Glossary

A

Appraisal
An independent report that estimates the value of a property. A licensed third party reviews factors like location, recent comparable sales, condition, finishes, and any needed repairs to determine what the property is realistically worth.

B

Broker Price Opinion (BPO)
An estimated property value provided by a licensed real estate broker, based on market knowledge and comparable sales. A BPO is generally faster and less expensive than a full appraisal, but not as detailed.

C

Carrying Costs
The ongoing expenses required to own and hold a property while it is being developed, renovated, leased, or sold. Carrying costs may include loan interest, property taxes, insurance, utilities, maintenance, and management fees, and they directly impact a project’s overall profitability.

Cash-Out Refinance
Refinancing a property for more than what is currently owed, allowing the borrower to take the difference as cash. This is often used to fund renovations, invest in new properties, or consolidate debt.

Collateral
An asset — usually real estate — that a borrower pledges to secure a loan. If the borrower defaults, the lender has the right to take possession of the collateral.

Cross-Collateralization
Using more than one property to secure a single loan. This can help borrowers qualify for larger loan amounts or better terms, but it also means multiple properties are tied to the same loan.

D

Debt-Service Coverage Ratio (DSCR)
A measure of how well a property’s income covers its loan payments. It’s calculated by dividing the property’s net operating income by its total debt payments. A higher DSCR generally means lower risk to the lender.

Default
When a borrower fails to meet the agreed-upon terms of a loan, such as missing payments or violating loan conditions.

Double Net Lease (NN Lease)
A lease structure where the tenant pays for property taxes and insurance, while the landlord remains responsible for major structural repairs.

Due Diligence
The review period where all parties evaluate the details of a deal. This includes reviewing financials, property condition, legal documents, and risks before moving forward with a loan or investment.

F

Feasibility Study
A detailed analysis used to determine whether a real estate project is financially and practically viable before moving forward. A feasibility study evaluates costs, projected income, market demand, zoning, timelines, and risks to help investors and lenders decide if a project makes sense.

Foreclosure
The legal process a lender uses to take control of a property when a borrower defaults on their loan. Foreclosure laws and timelines vary by state.

H

Hard Money Loan
A short-term loan funded by private lenders and secured by real estate. These loans focus more on the property’s value than the borrower’s credit and are commonly used for investment or construction projects.

I

Interest Rate
The cost of borrowing money, expressed as a percentage of the loan amount. Interest rates on private or hard money loans are typically higher than conventional loans due to increased flexibility and risk.

J

Joint Venture (JV)
A partnership where two or more parties come together on a deal, often sharing capital, risk, and profits. In real estate, one party may provide funding while another manages the project.

L

Letter of Intent / Letter of Interest (LOI)
A non-binding document that outlines the basic terms of a proposed deal, such as price, structure, and timeline. It shows serious interest but is not a final agreement.

Loan Modification
A change to existing loan terms — such as interest rate, payment amount, or term length — typically made to help a borrower manage financial hardship.

Loan Origination
The process of creating a new loan, from application and underwriting to documentation and funding.

Loan Servicing
The ongoing management of a loan after it closes, including collecting payments, tracking balances, and handling borrower communications.

Loan Term
The length of time the borrower has to repay the loan, from the start date through maturity.

Loan-to-Value (LTV) Ratio
The percentage of a property’s value that is being borrowed. For example, an 70% LTV means the loan equals 70% of the property’s value.

N

Net Lease
A lease structure where the tenant pays some or all operating expenses in addition to rent. Net leases are commonly used in commercial real estate.

Non-Recourse
A loan where the lender’s primary remedy in a default is taking the collateral property, not pursuing the borrower’s personal assets (with limited exceptions such as fraud).

P

Points
A one-time fee paid to the lender at closing, usually calculated as a percentage of the loan amount. Points help cover underwriting, risk, and loan setup costs.

Prepayment Penalty
A fee charged if the borrower pays off the loan earlier than agreed. This compensates the lender for lost interest.

Private Money Lender
An individual, group, or private company that funds loans using private capital (not a traditional bank).

R

Recourse
A loan where the borrower is personally responsible for repayment. If the loan defaults, the lender may pursue both the property and the borrower’s other assets, depending on the agreement.

S

Seasoning
The amount of time something has existed, whether it’s your ownership, loan, or even your down payment.

Single Room Occupancy (SRO)
A type of residential property where individual tenants rent private rooms but share common spaces such as kitchens or bathrooms. SRO buildings are often used for affordable or transitional housing and can serve specialized markets depending on local regulations and zoning.

T

Triple Net Lease (NNN Lease)
A lease structure where the tenant pays rent plus property taxes, insurance, and maintenance. This shifts most operating costs away from the property owner.

U

Underwriting
The process lenders use to evaluate a loan request. This includes reviewing the property, financials, risk factors, and overall ability to repay.

Y

Yield
The total return earned on an investment, including interest and fees, expressed as a percentage. Yield reflects the overall profitability of a loan or investment.