Real Estate Investment Glossary
Clear definitions of the most commonly used terms in lending and real estate investing.
Financial Terms
LTV (Loan-to-Value)
The ratio between the loan amount and the property value. A key metric for evaluating loan risk.
If the property is worth $200,000 and the loan is $140,000, the LTV is 70%.
LTC (Loan-to-Cost)
The ratio between the loan amount and the project's total cost: land plus construction, or purchase plus renovation. It's the leverage metric for builds and flips.
On a $500,000 project financed with $375,000, the LTC is 75%.
DSCR (Debt Service Coverage Ratio)
A ratio that measures a property's ability to generate enough income to cover debt payments.
If monthly rent is $2,000 and the mortgage payment is $1,500, the DSCR is 1.33.
DTI (Debt-to-Income)
The ratio between a borrower's monthly debts and their gross monthly income. Lenders use it to measure ability to repay.
With $12,500 of monthly income and $4,600 in debts, DTI is 37%.
ARV (After Repair Value)
The estimated value of a property after completing renovations. Used to evaluate fix & flip projects.
A property bought for $150,000 with $50,000 in renovations may have an ARV of $250,000.
NOI (Net Operating Income)
A property's annual rent minus operating expenses, before debt service. It's the basis for both DSCR and cap rate.
A property renting for $36,000 a year with $10,000 in expenses has an NOI of $26,000.
PITI (Principal, Interest, Taxes & Insurance)
The four components of a monthly mortgage payment: principal, interest, property taxes and insurance. It's the number that matters for ability to repay — not principal and interest alone.
A $4,600 payment might break down as $3,640 principal and interest, $600 taxes and $360 insurance.
IRR (Internal Rate of Return)
The annualized rate of return that equalizes the present value of future cash flows with the initial investment.
A deal generating 10% annual interest with 2 origination points may have an effective IRR of 12%.
ROI (Return on Investment)
The total return on an investment expressed as a percentage of the capital invested.
You invest $100,000 and receive $110,000 at maturity: your ROI is 10%.
Equity
Your own capital in a property: the difference between what it's worth and what's owed on it. It grows through loan amortization and appreciation.
A $500,000 home with a $300,000 mortgage carries $200,000 of equity.
Cap Rate (Capitalization Rate)
A rate that measures the annual return of a property based on its net operating income.
A property generating $15,000 annual NOI valued at $200,000 has a cap rate of 7.5%.
Cash-on-Cash Return
Annual return based solely on cash invested (excluding appreciation or amortization).
If you invest $50,000 in equity and receive $5,000 annually in cash flow, your cash-on-cash is 10%.
Yield
The periodic return generated by an investment, usually expressed as an annual percentage.
A loan at 10% annual generates a monthly yield of 0.833%.
Loan Terms
Bridge Loan
A short-term loan (6-12 months) used for quick acquisition or transitioning between permanent financing.
An investor uses a bridge loan at 10% to quickly purchase a property while arranging long-term DSCR financing.
Non-QM (Non-Qualified Mortgage)
A mortgage that doesn't meet every Qualified Mortgage criterion set by the CFPB, almost always over how income is verified. It's still required to prove ability to repay — it is not a no-documentation loan.
A self-employed borrower qualifying on 12 months of bank statements instead of tax returns takes a Non-QM loan.
Bank Statement Loan
A Non-QM loan where income is calculated from 12 or 24 months of bank account deposits, with a business expense factor applied.
With $25,000 in monthly deposits and a 50% expense factor, qualifying income is $12,500.
Asset Depletion
A method that converts liquid assets — accounts, investments, retirement funds — into a theoretical monthly income to qualify a loan. Built for borrowers with wealth but no salary.
A retiree with no paycheck can qualify on the $800,000 held in an investment account.
Bullet Loan
A loan where only interest is paid during the term and the full principal is returned at maturity.
A $100,000 bullet loan at 10% for 12 months: you pay $833/month in interest and return the $100,000 at the end.
First Lien / Second Lien
The priority position of a mortgage. The first lien has repayment priority in case of foreclosure.
If a property has a $150,000 first lien and a $30,000 second lien, in foreclosure the first lien gets paid first.
Origination Points
A fee charged by the lender when originating a loan, expressed as a percentage of the amount. Paid by the borrower.
2 points on a $200,000 loan = $4,000 origination fee.
Prepayment Penalty
A penalty charged to the borrower for paying off the loan before the agreed maturity date.
A loan with 3-month prepayment penalty requires the borrower to pay at least 3 months of interest even if they pay off early.
Amortization vs Interest-Only
Amortization: payments include principal + interest. Interest-only: only interest is paid and principal is returned at the end.
A bridge loan is typically interest-only, while a conventional mortgage is amortizing.
Legal & Process Terms
Foreclosure
The legal process by which a lender takes possession of a property when the borrower fails to make payments.
In Florida, foreclosure is judicial and can take 12-18 months. The first-lien lender has repayment priority.
Title Insurance
Insurance that protects against defects in the property title, such as hidden liens or ownership disputes.
Title insurance is paid once at closing and protects the lender throughout the loan's life.
Appraisal
An independent professional valuation of a property's market value, performed by a certified appraiser.
Before approving a loan, an appraisal is ordered to confirm the property is worth what the borrower claims.
Due Diligence
The process of thorough investigation and verification before making an investment decision.
Due diligence includes: appraisal, title search, borrower verification, property inspection, and legal review.
LLC (Limited Liability Company)
A legal structure that separates personal assets from investment assets, protecting the investor from personal liability.
Most foreign investors create a Florida LLC to structure their real estate investments.
FIRPTA (Foreign Investment in Real Property Tax Act)
A law requiring tax withholding on gains from foreign investors selling US properties.
Under FIRPTA, 15% of the sale price is withheld as tax, applied against the final tax obligation.
Escrow
A custodial account managed by a neutral third party where funds are deposited until agreement conditions are met.
The investor's money is deposited in escrow and only released to the borrower when the mortgage is recorded.
Closing Costs
Costs paid on closing day: title, stamps, appraisal, legal fees and, where there's financing, the loan's origination charges. They come out of the buyer's pocket and aren't financed.
On a $650,000 purchase in Florida, closing costs typically run 2% to 5% of the price.
SSN (Social Security Number)
The U.S. Social Security number. It underpins domestic credit history, but it isn't required to finance a property as a foreign national.
A foreign investor without an SSN can buy in Florida through an LLC with a foreign national loan.
ITIN (Individual Taxpayer Identification Number)
A tax identification number issued by the IRS to people who must file U.S. taxes but don't qualify for a Social Security number.
A foreign investor with an ITIN can take a Non-QM mortgage and report the rental income from their property.
W-2
The form a U.S. employer issues showing annual wages and taxes withheld. It's the standard proof of income for a salaried employee.
A self-employed borrower receives no W-2, which is why they need a program qualifying on bank statements or assets.
Property Terms
Fix & Flip
A strategy of buying a property at a discount, renovating it, and selling it at a higher price in a short timeframe.
Buy a house for $150,000, invest $50,000 in renovation, and sell for $250,000 = $50,000 gross profit.
Buy & Hold
A strategy of purchasing a property to hold long-term, generating income through rent and appreciation.
Buy an apartment and rent it for $2,000/month while the property appreciates over time.
Rehab (Renovation)
The process of renovating or repairing a property to increase its value, typically in fix & flip projects.
A rehab may include: new roof, kitchen, bathrooms, flooring, painting, and landscaping.
Draw (Construction Disbursement)
A partial release of funds from a construction loan as project stages are completed.
A $500,000 construction loan may have 5 draws: foundation (20%), framing (20%), systems (20%), finishes (20%), completion (20%).
Carry Costs / Holding Costs
Costs of maintaining a property during a project: loan interest, taxes, insurance, utilities.
Carry costs for a 6-month flip may include: $5,000/month interest + $300/month insurance + $200/month taxes.
Holding Costs
The monthly cost of owning a property while a project runs: taxes, insurance, utilities and HOA dues. They accumulate month over month and erode a flip's margin.
Six months of work at $1,500 a month in holding costs adds $9,000 to project cost.
HOA (Homeowners Association)
The owners' association of a condo or gated community. It charges a monthly fee covering amenities, common insurance and maintenance, on top of the mortgage payment.
A Brickell condo may carry a $700 monthly HOA fee in addition to the loan payment.