.
Floating Rate (BLOC): An interest rate tied to a benchmark (SOFR, Prime) plus a margin. Adjusts as the benchmark moves; most BLOCs are floating.
Prime Rate: The base rate banks charge their best commercial customers. Set by each bank, typically tracks the Fed Funds Rate + 300 bps.
Margin (Spread): The fixed spread added to a benchmark rate to determine the all-in interest rate. Pricing reflects the borrower's risk grade.
Floor Rate: A contractual minimum interest rate on a floating BLOC. Protects the lender if the benchmark drops to near-zero.
Ceiling Rate: A contractual maximum interest rate on a floating BLOC. Rare on small-business credit but standard on some institutional facilities.
Weekly Repayment Schedule: Automated weekly debit against the bank account to repay drawn balances. Standard on online/private BLOCs.
Monthly Repayment Schedule: Traditional monthly repayment, generally reserved for stronger borrowers or larger institutional facilities.
Term Loan: A lump-sum loan with fixed amortization — the opposite of a revolving line. Often paired with a BLOC for capex needs.
Bridge BLOC: A short-term line of credit used while waiting for permanent financing or a planned receivable. Higher cost, faster funding.
SBA Express Line of Credit: An SBA 7(a) line up to $500k with expedited 36-hour SBA processing. Backed by the federal SBA guarantee.
CapLine: An SBA-backed working-capital line of credit program, designed for seasonal or contract-driven businesses.
Equipment-Backed Line: A line of credit secured by specific equipment. Higher advance rates than blanket-lien BLOCs on equipment-heavy businesses.
Inventory Financing Line: A revolving line secured by inventory. Common in retail and distribution; advance rates typically 40-60% of cost.
AR Financing Line: A revolving line secured by accounts receivable. Functions similarly to factoring but the borrower retains AR ownership.
Confidential Factoring: Factoring where the receivables transfer is not disclosed to the underlying customer. Premium pricing.
Notified Factoring: Factoring where customers are notified to pay the factor directly. Cheaper than confidential factoring.
Recourse Factoring: Factoring where the seller is liable if the customer doesn't pay. Cheaper than non-recourse but riskier to the seller.
Non-Recourse Factoring: Factoring where the factor absorbs the credit loss if the customer doesn't pay. Pricier; subject to factor's credit decisioning on each invoice.
Discount Rate (Factoring): The fee charged for factoring invoices, typically 1-5% of the face value depending on speed of customer payment.

Working Capital & Micro Funding

50 terms

Working Capital: Cash and short-term assets minus short-term liabilities. The money available to fund day-to-day operations.
Working Capital Advance: A lump-sum cash advance to a business, repaid through fixed daily or weekly ACH debits. Sized by monthly revenue.
MCA (Merchant Cash Advance): A lump-sum advance repaid as a percentage of daily card sales until the agreed total is paid. Not technically a loan.
Factor Rate: The total repayment multiplier on an MCA or short-term advance. A 1.3 factor on $10k means $13k total repayment.
Holdback Percentage: The daily percentage of card sales an MCA provider sweeps until the advance is paid back. Typical 8-15%.
ACH Advance: A working capital advance repaid via fixed ACH debits (daily/weekly) rather than card-sales splits. The dominant structure outside food service.
Daily Remit: Fixed daily ACH payment on a working capital advance. Sized so the advance repays in the contracted term.
Weekly Remit: Fixed weekly ACH payment, easier for borrowers to forecast cash flow than daily. Common on instant micro funding and BLOCs.
Advance Amount: The lump-sum capital delivered to the business at funding. Sized 1-2x monthly revenue on most working-capital products.
Total Repayment Amount: Advance amount × factor rate. The full dollar amount the borrower will pay back over the term.
Effective APR: The annualized cost of capital expressed as a percentage. Short-term advances often look cheap by factor rate but expensive by APR.
Term (Working Capital): The expected duration of an advance — typically 3-18 months. Shorter terms compress the same fee into a higher APR.
Reconciliation Clause: A contractual provision letting the borrower adjust MCA holdbacks downward when sales fall short. Borrower-friendly but rare.
Stacking Default: Default triggered by taking on additional MCAs without lender consent — a common cause of small-business cash collapse.
COJ (Confession of Judgment): A pre-signed legal agreement letting an MCA lender obtain a judgment without trial if the borrower defaults. Banned in NY since 2019.
Add-On Funding: Additional capital available to a borrower who has repaid 50%+ of their original advance. Standard renewal mechanic.
Renewal Funding: A fresh working-capital advance to a borrower whose prior advance is mostly paid down. The lifeblood of MCA business models.
Tip-In: A small early advance added on top of an existing balance, paid back at a slightly different rate. Common 30-60 days into a term.
Bridge Advance: A short-term advance issued to a borrower between two larger working-capital products. Sized 30-60 day burndown.
Gig Worker Funding: Micro advances sized off rideshare, delivery, or platform revenue. Underwritten via bank-statement and gig platform connections.
Bank Statement Underwriting: Using 3-12 months of business bank statements to assess deposits, cash flow, NSFs, and balance trends. The core of online lending.
Plaid Linking: API-based bank account verification widely used in instant business funding. Lets lenders pull statements in seconds.
Decision Logic: An automated underwriting engine combining bank data, credit, time-in-business, and industry into an instant approval or decline.
Time in Business (TIB): Months or years a business has been operating. The single strongest predictor of repayment on working capital.
Average Monthly Deposits (AMD): Average revenue deposits across the borrower's bank statements. Drives advance sizing on virtually all online lenders.
Average Daily Balance (ADB): Average end-of-day bank balance over a statement period. Low ADB signals stressed cash management.
Negative Days: Days a bank account ran negative during the statement period. Lenders typically cap at 3-5 negative days per month.
Same-Day Funding: Advances disbursed the same business day they're approved, before bank cutoff times. Standard on instant micro funding.
Next-Day Funding: Funds disbursed the business day after approval. Most working capital lenders default to this timing.
Approval Letter: The lender's formal offer document showing advance amount, factor, term, daily/weekly remit, and fees. Binding on the lender once countersigned.
Funding Authorization Form: The signed form authorizing the lender to ACH funds in and debit repayments out. The legal trigger for disbursement.
Voided Check: A blank check marked VOID used to verify a business's bank account routing and account number. Standard funding requirement.
Driver's License Verification: Identity verification of the owner-guarantor on a working-capital advance. Standard KYC requirement.
OFAC Check: Verification that the borrower isn't on the US Treasury's sanctions list. Required on every commercial advance.
Stacked Advance: An additional advance taken from a different lender while a prior advance is still outstanding. Usually a covenant violation.
Inter-Creditor Agreement (MCA): Rare formal agreement between two MCA lenders sharing the same borrower. Defines holdback splits and default rights.
Reverse Consolidation: Taking a single larger advance to pay off multiple stacked advances. Restructures cash flow but extends total debt.
Lockbox Sweep (MCA): An arrangement where the borrower's card processor automatically routes the holdback percentage to the MCA lender. Lower default risk.
Split Funding: Card-processor-based MCA repayment where the processor remits a percentage of each batch directly to the funder. Almost zero default risk.
Approval Multiplier: The ratio of advance amount to monthly revenue. Typical 1.0-1.5x; preferred profiles get 1.5-2.0x.
Term Reset: Recalculating the daily/weekly remit when an add-on or modification changes the total balance. Maintains the original payoff date.
Holdback Reset: Adjusting the MCA holdback percentage to compensate for materially changed daily card volume. Borrower-protective but rare.
Pre-Payment Discount: A reduced total payoff offered if the borrower pays off early. Aligns lender ROI with borrower savings on some Preferred products.
Funder: The capital source that actually disburses the advance — often hidden behind an ISO or broker layer in the funding ecosystem.
ISO (Independent Sales Organization): A marketing intermediary that submits deals to funders in exchange for commission. The retail layer of the MCA industry.
Funding Specialist: The human point of contact who walks a borrower through options, structure, and final acceptance on a funding platform.
Soft Decline: An automated decline that can be reversed with additional documentation or clarification. Distinct from a hard decline.
Hard Decline: An automated decline based on a disqualifying factor — bankruptcy, negative days exceeded, MATCH list. Not reversible.
Approval Tier: The grade assigned to a borrower (A/B/C/D) by an underwriting engine. Drives factor rate, term, and approval amount.
Deal Submission: The packaged application sent to one or more funders by a broker or platform — bank statements, application, voided check, ID.

Preferred & Tiered Funding

40 terms

Preferred Funding: Premium capital products reserved for stronger borrowers — lower rates, larger amounts, faster funding than standard tiers.
Prime Business Borrower: A business meeting the strictest underwriting tier — 2+ years operating, 680+ FICO, $15k+ monthly revenue, no recent NSFs.
Tier A Approval: The highest underwriting grade — eligible for the lowest rates, longest terms, and largest approval amounts.
Tier B Approval: Strong but not elite — slightly higher pricing or shorter term than Tier A. The majority of funded volume.
Tier C Approval: Borrowers with material credit or operational concerns — higher factor rates, shorter terms, stricter covenants.
Tier D Approval: High-risk approvals at the highest cost of capital. Often the only commercial option for businesses 6-12 months old.
Repayment Multiplier (Preferred): On preferred-tier products, repayment as low as 1.15-1.25x of the advance — versus the industry-standard 1.26-1.5x.
Industry Standard Repayment: Typical small-business advance repayment of 1.26-1.5x — the benchmark preferred products are designed to beat.
100% Early Payoff Discount: A preferred-tier feature waiving all remaining interest if the advance is paid off early. Effectively pay-for-days-used.
25% Early Payoff Discount: A preferred-tier feature reducing remaining interest by 25% on early payoff. Lower-headline-rate product with smart-payoff upside.
Pay-for-Days-Used: A repayment philosophy where the borrower only pays interest for the days the capital was actually outstanding.
Flexible Pricing Option: A preferred product structure trading slightly higher base rate for full early-payoff interest forgiveness.
Lowest Rate Option: A preferred product structure with the lowest sticker rate but partial early-payoff savings. Best for borrowers who plan to use the full term.
Smart Funding: Capital structured so the borrower controls total cost — flexibility on payoff timing translates to material savings.
Fast-Track Approval: Preferred-tier underwriting completed in hours rather than days, with same- or next-day funding upon acceptance.
Same-Day Decision: An underwriting decision returned within hours of submission. Standard on preferred-tier products.
Same-Day Funding: Capital deposited to the borrower's bank account the same business day as acceptance, before bank cutoff.
Preferred Renewal: A streamlined re-up for borrowers who repaid their first advance on schedule. Larger amounts, better pricing.
Loyalty Pricing: Reduced rates on subsequent advances based on prior repayment performance. Funders' answer to bank-relationship pricing.
Repeat Funding Discount: A discount applied to renewal advances. Rewards on-time repayment and reduces customer acquisition cost for the lender.
Preferred Underwriting: A streamlined process for established borrowers — fewer documents, faster decisions, larger approval bands.
Risk-Based Pricing: Setting rate and term based on the borrower's specific risk profile rather than a flat one-size-fits-all rate.
Capital Stack (Preferred): Mix of preferred funding products — a BLOC for ongoing needs plus a term advance for one-time uses.
Approval Range: The minimum-to-maximum approval amount offered to a borrower. Lets them right-size the advance to actual need.
Funding Window: The contracted period during which an approval is valid. Typical: 7-30 days from approval letter.
Approval Expiration: The deadline by which an approval must be accepted or it lapses and re-underwriting is required.
Counter-Offer: A revised approval offered when the original is declined — different amount, term, or pricing.
Best Offer Aggregator: A platform that submits a single application to multiple funders and surfaces the strongest offer.
Meet-or-Beat Guarantee: A funder's commitment to match or improve on a competing offer — or pay the borrower a fixed cash incentive if they can't.
Funding Marketplace: A platform connecting borrowers to multiple funders. Competition lowers cost and improves approval odds.
Soft FICO Only: Pre-qualification stage using soft credit pulls. Lets the borrower compare offers without harming their credit.
Funding Specialist Network: A coordinated set of human advisors layered on top of an automated platform to guide borrowers through structure and acceptance.
Approval Confidence Score: An internal probability rating signaling how likely a deal is to fund. Used by brokers to prioritize follow-up.
Pre-Qualification Letter: A non-binding indication of approval amount and pricing, useful for shopping and benchmarking offers.
Final Underwriting: The full review converting a pre-qualification into a binding approval — hard pull, bank verification, OFAC, ID.
Approval Memo: The internal lender document summarizing the deal — borrower profile, cash-flow analysis, decision rationale.
Renewal Eligibility: The point at which a borrower can take on add-on funding — typically 50% paid off on the prior advance.
Stacking Prohibition: A covenant in preferred-tier products forbidding additional advances from other funders during the term. Violation = default.
Right of First Refusal (Funder): A funder's right to match any competing offer the borrower receives during the term. Common in preferred relationships.
Exclusivity Period: A defined window during which the borrower agrees not to seek competing capital. Trade for better pricing.

Business Finance

50 terms

EIN (Employer Identification Number): A 9-digit federal tax ID issued by the IRS to a business. Required to open business bank accounts and apply for credit.
Sole Proprietorship: An unincorporated business owned by one person, with no legal separation between owner and business. Simplest structure, unlimited personal liability.
LLC (Limited Liability Company): A flexible legal entity protecting owners' personal assets from business liabilities. Pass-through taxation by default.
C-Corp: A corporation taxed separately from its owners. Used for businesses raising outside capital or planning an IPO.
S-Corp: A pass-through corporation that avoids double taxation. Restricted to 100 US-citizen shareholders.
Partnership: A pass-through structure with two or more owners. General partnerships expose all partners to personal liability; LPs limit it.
DBA (Doing Business As): A registered trade name used by a business different from its legal name. Required in most states.
Articles of Incorporation: The legal document filed with a state to form a corporation. Includes name, purpose, registered agent, and stock structure.
Operating Agreement (LLC): The internal contract governing an LLC's ownership, management, distributions, and dissolution.
Bylaws: The internal rules governing a corporation — meetings, voting, director duties, officer roles.
Registered Agent: A designated party — individual or service — that receives legal documents on behalf of a business. Required in every state.
Certificate of Good Standing: A state-issued document confirming a business is current on taxes and filings. Often required for bank accounts and funding.
Annual Report Filing: A state-mandated yearly filing with basic business info, often paired with a franchise fee.
Balance Sheet: A financial statement showing assets, liabilities, and equity at a specific date. Assets = Liabilities + Equity.
Income Statement (P&L): A financial statement showing revenue, costs, and net income over a period. The primary measure of operational performance.
Cash Flow Statement: A financial statement showing cash inflows and outflows across operating, investing, and financing activities.
Revenue: Total income from sales of goods or services, before any costs. Also called the 'top line.'
COGS (Cost of Goods Sold): Direct costs of producing goods or services sold — materials, direct labor. Revenue − COGS = gross profit.
Gross Profit: Revenue minus COGS. The dollars available to cover operating expenses and produce net profit.
Gross Margin: Gross profit divided by revenue. A measure of pricing power and direct-cost efficiency.
Operating Expenses (OpEx): Day-to-day costs of running the business — rent, payroll, software, marketing — excluding COGS.
Operating Income: Gross profit minus operating expenses. Income before interest, taxes, and non-operating items.
Net Income: The final 'bottom line' profit after all expenses, interest, and taxes. Drives owner distributions and retained earnings.
Net Margin: Net income divided by revenue. The cleanest single measure of overall business profitability.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow used in valuations.
EBITDA Multiple: Enterprise value divided by EBITDA. The standard valuation shorthand for private businesses.
Accounts Receivable (AR): Money customers owe the business for goods or services already delivered. A current asset on the balance sheet.
Accounts Payable (AP): Money the business owes vendors for goods or services already received. A current liability on the balance sheet.
Days Sales Outstanding (DSO): Average days it takes the business to collect on AR. Lower is better; high DSO ties up working capital.
Days Payable Outstanding (DPO): Average days the business takes to pay vendors. Higher DPO frees cash but risks vendor relationships.
Cash Conversion Cycle: DSO + Days Inventory − DPO. The number of days cash is tied up in operations before returning as collections.
Burn Rate: The monthly rate at which a business spends down cash reserves. Critical metric for pre-profitable companies.
Runway: Cash on hand divided by burn rate — how many months a business can operate before running out of cash.
Working Capital Ratio: Current assets divided by current liabilities. Above 1.0 means the business can cover short-term obligations.
Quick Ratio (Acid Test): (Cash + AR) divided by current liabilities. A more conservative measure than the working capital ratio.
Debt-to-Equity Ratio: Total liabilities divided by equity. A leverage measure; higher means more debt-funded operations.
Times Interest Earned (TIE): Operating income divided by interest expense. Lenders want at least 1.5-2.0x; below 1.0 is distressed.
Owner's Draw: An owner's withdrawal of cash from the business. Tax treatment varies by entity type.
Distribution: Pro-rata cash payouts to owners of an LLC, S-Corp, or partnership. Treated as return of capital plus profit share.
Dividend: A C-Corp's cash payout to shareholders out of after-tax earnings. Taxed again at the shareholder level.
Retained Earnings: Cumulative net income that has been kept in the business rather than distributed to owners.
Profit and Loss Forecast: A forward-looking income statement projecting revenue, costs, and net income — typically monthly for 12-24 months.
Cash Flow Forecast: A projection of cash in and out by week or month. Critical for managing working capital and avoiding shortfalls.
Pro Forma Financials: Forward-looking financial statements based on stated assumptions. Required by most lenders and investors.
Bookkeeping: The day-to-day recording of business transactions in a general ledger. The raw material for financial statements.
Accrual Accounting: Recording revenue when earned and expenses when incurred, regardless of cash timing. The standard for businesses above ~$5M revenue.
Cash Basis Accounting: Recording revenue and expenses only when cash actually moves. Simpler than accrual; used by most small businesses.
Chart of Accounts: The structured list of accounts (Assets, Liabilities, Equity, Revenue, Expenses) used to record every transaction.
Trial Balance: A bookkeeping report listing all general ledger accounts with debit and credit totals. Used to catch posting errors before producing financials.
Bank Reconciliation: Matching the business's internal cash records to the bank's statement to catch errors, missed transactions, and fraud.

SBA & Government Lending

30 terms

SBA 7(a) Loan: The Small Business Administration's flagship loan program — partially guaranteed, up to $5M, used for working capital, equipment, or real estate.
SBA 504 Loan: An SBA program for major fixed-asset purchases (real estate, large equipment) — typically structured 50% bank / 40% SBA / 10% borrower.
SBA Express: A streamlined SBA 7(a) variant with a 36-hour SBA response, lower max loan ($500k), and a smaller 50% guarantee.
SBA Guaranty Fee: An upfront fee borrowers pay to the SBA for the loan guaranty — sliding scale from 0% on small loans to 3.75% on the largest.
SBA Preferred Lender (PLP): A bank delegated to process and approve SBA loans without secondary SBA review. Faster closings; most established SBA lenders are PLP.
CDC (Certified Development Company): A nonprofit organization certified by the SBA to package 504 loans. Coordinates the SBA portion of a 504 deal.
SOP 50 10: The SBA's Standard Operating Procedure governing 7(a) and 504 lending — the rulebook every SBA lender follows.
Eligible Passive Concern (EPC): An SBA structure letting one entity own the real estate and lease it to an Operating Concern. Common for owner-occupied 504 deals.
Operating Concern (OC): The operating business that occupies an EPC-owned property. Together they meet SBA owner-occupancy rules.
Owner-Occupancy Rule: SBA 504 and 7(a) real estate loans require the borrower to occupy 51% of an existing building (60% for new construction).
EIDL (Economic Injury Disaster Loan): SBA disaster loan program providing working capital to businesses harmed by declared disasters. Long terms (30 years), low rates.
SBA Microloan: Loans up to $50k via SBA-approved nonprofit intermediaries — designed for startups and women/minority-owned businesses.
SBA CapLines: Four SBA revolving credit line programs — Seasonal, Contract, Builders, Working Capital — used for short-term needs.
Form 1919 (Borrower Information Form): The borrower-completed SBA form disclosing ownership, citizenship, criminal history, and SBA eligibility status.
Form 1920 (Lender Application): The lender-completed SBA form summarizing the credit analysis and recommendation for SBA approval.
SBA Loan Authorization: The contract between SBA and lender setting the specific guaranty terms for a single loan after approval.
Guaranty Purchase: When a defaulted SBA loan's guaranteed portion is bought back by the SBA from the lender. Triggers SBA workout protocols.
Standby Agreement (SBA): A subordination agreement requiring an existing creditor to defer payments while SBA debt is in repayment.
USDA B&I Loan: USDA Business & Industry loan guaranty program for rural-area businesses — sized up to $25M with a 60-80% federal guaranty.
USDA Rural Energy Grant (REAP): USDA grants and loan guaranties to rural small businesses installing renewable energy or energy-efficiency improvements.
State Trade Expansion (STEP): Federally funded grants helping small businesses export. Administered through state economic development agencies.
HUBZone: Historically Underutilized Business Zone — SBA designation giving small businesses in distressed areas preference for federal contracts.
8(a) Program: An SBA program providing federal contracting preference to socially and economically disadvantaged small businesses.
Veteran-Owned Small Business (VOSB): An SBA certification giving veteran-owned businesses access to federal set-aside contracts.
Service-Disabled VOSB (SDVOSB): Higher tier of veteran small-business certification for service-disabled veterans, with broader set-aside eligibility.
Woman-Owned Small Business (WOSB): An SBA certification giving women-owned businesses access to federal contracts in underrepresented industries.
GSA Schedule: A pre-negotiated price list giving federal agencies a streamlined way to buy from small businesses. The path into federal contracting.
SBIC (Small Business Investment Company): Privately operated, SBA-licensed funds providing equity and debt capital to qualifying small businesses.
Treasury Offset: Federal collection mechanism redirecting tax refunds or other federal payments to satisfy defaulted government-backed loans.
Davis-Bacon Wage: Federally prevailing wage rates required on federally funded construction projects. Adds cost to any HUD- or SBA-financed development.

Brokerage & Agency

35 terms

Real Estate Broker: A licensed professional authorized to operate a brokerage firm. Supervises agents and is liable for their conduct.
Real Estate Agent (Salesperson): A licensed salesperson who works under a broker's supervision. Cannot operate independently.
Realtor®: A real estate agent or broker who is a member of the National Association of Realtors (NAR) and bound by its Code of Ethics.
Designated Agent: An agent within a brokerage assigned to represent a specific client. Used when the brokerage represents both sides of a transaction.
Transactional Broker: A neutral broker who facilitates a deal without representing either party as a fiduciary. Permitted in some states.
Procuring Cause: The agent whose efforts directly led the buyer to the property. Determines commission entitlement in contested cases.
Listing Agreement: The contract between a seller and a brokerage authorizing the broker to market and sell the property.
Exclusive Right to Sell: The strongest listing agreement — the broker earns commission regardless of who finds the buyer. Standard for residential.
Exclusive Agency Listing: Listing in which the broker earns commission if anyone other than the seller themselves finds the buyer.
Open Listing: Non-exclusive listing where any broker who finds a buyer earns commission. Common on commercial deals.
Net Listing: A listing where the seller receives a fixed net price and the broker keeps anything above it. Banned in most states for conflict of interest.
Buyer Representation Agreement: A contract between a buyer and broker confirming exclusive representation and compensation terms.
Commission Split: The negotiated division of the gross commission between listing and buyer-side brokerages. Typical: 50/50.
Co-Broke: Cooperation between the listing brokerage and an outside buyer's brokerage to close the deal. Defined in the MLS listing.
Referral Fee: A commission share paid to one licensed broker for referring a client to another. Subject to state license law.
Bonus Commission: An additional payment to the buyer's agent on top of standard commission — used by sellers to incentivize a quick sale.
Flat-Fee Listing: A listing arrangement charging a fixed dollar fee rather than a percentage commission. Common on low-cost discount brokerages.
FSBO (For Sale by Owner): A property listed and sold directly by the owner without a listing broker. Owner typically still pays a buyer-side commission.
Multiple Listing Service (MLS): The regional database brokers use to list and search properties. Drives nearly all residential transactions.
Local MLS Board: The regional organization that operates an MLS and sets cooperation, advertising, and accuracy rules for member brokers.
Pocket Listing: A property marketed off-MLS, often shown only to the agent's network. Restricted under NAR's Clear Cooperation Policy.
Clear Cooperation Policy: NAR rule requiring brokers to list a property on the MLS within 1 business day of any public marketing.
IDX (Internet Data Exchange): The system that pulls MLS listings into agent websites. Drives most consumer-facing listing search experiences.
Showing Service: A platform like ShowingTime that coordinates showing appointments, lockbox access, and feedback.
Lockbox: An electronic or combination box at a listed property holding the access key. Modern lockboxes log every entry.
Days on Market (DOM): The number of days a property has been actively listed. A key signal of pricing accuracy.
Cumulative Days on Market (CDOM): Total days listed across all consecutive listings of the same property — prevents agents from 'resetting the clock'.
List-to-Sale Ratio: Final sale price divided by original list price. Above 100% signals seller-favorable market; below 95% signals weak market.
Absorption Rate: The pace at which available inventory is being sold, expressed as months of supply. Below 4 months = seller's market.
Buyer's Market: Market conditions favoring buyers — high inventory, long DOM, list-to-sale below 95%, negotiable terms.
Seller's Market: Market conditions favoring sellers — low inventory, short DOM, multiple offers, list-to-sale at or above asking.
Highest and Best Offer: Final-round offer submission when a seller has multiple competing offers. Buyers submit one strongest sealed offer.
Escalation Clause: A buyer's offer clause auto-raising the price up to a cap if competing offers come in. Common in seller's markets.
Backup Offer: A secondary offer accepted contingent on the primary offer falling through. Locks in the next buyer.
Comparative Market Analysis (CMA): A broker-prepared report of recent comparable sales used to recommend a listing price. Distinct from a formal appraisal.

Commercial Leasing

35 terms

Letter of Intent (LOI): A non-binding summary of proposed lease terms negotiated before drafting the formal lease. The starting point of any commercial deal.
Base Year: In a modified gross lease, the year used as the baseline for operating expenses. Tenant pays its share of increases above base.
Expense Stop: A maximum dollar amount of operating expenses the landlord will absorb. Tenant pays any excess.
NNN (Triple Net Lease): A lease where the tenant pays base rent plus property taxes, insurance, and maintenance. The dominant structure for retail and industrial.
NN (Double Net Lease): Lease where the tenant pays base rent plus taxes and insurance. Landlord retains maintenance responsibility.
Absolute Net Lease: The strictest form of net lease — tenant absorbs all costs including roof, structure, and capital expenditures. True passive ownership.
Full-Service Gross: A commercial lease where the rent covers everything — taxes, insurance, utilities, janitorial. Common in Class A office.
Rentable Square Feet (RSF): The square footage the tenant pays for, including a pro-rata share of common areas like lobbies and corridors.
Usable Square Feet (USF): The actual square footage occupied by the tenant. RSF/USF ratio is the 'load factor' — typically 1.12-1.25.
Load Factor: The percentage of common area added to usable square feet. A 15% load factor on 10,000 USF means 11,500 RSF.
Anchor Tenant: A large national tenant whose presence drives traffic to a retail center. Often gets reduced rent in exchange for being the draw.
Junior Anchor: A mid-size retail tenant (10-50k SF) — typically a strong regional brand that supports the main anchor.
In-Line Tenant: Smaller shops between anchors in a strip or power center. Pay higher per-SF rent than anchors.
Co-Tenancy Clause: Lease provision letting a tenant reduce rent or terminate if certain co-tenants leave. Standard in anchored retail.
Exclusivity Clause: A lease provision preventing the landlord from leasing space in the same center to a direct competitor.
Operating Expense Stop: A cap on the operating expenses passed through to the tenant. Limits tenant exposure to landlord cost growth.
Pass-Through: Operating expenses the tenant pays in addition to base rent — taxes, insurance, CAM, utilities. Detailed in the lease.
Reconciliation (Pass-Throughs): The annual true-up where the landlord reconciles estimated pass-throughs paid by the tenant against actual expenses.
Rent Escalator: Pre-agreed annual rent increases — fixed dollar, fixed percentage, or tied to CPI. Standard in long-term commercial leases.
CPI Adjustment: Rent escalation tied to changes in the Consumer Price Index. Capped and floored to limit volatility.
Percentage Rent: Additional rent tied to tenant sales above a breakpoint. Common in malls and shopping centers.
Breakpoint (Percentage Rent): The sales threshold a retail tenant must exceed before percentage rent kicks in. Typically calculated to cover base rent.
Natural Breakpoint: Base annual rent divided by the percentage rent rate — the sales level where percentage rent begins to apply.
Build-Out: Tenant-specific interior construction in a leased space. Funded by TI allowance, tenant cash, or both.
TI Allowance: Dollar amount per RSF the landlord contributes to tenant build-out. Effectively a discount on the deal economics.
Free Rent Period: Months of waived rent at lease start — typically 1 month per year of term. A concession that lowers net effective rent.
Effective Rent: Total lease value minus concessions, annualized over the term and amortized per RSF. The true economic rent.
Net Effective Rent: Rent after deducting TI, free rent, and other concessions. The number landlords use to compare deals across tenants.
Term Sheet (Lease): A non-binding summary of proposed lease economics — used to compare competing landlords or tenants before contract drafting.
Termination Option: A tenant's right to end the lease early upon paying a termination fee — typically remaining unamortized TI and free rent.
Renewal Option: A tenant's pre-negotiated right to extend the lease at a defined rent. Strong protection in tight markets.
Expansion Option: A tenant's right to add adjacent space when it becomes available. Common in multi-tenant office and lab buildings.
Right of First Offer (ROFO): A tenant's right to be offered adjacent space before the landlord markets it externally.
Right of First Refusal (ROFR): A tenant's right to match any third-party offer on adjacent space. Stronger than ROFO.
Holdover Rent: Penalty rent — typically 150-200% of base rent — charged when a tenant stays past lease expiration without renewing.

Multifamily Operations

30 terms

Door Count: The total number of units in a multifamily property. The primary scale metric across the asset class.
Per-Door Valuation: Sale price divided by door count. A quick comparison metric across markets and property types.
Asking Rent: The advertised face rent on a unit, before concessions. The headline a market study would report.
Effective Rent (Multifamily): Asking rent minus amortized concessions (free rent, discounts). The actual revenue per occupied unit.
Concession Burn-Off: When a value-add operator phases out introductory concessions on renewing tenants, lifting effective rent toward asking.
Renewal Rate: The percentage of expiring leases that renew rather than vacate. A primary operational health metric — target 50-60%+.
Turnover Cost: Total dollars spent preparing a unit for a new tenant — make-ready, marketing, vacancy loss, leasing commissions.
RUBS (Ratio Utility Billing System): A method of allocating master-metered utility costs to residents by formula (square footage, occupants). Boosts NOI.
Submeter: Individual utility meters per unit, allowing exact billing rather than RUBS allocation. Higher capex but cleaner economics.
Loss-to-Lease: The gap between market rent and in-place rent. Quantifies the upside available in a rent roll.
Mark-to-Market Rent Gap: The dollar amount by which current rents lag market rents. Drives the core thesis of every value-add deal.
Rent Roll: The unit-by-unit list of tenants, rents, lease terms, and security deposits. The primary diligence document on multifamily.
Bad Debt (Multifamily): Unpaid rent written off. Underwritten 0.5-2% of gross potential rent depending on market.
Concessions Burnout Schedule: The projected pace at which a property phases out concessions as renewals occur. Drives revenue forecasts in value-add deals.
Trade-Out: The change in rent between an outgoing and incoming tenant on the same unit. Positive trade-out signals rent growth.
Average Length of Stay: Average tenure of residents in a property. Higher LOS reduces turnover cost and signals resident satisfaction.
Pre-Leasing Velocity: How many units lease per month during initial lease-up. The single most important metric on new construction.
Lease-Up Pro Forma: A forward financial model for a new construction property covering the period from CO to stabilized occupancy.
Section 8 (HCV) Tenant: A tenant whose rent is partially or fully paid by the federal Housing Choice Voucher program. Slow approvals but reliable payment.
Income Restriction: A regulatory cap on the maximum income a tenant can earn — applies to LIHTC, HUD, and inclusionary units.
Rent Restriction: A regulatory cap on the maximum rent on income-restricted units. Tied to AMI percentages.
Compliance Period: The window during which a LIHTC property must maintain affordability — 15 years minimum, often 30 or 99.
Tenant Income Certification: Annual recertification of tenant income for affordable housing programs. Required to maintain LIHTC compliance.
Property Management Agreement: The contract between an owner and third-party manager defining fees, duties, reporting, and termination rights.
Asset Management Fee: Fee paid to an owner-side asset manager who oversees the third-party property manager. Typical 1-2% of revenue or NOI.
Capex Plan: Multi-year schedule of major repairs and improvements (roof, HVAC, paving). Reviewed quarterly against actual spend.
Make-Ready Time: Days between move-out and ready-to-show. Target 5-7 days; longer signals operational drag.
Onsite Manager: A full-time leasing and operations employee living or working on the property. Standard at 100+ units.
REVPAU (Revenue Per Available Unit): Total revenue divided by total units, regardless of occupancy. Captures both rate and occupancy in one number.
Other Income (Multifamily): Non-rent revenue — pet rent, parking, storage, RUBS reimbursements, late fees, application fees. Often 3-7% of gross income.

REITs & Public Real Estate

28 terms

REIT (Real Estate Investment Trust): A company owning income-producing real estate that distributes 90%+ of taxable income to shareholders. Avoids corporate tax.
Equity REIT: A REIT that owns physical real estate. Earns rent and capital gains. The largest REIT category by market cap.
Mortgage REIT (mREIT): A REIT that owns mortgages or MBS rather than physical real estate. Earns net interest margin.
Hybrid REIT: A REIT holding both physical real estate and mortgages. Rare but offers diversified return drivers.
Publicly Traded REIT: A REIT whose shares trade on a stock exchange. Liquid, transparent, but volatile vs. private real estate.
Non-Traded REIT: A registered REIT that doesn't trade on an exchange — illiquid, often opaque fees, sold by broker-dealers.
Private REIT: An unregistered REIT sold only to accredited investors. Lower fees than non-traded, less liquidity than public.
FFO (Funds From Operations): Net income + depreciation − gains on sales. REIT-specific earnings metric that strips out real-estate-specific accounting.
AFFO (Adjusted FFO): FFO − recurring capex − straight-line rent adjustments. A better measure of distributable cash flow than FFO.
NAV (Net Asset Value): Market value of a REIT's properties minus liabilities, divided by shares. Used to assess if shares trade at premium or discount.
Implied Cap Rate: A REIT's NOI divided by its enterprise value. Used to compare REIT pricing to direct private market cap rates.
Premium to NAV: When a REIT trades above its underlying NAV. Signals investor optimism about the operator or asset class.
Discount to NAV: When a REIT trades below NAV. Either signals distress or creates an arbitrage opportunity for sophisticated buyers.
UPREIT (Umbrella Partnership REIT): A REIT structure letting property owners contribute assets in exchange for OP units, deferring capital gains tax.
OP Units: Operating Partnership units issued by a UPREIT in exchange for contributed properties. Convertible to common shares.
DOWNREIT: A variant of the UPREIT structure where the REIT and operating partnership are separate. Less common.
REIT Qualification Tests: IRS rules a REIT must pass annually — 75% asset test, 75% income test, 90% distribution test, ownership concentration limits.
75% Income Test: At least 75% of a REIT's gross income must come from real estate sources (rents, mortgage interest, gains on real property).
75% Asset Test: At least 75% of a REIT's assets must be real estate, cash, or government securities.
5/50 Rule: REIT ownership concentration test — no 5 or fewer shareholders can own more than 50% during the second half of any tax year.
Dividend Yield (REIT): Annual dividend per share divided by share price. Often higher than broad equity yields due to mandatory 90% payout.
Sector REIT: A REIT specializing in one property type — apartment, office, retail, industrial, healthcare, hotel, self-storage, data center.
Net Lease REIT: A REIT specializing in NNN-leased commercial properties — Realty Income, National Retail Properties, Spirit.
Healthcare REIT: A REIT owning hospitals, medical offices, senior housing, or life-science buildings. Demographic tailwinds, regulatory exposure.
Data Center REIT: A REIT owning facilities housing servers and networking equipment. Driven by cloud computing demand.
Industrial REIT: A REIT owning warehouses, distribution centers, and logistics facilities. Beneficiary of e-commerce growth.
REIT IPO: A REIT's initial public offering. Often capitalizes on tax advantages by converting an existing operating company into a REIT.
REIT Conversion: When a non-REIT operating company restructures to qualify as a REIT — accessing the 90% dividend deduction.

Mortgage Securitization

30 terms

MBS (Mortgage-Backed Security): A bond backed by a pool of mortgages. Investors receive principal and interest payments as borrowers pay their loans.
RMBS (Residential MBS): MBS backed by residential mortgages — single-family, condos, 2-4 unit. The largest fixed-income market in the world.
CMBS (Commercial MBS): MBS backed by commercial mortgages — office, retail, industrial, multifamily, hotel. Issued through Trusts.
Agency MBS: MBS guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. Effectively credit-risk-free; pricing driven by prepayment risk.
Non-Agency MBS: MBS without a GSE guarantee — issued by private banks or investment funds. Higher yields, higher credit risk.
GSE (Government-Sponsored Enterprise): Federally chartered private companies — Fannie Mae and Freddie Mac — that provide liquidity to the mortgage market.
Fannie Mae (FNMA): The Federal National Mortgage Association — a GSE that buys conventional residential mortgages and packages them into MBS.
Freddie Mac (FHLMC): The Federal Home Loan Mortgage Corporation — a second GSE buying conventional residential mortgages. Competes with Fannie Mae.
Ginnie Mae (GNMA): A government agency (not a GSE) that guarantees MBS backed by FHA and VA loans. Carries full faith and credit of the US.
Conduit Lender: A lender that originates commercial mortgages explicitly to securitize them into CMBS. Standardized terms, less flexible.
Loan Pool: The collection of mortgages backing a single MBS issue. Diversified by geography, borrower, property type to spread risk.
Trust: The legal entity that holds the loan pool and issues MBS bonds. Bankruptcy-remote from the originator.
Special Purpose Vehicle (SPV): A separate legal entity created to hold securitized assets. Isolates investors from the originator's bankruptcy.
Tranche: A class of bonds within an MBS, each with distinct risk, yield, and payment priority. A through E in typical waterfall structure.
Senior Tranche: The highest-priority MBS class — paid first, lowest yield, AAA-rated. Bought by pension funds and insurance companies.
Mezzanine Tranche: Mid-priority MBS class — paid after seniors, before juniors. Investment-grade but higher yield than senior.
Junior / Subordinate Tranche: The lowest-priority MBS class — first to absorb losses, highest yield, below investment grade.
First-Loss Piece: The most subordinate tranche of an MBS — typically held by a specialist B-piece buyer who underwrites every loan.
B-Piece Buyer: A specialist investor in CMBS that buys and underwrites the subordinate tranches. Has the power to reject specific loans.
Servicer: The company collecting payments and managing borrower relationships on securitized loans. Distinct from the bondholders.
Special Servicer: The party in a CMBS deal that handles defaulted loans — workouts, modifications, foreclosures, asset sales.
Master Servicer: The CMBS servicer responsible for all performing loans — collections, escrow, reporting to bondholders.
Pooling and Servicing Agreement (PSA): The legal document governing every CMBS Trust — defines waterfall, modification rules, servicer duties.
REMIC: Real Estate Mortgage Investment Conduit — the tax election an MBS Trust uses to avoid entity-level tax.
Prepayment Speed (CPR): Constant Prepayment Rate — the annualized rate at which borrowers pay off mortgages early. Drives MBS pricing.
Yield Maintenance: A prepayment penalty on commercial mortgages compensating the lender for lost interest if the loan pays off early.
Defeasance: A prepayment alternative substituting Treasury securities for the mortgage collateral. Common on CMBS loans.
TBA Market: To-Be-Announced — the forward market for agency MBS where buyers commit before specific pools are identified. The deepest US bond market after Treasuries.
Spec Pool: An MBS pool with specific characteristics (state, balance, FICO) trading at a premium to TBA. Customized for specific investor needs.
Credit Enhancement: Mechanisms protecting senior bondholders from losses — subordination, overcollateralization, reserve accounts, insurance.

Specialized & Niche Real Estate

30 terms

Self-Storage: Climate-controlled or drive-up storage facility leased monthly to consumers and businesses. Low operating intensity, recession-resilient.
Boat & RV Storage: Outdoor storage facility for boats, RVs, and trailers. Lower capex than enclosed storage, higher per-SF rents.
Climate-Controlled Storage: Self-storage maintained at 55-85°F. Premium pricing; required for sensitive items like electronics, art, documents.
Data Center: A facility housing servers, networking, and storage equipment. Drives premium cap rates and long-term leases.
Colocation Data Center: A data center renting rack space to multiple tenants. The most common data center business model.
Hyperscale Data Center: A massive (50MW+) data center built for a single cloud provider (AWS, Azure, Google). Highly customized.
Cold Storage Warehouse: Refrigerated or frozen storage facility for food and pharma. Pricier to build, higher rents, growing demand.
Cannabis Real Estate: Cultivation, processing, retail, or storage facilities for legal cannabis. High yields offset by federal regulatory risk.
Life Science Lab Space: Lab-grade commercial real estate with specialized HVAC, plumbing, and electrical. Premium rents in biotech hubs.
Medical Office Building (MOB): Commercial office leased to medical practices. Long leases, low turnover, recession-resilient.
Senior Housing (Independent Living): Multifamily for 55+ residents who live independently with optional services. Closest to traditional multifamily.
Assisted Living: Senior housing with on-site staff providing daily living assistance. Operational intensity between IL and SNF.
Memory Care: Specialized senior housing for dementia and Alzheimer's residents. Higher staffing ratios, premium rates.
Skilled Nursing Facility (SNF): Long-term care facility with 24-hour medical staff. Heavily regulated; Medicare/Medicaid revenue exposure.
Continuing Care Retirement Community (CCRC): A campus combining IL, AL, MC, and SNF. Residents pay an entry fee and monthly rent.
Student Housing: Multifamily marketed to college students, typically leased by the bed. Seasonal turnover; revenue tied to enrollment.
Manufactured Housing Community (MHC): A community where residents own manufactured homes and lease the underlying land. Stable, low-capex.
Marina: A waterfront facility leasing slips and providing services to boat owners. Niche asset class with regulatory exposure.
Mobile Home Park: A community where residents own or rent mobile homes on land owned by the operator. Synonymous with MHC.
Pre-1976 Mobile Home: A unit built before HUD code took effect. Largely uninsurable and difficult to finance; community policies often exclude.
Single-Family Rental (SFR) Portfolio: A portfolio of detached rental homes. Pioneered by Invitation Homes and American Homes 4 Rent post-2008.
Build-to-Rent (BTR) Community: A purpose-built community of single-family rentals. Combines SFR amenities with multifamily-style operations.
Co-Living: Shared housing where residents rent private bedrooms in furnished apartments with shared common areas. Targets young professionals.
Hospitality (Hotel) Real Estate: Hotels operated under brand flags via franchise or management agreements. Daily-rate revenue, operating-intensive.
RevPAR (Hotel): Revenue Per Available Room — the primary hospitality KPI. Average daily rate × occupancy.
ADR (Average Daily Rate): A hotel's total room revenue divided by paid occupied rooms. Excludes complimentary stays.
Outpatient Surgery Center: Healthcare real estate for ambulatory surgical procedures. Long leases to physician groups; growing demographic demand.
Charging Station Real Estate: Parcels or pads leased to EV charging operators. Emerging niche with utility and zoning complexity.
Crematorium / Funeral Real Estate: Specialized real estate operated by funeral homes and crematoriums. Niche asset class with stable demand.
Religious Real Estate: Churches, synagogues, mosques, and other places of worship. Tax-exempt; financing comes from specialty lenders.

Real Estate Tech & PropTech

30 terms

PropTech: Property technology — software, hardware, and platforms reshaping real estate. Spans transactions, ops, leasing, finance, IoT.
iBuyer: An algorithm-driven company making instant cash offers for homes (Opendoor, Offerpad). Trades convenience for a price haircut.
AVM (Automated Valuation Model): A statistical model estimating property value from public records and recent sales. Used by Zillow, Redfin, lenders.
Zestimate: Zillow's proprietary AVM. Updates weekly; accuracy varies by market (better in cookie-cutter suburbs, worse on custom homes).
Virtual Tour: A 360° interactive walkthrough of a listed property. Standard since 2020; Matterport is the leading platform.
3D Walkthrough: An immersive property tour created from depth-sensor scans. Lets buyers measure rooms remotely.
Drone Photography: Aerial imagery of a property and surroundings. Now standard on luxury and acreage listings; FAA Part 107 license required.
Smart Lock: An electronic door lock controlled via phone or PIN. Powers self-tours, vendor access, short-term rental check-in.
Self-Showing: Lockbox-enabled buyer access to a listing without an agent present. Drives down listing brokerage cost.
Smart Home Sensor: IoT device monitoring property conditions (water leak, smoke, temperature). Insurance discounts available.
Building Management System (BMS): Software controlling HVAC, lighting, and access in commercial buildings. Energy and tenant-experience driver.
Tenant Experience Platform: Software letting tenants book amenities, pay rent, request maintenance, and engage with neighbors. Drives retention.
Property Management Software (PMS): Platforms like AppFolio, Yardi, RentManager handling leases, payments, maintenance, and accounting.
Underwriting Software: Tools (Cherre, ARGUS, RealCrowd) modeling rent rolls, NOI, IRR, and waterfalls for institutional real estate.
ARGUS Enterprise: The industry-standard DCF modeling software for institutional commercial real estate underwriting.
Digital Twin: A live 3D model of a building synced with sensor data. Used for capex planning and energy optimization.
Tokenized Real Estate: Fractional ownership represented as blockchain tokens. Promises liquidity for private real estate; regulation evolving.
Real Estate Crowdfunding: Online platforms (Fundrise, RealtyMogul) letting retail investors pool capital into single deals. Reg D 506(c) typical.
Fractional Ownership Platform: Tech platform letting investors own a slice of one home with other investors. Distinct from crowdfunding pools.
Blockchain Title: Recording property title on a blockchain ledger for immutability and faster transfers. Several state pilots underway.
E-Notarization (RON): Remote Online Notarization — closing documents notarized via video call. Legal in most US states.
Digital Closing: A fully online real estate closing — e-signature, RON, electronic funding. Standard since 2020.
DocuSign / e-Sign Tools: Software accepting electronically signed contracts. Legally binding under ESIGN Act for most real estate documents.
CRM (Real Estate): Software like Salesforce, HubSpot, FollowUpBoss managing leads, contacts, deal pipelines, and marketing automation.
Lead Generation Platform: Software (Zillow Premier Agent, BoldLeads) generating buyer/seller leads via paid ads. Cost-per-lead varies by market.
Real Estate API: Programmatic data access — listing data, public records, market analytics. Examples: Bridge Interactive, Trestle, ATTOM.
Geographic Information System (GIS): Mapping software analyzing demographics, zoning, parcel data. Standard tool for site selection and entitlement.
Heat Map: A geographic visualization of intensity — listing prices, foot traffic, demographics. Used in retail site selection.
Augmented Reality (AR) Staging: An app letting buyers visualize furniture in an empty room via phone camera. Increasingly used pre-listing.
Predictive Lead Scoring: AI ranking prospects by likelihood to transact. Helps agents prioritize outreach and reduces time per closed deal.