Appreciation refers to the increase in the value of a property over time. Appreciation can be caused by a number of things including inflation, the increase in demand or a decrease in the supply of properties. Appreciation can also take into account added value as a result of property improvements (such as upgrading a kitchen, adding a room or a pool, etc.).

Appreciation is usually projected as a percentage of the property’s value over the course of a year.

Appreciation is usually projected as a percentage of the property’s value over the course of a year.

The appraised value assumes successful completion of the project based upon the scope 

and budget provided by the Borrower and deemed feasible by a required third party. The “As Repaired” or “As- Completed” appraisal’s scope of costs much match the scope and budget reviewed and approved in third party feasibility

The current “As Is” appraised value. For entitled properties the “as-is” value should equal the “As 

Completed” Value less Rehab Budget (must apply a market profit margin)   

As is value refers to the value of an asset in its current condition, without any improvements or repairs. It is often used in real estate transactions to determine the value of a property in its current state, without taking into account any potential renovations or upgrades that could increase its value.

For example, if a house is being sold in as is condition, the as is value would be the price that the house would fetch in its current state, with all of its existing flaws and defects.

Maximum Loan Amount divided by Total Project Cost 

BER is a ratio some lenders use to calculate and gauge the proportion between the money going out, VS the money coming in.

We use this to estimate how vulnerable a property is to defaulting on its debt if the rental income declines. 

BER reveals the percent of income consumed by the estimated expenses.

What does this mean?

If you are renting a property we want to see that it brings at least 1.2

This is calculated like this. For every dollar that you earn in rent, it has to be able to pay for the debt and have at leats .25 left as proffit. 

What is the debt?

(Operating Expense + Debt Service)

÷ Gross Operating Income

= Break-Even Ratio

A bridge loan is a short-term loan used to acquire real estate properties fast until a person or a company can secure permanent financing/Lent Term financing/ Stabilize the real estate asset or removes an existing obligation. 

This type of financing allows the user to meet current obligations by providing immediate cash flow. These loans are short-term, up to one year, and are backed by some form of collateral such as the real estate asset.

These loans don't have a p[repayment penalty. You can acquire a property and then turn around and apply for a 30 year fixed rate loan immediately or after you have stabilized the real estate asset. 

This popular return expresses the ratio between a rental property’s value and its net operating income. The cap rate formula commonly serves two useful real estate investing purposes: To calculate a property’s cap rate, or by transposing the formula, to calculate a property’s reasonable estimate of value.

Net Operating Income

÷ Market Value

= Cap Rate

OR

Net Operating Income

÷ Cap rate

= Market Value

CoC is the ratio between a property’s cash flow in a given year and the amount of initial capital investment required to make the acquisition (e.g., mortgage down payment and closing costs). Most investors usually look at cash-on-cash as it relates to cash flow before taxes during the first year of ownership.

Cash Flow Before Taxes

÷ Initial Capital Investment

= Cash on Cash Return

CFBT is the number of dollars a property generates in a given year after all expenses but in turn still subject to the real estate investor’s income tax liability.

Net Operating Income

less Debt Service

less Capital Expenditures

= Cash Flow Before Tax

A cash flow property is an investment property that generates a surplus of money each month after all expenses have been paid.

DCR is a ratio that expresses the number of times annual net operating income exceeds debt service (i.e., total loan payment, including both principal and interest).

Net Operating Income

÷ Debt Service

= Debt Coverage Ratio

DCR results:

Less than 1.0 – not enough NOI to cover the debt

Exactly 1.0 – just enough NOI to cover the debt

Greater than 1.0 – more than enough NOI to cover the debt

DSCR stands for Debt Service Coverage Ratio, which is a measure of a property's ability to generate enough cash flow to cover its debt obligations. They focus on the property's cash flow rather than the borrower's proof of income. 

Lenders use DSCR to determine whether a property has enough net operating income to pay back loans.

The DSCR formula is: 

DSCR = net operating income / total debt service

How to interpret your DSCR?

* DSCR < 1: You have negative cash flow. You don’t have enough rental income to service the debt (New PITI payment)

* DSCR = 1: You have exactly enough rental coming in to service the debt (New PITI payment), but you don’t have an additional cash cushion

* DSCR > 1: You have positive cash flow. The higher your DSCR, the more income you have to service the debt (New PITI payment)

* This ratio is especially important because the result gives some indication to the lender of whether you’ll be able to pay back the loan with interest. A ratio over 1 is good, and anything over 1.2 or more is best.

* Lenders use the DSCR ratio to determine how much debt a property can support. A higher DSCR ratio indicates a lower risk of default.

* DSCR loans may have longer repayment terms than other types of commercial real estate loans, up to 30 years in some cases.

* DSCR loans may have prepayment penalties if the borrower pays off the loan before the end of the term.

It is important to know if you're buying a property that's located n a Flood Zone. 

How do I find out if my property is in a Flood Zone?

You can use this LINK to verify if the property that you are buying in is a Flood Zone.

GOI is gross scheduled income less vacancy and credit loss plus income derived from other sources such as coin-operated laundry facilities. Consider GOI as the amount of rental income the real estate investor actually collects to service the rental property.

Gross Scheduled Income

less Vacancy and Credit Loss

plus Other Income

= Gross Operating Income

GRM is a simple method used by analysts to determine a rental income property’s market value based upon its gross scheduled income. You would first calculate the GRM using the market value at which other properties sold, and then apply that GRM to determine the market value for your own property.

Market Value

÷ Gross Scheduled Income

= Gross Rent Multiplier

Then,

Gross Scheduled Income

x Gross Rent Multiplier

= Market Value

GSI is the annual rental income a property would generate if 100% of all space were rented and all rents collected. If vacant units do exist at the time of your real estate analysis then include them at their reasonable market rent.

Rental Income (actual)

plus Vacant Units (at market rent)

= Gross Scheduled Income

Includes Land Value, Construction and Soft Costs expended to date, Interest Reserves, and 

customary borrower-paid arms-length closing costs/fees, including real estate broker commissions, title, escrow, Assignment Fees, other closing costs, and the amount of taxes, HOA dues, assessments, and liens paid by the borrower or its affiliates in connection with the acquisition to date. Mortgage broker fees, origination points, etc. are excluded 

is an amount set aside at a  loan origination to cover the monthly payments. 

In hard money lending,  based on your experience and credit the lender will require; Where 12-month bridge loans are the most common, we'll often set aside 6 to 12 monthly payments from the loan proceeds at the close of escrow.

Escrow means that those payments are held in escrow and every month that escrow will pay for the monthly payments indicated on the loan term sheet for you to review before you signed and agreed on the contract.

Initial Loan Amount divided by borrower Initial Cost Basis at origination date

Loan to as-is value (LTV) is a financial term used to describe the ratio between the amount of a loan and the appraised value of the property being used as collateral. In other words, it is the percentage of the property's value that is being financed by the loan.

For example, if a property is appraised at $100,000 and a  borrower is seeking a loan of $80,000, the LTV would be 80% (80,000 ÷ 80,000÷100,000 = 0.8 or 80%).

LTV is an important factor in determining the risk associated with a loan and can impact the interest rate, loan terms, and whether or not a borrower will be required to pay private mortgage insurance (PMI).

Maximum Loan Amount divided by the “As-Completed” appraised value

(LTC) Loan-to-cost compares the financing amount of a commercial real estate project to its cost. 

LTC is calculated as the loan amount divided by the construction cost. 

Loan Amount

÷ Construction Costs

= Loan to Cost

A leveraged return is the return calculated on an investment that takes advantage of a mortgage. It is calculated by subtracting the expenses incurred by the property (including the interest payment on the mortgage) from the income produced by the property and dividing that by the initial investment amount.

Calculation: Income – expenses (including interest payment) / initial investment amount

This differs from the cash on cash return because it includes the principal pay down as part of the return.

While slightly riskier, using leverage is advantageous to investors as it provides higher returns, enables them to diversify across multiple properties. For example, an investor can purchase one property for $100,000. The same investor can get four properties of $100,000 each, by putting down $25,000 on each property.

LTV measures what percentage of a property’s appraised value or selling price (whichever is less) is attributable to financing. A higher LTV benefits real estate investors with greater leverage, whereas lenders regard a higher LTV as a greater financial risk.

Loan Amount

÷ Lesser of Appraised Value or Selling Price

= Loan to Value

NOI is a property’s income after being reduced by vacancy and credit loss and all operating expenses. NOI is one of the most important calculations to any real estate investment because it represents the income stream that subsequently determines the property’s market value – that is, the price a real estate investor is willing to pay for that income stream.

Gross Operating Income

less Operating Expenses

= Net Operating Income

Operating expenses include those costs associated with keeping a property operational and in service. These include property taxes, insurance, utilities, and routine maintenance. They do not include payments made for mortgages, capital expenditures or income taxes.

OER expresses the ratio (as a percentage) between a real estate investment’s total operating expenses dollar amount to its gross operating income dollar amount.

Operating Expenses

÷ Gross Operating Income

= Operating Expense Ratio

Rent Yield is a term used in real estate investment that refers to the percentage of income generated by a rental property relative to its value. It is calculated by dividing the annual rental income by the property's value and multiplying the result by 100. For example, if a property is worth 

500,000mand generates 25,000 in annual rental income, the rent yield would be 5%.

Rent Yield is an important metric for real estate investors as it helps them assess the potential return on investment of a rental property. A higher rent yield indicates that the property is generating more income relative to its value, which can make it a more attractive investment opportunity.

Sadly we don't fund properties that are considered Rural.

How do I find out if my property is Rural?

You can use this link to verify if your property is considered Rural.

A single family rental, or SFR is a free-standing residential property designed to house one family that was purchased by an investor and rented to a tenant. SFRs are defined in opposition to a multi-family property, though properties up to a fourplex are sometimes classified as SFRs as well. Properties with more than four units are defined as multi-family properties. Single family properties generally appeal to families, so from an investment perspective, can be seen as more stable.

Initial Cost Basis plus unfunded construction budget

A turnkey property, or TKP is a property that has been purchased, rehabbed and rented to a tenant and is now for sale to another investor. Turnkey properties usually cash flow from the moment the investor purchases it since the property is already rented.

The money that investors set aside to prepare for future vacancy is called a vacancy provision. It is a percentage of the monthly rent. The average vacancy provision is 6% for vacancy and 6% for maintenance.