📓 Understanding Real Estate Investment and Financing Terminology

[Michael Garcia]

In real estate investment and financing, there are many terms that investors, lenders, and borrowers use to describe the structure of deals, financials, and property details. Understanding these terms is crucial for making informed decisions and navigating the complexities of the real estate market. In this blog, we will break down the most common and important terminologies used in real estate investment and financing.

💙 Loan Terms & Structure

1. Loan ID: A unique identifier for a specific loan in the lender’s system. This is used to track and manage the loan throughout its lifecycle.
2. Funding Type: Describes how the loan is funded, such as whether it’s funded by a private lender, a bank, or through another financing source.
3. Review Type: Indicates the type of review that the loan undergoes (e.g., underwriting, documentation review).
4. Loan Type: Refers to the specific kind of loan, such as a bridge loan, hard money loan, or permanent mortgage.
5. Cash Out Flag: A flag indicating whether the loan includes a "cash-out" refinance, meaning the borrower receives cash from the equity in the property.
6. Cash Out Amount – Estimate: The estimated amount of cash that will be made available to the borrower at closing through a cash-out refinance.
7. Cash Out Amount – Final: The actual cash-out amount after closing, reflecting the final figure after all adjustments.
8. New Construction Flag: A flag indicating whether the property being financed is a new construction project or an existing property undergoing renovation.

🩵 Property Details

1. Property Address (Street, City, State, Zip): The physical location of the property being financed.
2. Property Type: Describes the type of real estate involved (e.g., single-family home, multi-family, commercial, etc.).
3. Number of Properties: The number of properties included in the loan, which could be for a single property or a portfolio of multiple properties.
4. Number of Units: The total number of individual units within the property (e.g., 10 apartments in a multi-family building).
5. Pre-Rehab Sq. Ft.: The square footage of the property before any rehabilitation or renovation work is done.
6. Post Rehab Sq. Ft.: The square footage of the property after the renovation or rehab, which might have increased due to expansion or improvements.

💚 Borrower & Entity Info

1. Borrowing Entity: The individual or business entity (e.g., LLC) that is borrowing the funds for the project.
2. FICO: The borrower’s FICO score, which is a credit score used by lenders to assess creditworthiness.
3. Cash Reserves: The amount of cash the borrower has in reserve to cover unexpected expenses during the loan term.
4. Borrower Experience – Number of Projects: The total number of real estate projects the borrower has completed in the past.
5. Borrower Experience – $ Value of Projects: The total dollar value of the projects the borrower has completed.
6. Foreign National Flag: Indicates whether the borrower is a foreign national (non-U.S. citizen or resident).
7. Guaranty Type: The type of guarantee given by the borrower or another party for the loan, such as a personal guarantee.
8. Borrower Funded Interest Reserve: The amount of money the borrower has set aside to cover interest payments during the life of the loan.

💜 Valuations & Financials

1. UPB (Unpaid Principal Balance): The remaining amount of the loan that the borrower still owes.
2. Day 1 Loan Amount: The original loan amount on the first day of funding.
3. Holdback Loan Amount: A portion of the loan that is held back by the lender until certain conditions are met, often related to project completion.
4. Interest Reserve Amount: A portion of the loan set aside to cover interest payments until the property is operational or sold.
5. Total Loan Amount: The total amount of the loan, including both the principal and any reserves or holdbacks.
6. Disbursed Holdback Amount: The amount of the holdback that has been disbursed to the borrower as the project progresses.
7. Disbursed Interest Reserve: The amount of the interest reserve that has been released to cover interest payments.
8. Accrual Type: The method by which interest is calculated on the loan (e.g., simple interest, compound interest).
9. AIV (After Interest Value): The estimated value of the property after accounting for the interest that accrues over the term of the loan.
10. ARV (After Repair Value): The estimated value of the property after it has been fully renovated or repaired.
11. Market Rent: The estimated rent a property can achieve in the current market conditions.
12. Purchase Price: The price paid by the borrower to acquire the property.
13. Wholesale Fee: A fee paid to a wholesaler for acquiring or brokering the deal, typically in real estate flips.
14. Remaining Budget: The remaining amount of the loan allocated for the project or renovation.
15. Costs Spent to Date: The total amount of money spent on the project so far, including both construction and other related costs.
16. Total Project Costs: The overall costs of the project, including acquisition, renovation, financing, and other expenses.
17. LTAIV (Loan-to-After-Interest Value): A ratio that compares the total loan amount to the after-interest value of the property.
18. LTC (Loan-to-Cost): A ratio that compares the loan amount to the total cost of the project, including purchase price and renovations.
19. LTARV (Loan-to-After-Repair Value): A ratio that compares the loan amount to the expected after-repair value of the property.

🩶 Dates & Timing

1. Property Acquisition Date: The date the borrower officially acquires the property.
2. Appraisal Date: The date the property was appraised for its market value.
3. Estimated Origination Date: The estimated date when the loan is expected to be originated (funded).
4. Origination Date: The actual date the loan is originated and the funds are disbursed.
5. First Payment Date: The date when the borrower is first scheduled to make a payment on the loan.
6. Original Maturity Date: The date the loan is originally scheduled to be paid off in full.
7. Current Maturity Date: The current date when the loan is scheduled to be paid off, which may have been extended.
8. Next Payment Due Date: The date when the borrower’s next payment is due.

🤍 Other Deal Info & Flags

1. Appraisal Source: The organization or individual that performed the property appraisal.
2. Exit Strategy: The plan for repaying the loan or selling the property, such as refinancing or selling the property.
3. Term: The length of time the loan is intended to be active, typically measured in months or years.
4. Interest Rate Type: The type of interest rate applied to the loan, such as fixed or variable.
5. Interest Rate: The percentage rate charged on the loan, which can be fixed or adjustable.
6. Interest Accrual Type: The method by which interest is accrued (e.g., daily, monthly).
7. Total Origination Points: The total number of points (fees) charged at the beginning of the loan, typically expressed as a percentage of the loan amount.
8. Cross Collateralization Flag: A flag indicating whether multiple properties are being used as collateral for the loan.
9. Extension Flag: A flag indicating whether the loan allows for an extension of its term.
10. Deal Description: A summary of the real estate investment or financing deal, including key project details.
11. Originator Entity Name: The name of the entity that originated the loan.

Conclusion

Understanding these terms is essential for anyone involved in real estate investment and financing. Whether you’re a borrower, lender, or investor, these terms will help you navigate the process, assess risk, and evaluate the financial structure of a deal. Being familiar with the terminology allows you to make better, more informed decisions in the dynamic world of real estate.