Basic Terminology Flashcards
A designation for different types of residences. 2-4 stands for duplex (2), triplex (3), and fourplex (4). Du, tri, and four all describe how many residences are in a single building. You will see 2-4 Plex when searching for property types a lender will offer loans on.
2-4 plex
The documentation for the creation of a corporation. These documents are filed with the US government and the corporation is formally recognized as an entity in the United States.
Articles of Incorporation
The documentation for the creation of a Limited Liability Company (LLC). These documents are filed with the Secretary of State where the LLC is created and the LLC becomes a formally recognized registered business entity.
Articles of Organization
This is the amount that a property will be worth after rehabilitation/renovation.
After-repair value (ARV)
The name of the person, entity, corporation, LLC, etc that is named on a loan.
Borrower
Also known as a Hard Money Loan. “***”are short term loans for property investors who buy homes, rehab/renovate, and put them back on the market within 12-18 months.
have higher interest rates and an average 12 month term, but the loan terms will differ from borrower to borrower based on experience, credit, and other factors.
Bridge Loan
“***” in real estate is used to measure the length of time it will take for an investment to pay itself off. This amount is found by taking the annual net operating income and dividing it by the cost or value of the property. This rate provides an estimated property value based on net operating income
Capitalization rate
To determine a sale price, sellers measure similar properties against each other by comparing property characteristics. Factors include square footage, layout, amenities, and additions to the property that make it stand out from other homes. “***” can also include city housing market research and neighborhood home sale data to increase the amount of usable data.
Comparables
An organization that exists separately from an individual for tax purposes. In real estate, the most common are Limited Liability Company (LLC), Limited Partnership, or S Corporation. Other entities include Corporations, General Partnerships, and Revocable Trusts
Entity
is a business organization that limits the personal liability of its members. It can provide legal advantages similar to a corporation and tax advantages of a partnership.
LLC
a business organization where an individual or party that participates as a minority investor and is limited by legal agreement. “***” member can’t participate in any management of the business and only has liability in the capital invested.
Limited Partnership
business organization with 100 or fewer stockholders that decides not to be taxed as a regular corporation. There are other requirements to establish as an “***”
S Corporation
a business organization that’s formed as a separate legal entity where ownership is proved with stock shares.
Corporation
co-owned business, with more than one owner, that has not filed papers to become a corporation or LLC. Even if you haven’t filed papers, there will still be city or county requirements that have to be met. You might also have to register a fictitious business name with your county.
General Partnership
trust that can be changed depending on the grantor. A grantor is the person who is either the creator of the trust or the options seller. A real estate revocable trust manages assets for the owner over time.
Revocable trust
used in real estate transactions. When purchasing property, a third party receives and distributes funds and/or documents between the primary parties where distribution depends on the agreement between the two transacting parties
Escrow
determines a number based off of credit reporting agencies. This score is used to determine borrower risk when loaning funds. Credit scores are calculated using information like the age of credit accounts, payment history, and more. Ranging from 300 to 850, this number affects loan approval, interest rate, and loan terms for the borrower.
FICO score
An interest rate that doesn’t change over the course of the entire loan.
Fixed rate
a person who guarantees to pay someone else’s debt if the loan defaults.
“***” might be necessary if someone who has a low credit score is trying to get a loan
A guarantor
Also known as Bridge Loan. “***”are short term loans given to property investors who will buy homes, rehab/renovate, and put back on the market within 12-18 months.
“***” have higher interest rates than a traditional home mortgage and an average 12 month term, but the loan terms will differ from borrower to borrower based on experience, credit, and other factors.
Hard Money
A contract that provides financial protection and/or reimbursement for losses paid by an insurance company. There are different types of policies, and property investors may have to obtain different homeowners insurance to qualify for a hard money loan.
Insurance
An amount charged, as a percentage of the principal loan, to a borrower by a lender. The percentage can vary depending on the loan terms. Every month, the “***” is applied to the principal amount and that sum is added to the total loan.
Interest rate
is the ratio comparing the loan amount of the project to the total purchase price of the property. The higher the “”, the more risky the project will be. A high “” can affect other factors of the loan and even loan approval.
Loan-to-Cost (LTC)
is the ratio that calculates the value of the loan to the home’s value. You can find the “” by dividing the loan amount by the appraisal value. “” is important because a lower “” rate can result in a lower rates compared to a higher risk “”.
Loan-to-Value (LTV)
