The High-Level Investor’s Glossary: Mastering the Language of Private and Commercial Real Estate
- nirvanafsol
- Apr 30
- 3 min read
Updated: May 8
Key Lending Structures and Roles
Private Lender: An individual or firm that lends money secured by real estate, typically for business-purpose loans not regulated under consumer lending laws.
Direct Lender: Originates and funds loans directly to the borrower without intermediaries. Direct lenders typically fund residential transitional loans (RTL) and bridge loans, such as fix and flip or ground-up construction loans, often using capital from their own balance sheet. To do so, they usually raise capital from investors and may utilize warehouse lines of credit. For longer-term products like DSCR loans, they often operate as correspondent lenders or use table funding through larger aggregators. Many direct lenders offer all of these solutions under one company to diversify capital and maintain control over underwriting and service.
Correspondent Lender: Funds loans in their own name, then sells them to a larger lender or aggregator shortly after closing.
Table Funder: Provides the capital for a loan at closing on behalf of another lender or originator.
Broker: Acts as a middleman connecting borrowers with lenders.
Loan Types
DSCR Loan: Based on rental income rather than borrower income. How to Calculate DSCR: Net Operating Income ÷ Annual Debt Service.
Example: If NOI is $100,000 and debt payments are $60,000, then DSCR = 1.67
Bridge Loan: Short-term financing, typically 12 to 36 months, used to acquire or rehab a property before refinancing or selling.
Ground-Up Construction Loan: Provides funds for land acquisition and new construction. Typically interest-only with draw schedules.
Fix and Flip or Rehab Loan: Used for acquiring and renovating properties for resale or refinance. Often includes construction reserves and short terms.
Portfolio Loan: Finances multiple properties under one loan, often used by seasoned investors looking to scale.
Second Lien Loan: A junior loan that sits behind a first mortgage. Higher risk, often used to tap additional equity.
HELOC: A revolving credit line secured by real estate, usually on 1–4 unit properties in personal names.
Key Financial Metrics and How to Calculate Them
Loan-to-Value (LTV): Loan Amount ÷ Property Value: Example: $650,000 loan on a $1,000,000 property = 65% LTV
Loan-to-Cost (LTC): Loan Amount ÷ Total Project Cost. Used for construction loans. Example: $800,000 loan on a $1,000,000 budget = 80% LTC
Loan-to-As-Repaired Value (LTARV): Loan Amount ÷ ARV
Used in renovation loans. If ARV is $900,000 and loan is $675,000, LTARV = 75%
Debt Service Coverage Ratio (DSCR)Net Operating Income ÷ Annual Debt Service. A DSCR over 1.25 is typically preferred by lenders.
Net Operating Income (NOI): Gross Income – Operating Expenses
Excludes loan payments and capital expenses.
Capitalization Rate (Cap Rate): NOI ÷ Property Value
Example: $90,000 NOI ÷ $1,200,000 purchase = 7.5% Cap Rate
Property Types
Single Family Residence (SFR)1–4 unit residential property, whether owner-occupied or investment.
Multifamily: Residential properties with 5+ units.
Mixed Use: A property combining residential, retail, or commercial components.
Ground-Up: A project starting from undeveloped land or full demolition.
Real Estate Owned (REO): Properties owned by a lender after foreclosure.
Servicing and Operational Terms
Amortization Schedule: Details each monthly payment, showing how much goes toward principal and interest.
Principal and Interest (P&I): The core components of most monthly loan payments.
Loan Modification: A change in loan terms negotiated between borrower and lender to avoid default.
Forbearance: A temporary pause or reduction in loan payments due to hardship.
Rehab Draw Management: The disbursement process for renovation funds, usually released in phases.
Legal and Compliance Terms
Promissory Note: A borrower’s signed promise to repay the loan.
Mortgage or Deed of Trust: The document securing the loan with the property as collateral.
Assignment of Mortgage: Transfers ownership of the loan from one entity to another.
Non-Recourse Loan: Limits personal liability of the borrower unless there are bad acts or fraud.
Capital Markets and Exit Terms
Yield Maintenance: A prepayment penalty that protects investors from interest loss due to early payoff.
Weighted Average Coupon (WAC)The average interest rate of a pool of loans, weighted by size.
Securitization: The pooling of loans into a trust that issues bonds backed by loan payments.
Loan Aggregator: An institution that purchases and packages loans for resale or securitization.
Valuation and Risk
As-Is Value: The property’s current market value without improvements.
As-Repaired Value (ARV): The projected value after planned renovations.
Interest Reserve: Funds held to pay interest during construction, usually in renovation or ground-up projects.
Construction Reserve: Funds held by the lender to pay for renovation or new build costs.
Every successful investor eventually becomes fluent in the language of real estate finance. Whether you’re negotiating terms, pitching partners, or analyzing your next acquisition, this glossary gives you the precision you need to move with confidence.
