Real Estate Investment Glossary: LTV, DSCR, ARV and More

Real estate investing — especially private lending and commercial financing — comes with its own vocabulary. Whether you are an experienced investor or just getting started, having a clear reference for these terms will help you evaluate deals, read loan documents, and communicate effectively with lenders, brokers, and attorneys.

This glossary covers the most important terms in real estate lending and investment, organized alphabetically for easy reference.

A

Amortization

The process of paying off a loan through regular installments that include both principal and interest. A 30-year amortized loan, for example, has payments calculated so that the loan is fully repaid after 360 monthly payments. In contrast, most private loans are interest-only — meaning monthly payments cover only the interest, and the full principal is due at maturity.

Appraisal

A professional, independent assessment of a property's market value conducted by a licensed appraiser. Appraisals are based on comparable sales, property condition, location, and market trends. Lenders require appraisals to verify that the collateral supports the loan amount.

ARV (After Repair Value)

The estimated market value of a property after planned renovations or improvements are completed. ARV is a critical metric in fix-and-flip and value-add lending. For example, if a property is purchased for $200,000, needs $80,000 in renovations, and will be worth $380,000 after the work, the ARV is $380,000.

Lenders often calculate maximum loan amounts based on a percentage of ARV (commonly 65–70%) rather than the current "as-is" value.

Assignment

The transfer of a mortgage, note, or other interest from one party to another. In private lending, loan participations may involve assignment of a portion of the note to another investor.

B

Borrower

The individual or entity that receives a loan and is obligated to repay it according to the terms of the promissory note. In private real estate lending, borrowers are typically real estate investors, developers, or LLC entities.

Bridge Loan

A short-term loan (typically 6–18 months) used to "bridge" the gap between a current financial need and a longer-term solution. In real estate, bridge loans fund acquisitions, renovations, or stabilization while the borrower arranges permanent financing or prepares for sale. Read our full guide on bridge loans.

BPO (Broker Price Opinion)

A property valuation performed by a licensed real estate broker, used as a faster and less expensive alternative to a full appraisal. BPOs are common in private lending underwriting, especially for smaller loan amounts.

C

Capital Stack

The complete structure of financing and equity used to fund a real estate project. The capital stack typically includes (from lowest to highest risk): senior debt (first mortgage), mezzanine debt, preferred equity, and common equity. Each layer has different rights, returns, and priorities in the event of a default.

Closing

The final step of a real estate transaction where all documents are signed, funds are exchanged, and ownership transfers. In lending, closing is when the loan funds are disbursed and the mortgage is recorded.

Collateral

An asset pledged as security for a loan. In real estate lending, the collateral is the property itself. If the borrower defaults, the lender can seize the collateral through foreclosure to recover the outstanding debt.

Construction Loan

A short-term loan that finances the construction of a new building or major renovation. Funds are typically disbursed in stages (draws) as construction milestones are completed and verified by an inspector.

D

Debt Service

The total amount of principal and interest payments a borrower must make over a given period. Monthly debt service on a $300,000 loan at 7% interest (30-year amortization) is approximately $1,996.

Deed in Lieu of Foreclosure

An arrangement where the borrower voluntarily transfers ownership of the property to the lender to avoid the formal foreclosure process. This can be faster and less costly for both parties, but the lender must ensure there are no junior liens or title issues that complicate the transfer.

Default

The failure of a borrower to meet the obligations of the loan agreement. Default can be triggered by missed payments, failure to maintain insurance, or violation of other loan covenants. Default initiates the lender's right to pursue remedies, including foreclosure.

DSCR (Debt Service Coverage Ratio)

A ratio that measures whether a property's income is sufficient to cover its debt payments. Calculated as:

DSCR = Net Operating Income / Annual Debt Service

A DSCR of 1.25 means the property generates 25% more income than needed to cover the loan payments. Most DSCR lenders require a minimum ratio of 1.0–1.25. DSCR loans are popular for rental property investors because they qualify based on the property's income rather than the borrower's personal income.

Draw

A disbursement of loan funds, typically in a construction or renovation loan. Draws are released after an inspection confirms that the corresponding work has been completed. This protects the lender by ensuring funds are used for their intended purpose.

Due Diligence

The comprehensive investigation and analysis performed before making an investment or funding a loan. In real estate, due diligence includes title search, property inspection, appraisal, environmental review, borrower background checks, and market analysis.

E

Equity

The difference between a property's market value and the total debt against it. If a property is worth $500,000 and has a $350,000 mortgage, the equity is $150,000 (or 30% of the value). Higher borrower equity means lower risk for the lender.

Escrow

An arrangement where a neutral third party (the escrow agent or title company) holds funds, documents, or assets on behalf of the parties in a transaction until certain conditions are met. In real estate closings, the escrow agent manages the exchange of funds and documents.

F

FIRPTA (Foreign Investment in Real Property Tax Act)

A US federal law requiring buyers to withhold 15% of the gross sale price when purchasing real estate from a foreign seller. The withholding is remitted to the IRS as a prepayment of the seller's capital gains tax. Foreign investors can apply for a withholding certificate to reduce the amount. Learn more about FIRPTA in our guide for foreign investors.

First Lien

The mortgage or lien that has priority over all other claims against a property. In the event of foreclosure, the first lienholder is paid first from the sale proceeds. First-lien position is the most secure position for a lender and is standard in private lending.

Fix and Flip

An investment strategy where an investor purchases a distressed or undervalued property, renovates it, and sells it at a higher price for a profit. Fix-and-flip projects are typically financed with bridge loans and have timelines of 4–8 months.

Foreclosure

The legal process by which a lender takes possession of a property when the borrower defaults on the loan. Florida uses a judicial foreclosure process, meaning the lender must file a lawsuit and obtain a court order. The typical timeline is 8–14 months. Read the full breakdown of foreclosure in Florida.

G

Guarantor

An individual or entity that personally guarantees repayment of a loan. If the borrower (often an LLC) defaults, the guarantor is personally liable for the debt. Most private lenders require a personal guarantee from the principals of borrower entities.

H

Hard Money Loan

Another term for a private real estate loan. "Hard money" refers to the fact that the loan is secured by a "hard" asset (the property) rather than the borrower's creditworthiness. Hard money loans typically have higher interest rates (9–13%) and shorter terms (6–18 months) than conventional bank loans but fund much faster.

Hazard Insurance

Insurance that protects a property against damage from fire, storms, vandalism, and other covered perils. Lenders require borrowers to maintain hazard insurance and name the lender as a loss payee, ensuring that insurance proceeds are used to repair the property or repay the loan.

I

Interest-Only

A loan payment structure where the borrower pays only the interest each month, without any principal reduction. The full principal balance is due at maturity. Most private and bridge loans use interest-only payment structures.

Example: A $300,000 loan at 10% interest-only = $2,500 per month. The $300,000 principal is due in full at the end of the term.

Interest Reserve

A portion of the loan proceeds set aside at closing to cover future interest payments. This is common in construction loans where the property does not generate income during the build period. For example, on a 12-month construction loan, the lender might withhold 6 months of interest payments from the initial disbursement.

L

Lien

A legal claim against a property as security for a debt. Mortgages, tax liens, mechanic's liens, and judgment liens are all types of liens. Liens are recorded in public records and affect the transferability and marketability of the property title.

Lis Pendens

A public notice filed in the county records indicating that a lawsuit is pending that affects the title to a property. In foreclosure, the lender files a lis pendens to put potential buyers and other creditors on notice.

Loan-to-Cost (LTC)

A ratio comparing the loan amount to the total cost of the project (purchase price + renovation costs). If a project costs $350,000 total and the loan is $280,000, the LTC is 80%. Lenders use LTC alongside LTV to evaluate risk.

Loan Servicing

The administrative management of a loan after it is funded: collecting payments, managing escrow accounts, sending statements, and handling default situations. Loan servicing may be performed by the lender directly or by a third-party servicer.

LTV (Loan-to-Value)

One of the most critical metrics in real estate lending. LTV is the ratio of the loan amount to the appraised value of the property.

LTV = Loan Amount / Property Value x 100

A $210,000 loan on a property worth $300,000 = 70% LTV. Lower LTV means more equity cushion and lower risk for the lender. In private lending, maximum LTV is typically 65–75%.

M

Maturity Date

The date on which the loan's principal balance is due in full. For a 12-month bridge loan funded on January 15, the maturity date is January 15 of the following year. Failure to repay by the maturity date triggers default provisions.

Mezzanine Debt

A form of financing that sits between the first mortgage (senior debt) and equity in the capital stack. Mezzanine debt carries higher risk and higher returns than senior debt but lower risk than pure equity. It is less common in small-balance private lending.

Mortgage

A legal instrument that pledges a property as collateral for a loan. The mortgage is recorded in the county's public records, creating a lien on the property. In Florida, the mortgage and the promissory note are two separate documents — the note establishes the debt, and the mortgage secures it with the property.

N

NOI (Net Operating Income)

The income a property generates after subtracting operating expenses but before debt service (mortgage payments). Calculated as:

NOI = Gross Rental Income - Vacancy - Operating Expenses

Operating expenses include property management, insurance, taxes, maintenance, and utilities (if paid by the owner). NOI does not include mortgage payments, depreciation, or capital expenditures.

Note (Promissory Note)

A legal document in which the borrower promises to repay a specific amount of money under defined terms (interest rate, payment schedule, maturity date). The promissory note is the evidence of the debt. It is separate from the mortgage, which secures the debt with the property.

O

Origination Fee (Points)

An upfront fee charged by the lender at loan closing, expressed as a percentage of the loan amount. One "point" equals 1% of the loan. A 2-point origination fee on a $300,000 loan = $6,000. Origination fees compensate the lender for underwriting, processing, and funding the loan.

P

Participation

An arrangement where multiple investors share in a single loan. Each participant owns a percentage of the loan and receives a proportional share of the interest payments. Participations allow investors to diversify across multiple loans with smaller individual investments.

Prepayment Penalty

A fee charged to the borrower for repaying the loan before the maturity date. In private lending, some loans include a minimum interest period (e.g., 3 months of guaranteed interest) to ensure the lender earns a minimum return regardless of how quickly the borrower repays.

Principal

The original amount of money borrowed, excluding interest. If you borrow $300,000, that is your principal. Interest is calculated based on the outstanding principal balance.

R

Refinance

Replacing an existing loan with a new loan, typically to obtain better terms, lower rates, or access equity. In the private lending context, borrowers commonly refinance bridge loans into long-term DSCR loans once a property is stabilized.

S

Senior Debt

The debt with the highest priority in the capital stack — typically the first mortgage. Senior debt is repaid first in a foreclosure or liquidation, making it the lowest-risk position for lenders.

Subordination

An agreement where one lienholder agrees to accept a lower priority position relative to another lienholder. For example, a second mortgage holder is subordinate to the first mortgage holder.

T

Title Insurance

An insurance policy that protects the buyer or lender against losses arising from defects in the property title — such as undisclosed liens, errors in public records, forgery, or competing ownership claims. In Florida, title insurance is a one-time premium paid at closing.

Title Search

An examination of public records to verify the legal ownership of a property and identify any liens, encumbrances, or claims against it. A clear title is required before a property can be sold or financed.

U

Underwriting

The process by which a lender evaluates the risk of a potential loan. In private lending, underwriting focuses on property value, LTV, borrower experience, exit strategy, and market conditions. Sound underwriting is the foundation of successful lending.

V

Vacancy Rate

The percentage of a property's rental units that are unoccupied at a given time. A 10-unit building with 2 vacant units has a 20% vacancy rate. Lenders consider vacancy when underwriting rental properties and DSCR loans.

Y

Yield

The annual return on an investment, expressed as a percentage. In private lending, yield typically refers to the annual interest rate earned on the loan. A $300,000 loan at 10% interest generates $30,000 per year in yield (before accounting for origination fees and other factors).

Keep Learning

This glossary covers the essential terminology, but real estate investing is a field where practical knowledge matters most. Here are resources to continue building your understanding:

Have a question about a term that is not listed here? Contact me — I am happy to help.

Explore our services | Contact me