Navigate industry jargon with ease. A comprehensive glossary of lending terms to help you make informed decisions at every stage of your investment journey.
Whether you're new to investing or a seasoned professional, understanding the terms used in construction loans and financing is essential. Our glossary provides clear and concise definitions to help you make informed decisions.
The estimated market value of a property after renovations or repairs are completed. Investors use ARV to determine potential profit margins in fix-and-flip projects.
ARV = Property's Current Value + Value of Repairs / Improvements
The increase in a property's value over time due to market demand, economic conditions, or property improvements. Appreciation is a key factor in building equity.
Annual Appreciation Rate = (Current Value – Purchase Price) / Purchase Price × 100
A financial metric showing the percentage of income required to cover operating expenses and debt payments. A lower BER indicates a more profitable property.
BER = (Operating Expenses + Debt Service) / Gross Operating Income
A short-term loan used to bridge the gap between buying and selling properties or securing permanent financing. Bridge loans offer quick access to capital with flexible terms.
Short for Capitalization Rate. Measures a property's return on investment based on the annual net operating income divided by the purchase price or current market value.
Cap Rate = (Net Operating Income / Property Value) × 100
The total amount of cash generated by a property before accounting for taxes. Includes rental income minus operating expenses and debt payments.
CFBT = Gross Income – (Operating Expenses + Debt Service)
A performance metric that calculates the annual cash income earned on the cash invested in a property, expressed as a percentage.
CoC = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
Properties with similar characteristics - such as location, size, and condition - used to determine a subject property's market value.
A measure of a property's ability to cover its debt obligations with its net operating income. A DCR greater than 1 indicates income exceeds debt payments.
DCR = Net Operating Income / Debt Service
Assesses the ability to service debt from property income alone. A DSCR of 1.2 means a property's NOI is 20% higher than its debt obligations. Integrated Capital Solutionsaccepts DSCR as low as 0.75.
DSCR = Net Operating Income / Total Debt Service
The difference between a property's market value and the amount owed on the mortgage. Equity grows through loan paydown and appreciation.
Equity = Property Value – Outstanding Loan Balance
The total rental income a property generates before subtracting operating expenses. Includes all potential income sources such as rent and fees.
GOI = Gross Rental Income + Other Income
A quick metric for valuing rental properties, calculated by dividing the property price by its gross annual rental income.
GRM = Property Price / Annual Gross Rental Income
The total income a property could generate if fully rented, assuming no vacancies or non-paying tenants.
The budget for tangible construction costs - labor, materials, and equipment - needed to complete a project.
Interest-Only payments made on a loan where the borrower pays only the interest for a set period, delaying principal repayment. Common in short-term investment loans.
The use of borrowed capital to increase the potential return on investment. Leverage amplifies gains but also increases risk.
Leverage Return = Total ROI with Financing – ROI without Financing
The percentage of a project's total costs financed by a loan. Used in construction and fix-and-flip lending.
LTC = Loan Amount / Total Project Cost × 100
A ratio measuring the loan amount as a percentage of a property's appraised value. Lower LTVs indicate lower financial risk for the lender.
LTV = Loan Amount / Appraised Property Value × 100
A residential property designed to house multiple families in separate units, such as duplexes, triplexes, or apartment buildings.
A property's total income after operating expenses are subtracted but before debt payments and taxes. A key indicator of profitability.
NOI = Gross Operating Income – Operating Expenses
The costs associated with maintaining and managing a property - including taxes, insurance, repairs, and utilities.
A metric comparing operating expenses to gross operating income. Used to measure the efficiency of property management.
OER = Operating Expenses / Gross Operating Income × 100
Fees charged by lenders for processing a loan, expressed as a percentage of the loan amount. One point equals 1% of the loan amount.
A fee charged to borrowers for paying off a loan before its maturity date. Integrated Capital Solutionsbridge loans carry no prepayment penalties.
Short for rehabilitation. The process of renovating a property to increase its value, prepare it for sale, or make it rent-ready.
Funds set aside by the lender to be released in stages as renovation milestones are completed and verified.
A performance metric measuring the profitability of an investment relative to its cost.
ROI = (Net Profit / Initial Investment) × 100
A detailed document outlining the tasks, materials, and timeline for a construction or renovation project. Required for draw approval.
The length of time a borrower has held a property or loan. Some lenders require seasoning periods to reduce risk.
Residential properties rented to individual tenants or families. Often considered a stable and scalable long-term investment.
The budget for non-tangible construction costs - permits, architectural fees, engineering, and legal expenses.
A legal claim placed on a property by the government for unpaid taxes. Tax liens must be resolved before a property can be sold or refinanced.
A fully renovated, rented, and managed property that allows investors to generate income immediately after purchase.
An allowance in financial projections to account for periods when rental units are unoccupied and not generating income.
Still have questions about loan terms or how they apply to your deal? Contact our team or browse our FAQ for more answers.
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