Glossary

Investor lending glossary

43 terms, defined for investment property lending — not for a general mortgage glossary that happens to mention rentals.

A lot of these words already have an entry on a generic mortgage glossary somewhere, and that entry is frequently the wrong one to read. Loan-to-value means something different when the collateral is a rental and the buyer qualifies on the property's rent instead of a paycheck. Credit score minimums, seasoning periods and DSCR floors are underwriting rules that only exist in this corner of lending. Cap rate and gross rent multiplier don't come up on an owner-occupied purchase at all. Each definition below is written from that side of the fence — how the term is actually used when the property, not the person, is what's being underwritten — and grouped by what it measures, how a loan is structured, or which strategy it belongs to.

Metrics & appraisal 20 terms

The ratios, income figures and appraisal forms that decide whether a deal qualifies and what it is worth — DSCR, cap rate, NOI, ARV, and the Fannie Mae forms that produce the rent and value numbers a lender actually uses.

1031 Exchange

A 1031 exchange lets an investor sell investment property and reinvest the proceeds into like-kind property while deferring capital gains tax, provided strict identification and closing deadlines are met.

After Repair Value (ARV)

After repair value is the estimated market value of a property once planned renovations are finished. It is the basis for most fix-and-flip and BRRRR lending decisions.

Appraisal Reconsideration of Value (ROV)

A reconsideration of value, or ROV, is a formal request asking an appraiser to revisit a figure on a completed appraisal — typically the value, but sometimes a rent opinion — using additional data or pointing out a factual error.

Appraisal Subject to Completion

An appraisal made subject to completion values a property as though planned repairs, alterations, or construction described in plans and specifications have already been finished, rather than valuing the property in its current, unfinished condition.

As-Is vs. ARV Appraisal

An as-is appraisal reports a property’s value in its current condition on the inspection date. An ARV appraisal reports the value the property is expected to reach once specified renovation is finished. Lenders use one, the other, or both depending on the loan.

Capitalization Rate (Cap Rate)

A cap rate is a property’s annual net operating income divided by its price or value, expressed as a percentage. It is the unlevered yield the property produces at that price.

Cash-on-Cash Return

Cash-on-cash return is the annual pre-tax cash flow a property produces divided by the total cash you put into it. Unlike cap rate, it accounts for financing.

Comparable Rent Schedule

A comparable rent schedule is the appraisal method of estimating a property’s market rent by identifying similar rented properties nearby, adjusting their rents for differences, and reconciling them into a single opinion. On one-unit properties this method is formalized as Form 1007; on two-to-four unit properties it is built into Form 1025.

Debt Service Coverage Ratio (DSCR)

DSCR is a property’s gross monthly rent divided by its total monthly mortgage payment. A DSCR of 1.00 means the rent exactly covers the payment; 1.25 means rent exceeds the payment by 25%.

Form 1004 (Uniform Residential Appraisal Report)

Form 1004, the Uniform Residential Appraisal Report, is the standard appraisal form for one-unit residential properties. It documents the property, the neighborhood, and comparable sales, and reconciles them into a single opinion of value.

Form 1007 (Single-Family Comparable Rent Schedule)

Form 1007 is a one-page appraisal addendum, ordered alongside the standard appraisal on a one-unit property, in which the appraiser identifies comparable rentals and reconciles them to a single opinion of the property’s market rent.

Form 1025 (Small Residential Income Property Appraisal Report)

Form 1025 is the standard appraisal report used for two-to-four unit residential properties. Unlike the one-unit report, it includes an income approach and a unit-by-unit rent analysis, since these properties are typically rented.

Form 216 (Operating Income Statement)

Form 216, the Operating Income Statement, is an appraisal form used alongside a small residential income property appraisal to develop the estimated income and expenses that support an income-approach opinion of value.

Gross Rent Multiplier (GRM)

Gross rent multiplier is a property’s price divided by its annual gross rent. A $400,000 property renting for $40,000 a year has a GRM of 10.

Market Rent vs. Actual Rent

Market rent is an appraiser’s opinion of what a comparable unit should currently rent for. Actual rent is the contract rent stated in an existing lease. The two frequently differ, and which one a lender uses to qualify a loan depends on the lender’s policy.

Net Operating Income (NOI)

Net operating income is a property’s annual income minus its operating expenses, calculated before any mortgage payment. It measures what the property earns, independent of how it was financed.

Rental Property Depreciation

Depreciation is an annual deduction for the wearing out of a rental building, taken over 27.5 years for residential property. Land is never depreciated.

Seasoning Period

A seasoning period is the minimum time a lender requires you to have held a property, a loan, or funds before it will lend against them. Title seasoning is the version that most affects investors.

The 70% Rule

The 70% rule says a flipper should pay no more than 70% of a property’s after repair value, minus the cost of repairs. On a $400,000 ARV with $60,000 of rehab, the maximum offer is $220,000.

Vacancy and Collection Loss

Vacancy and collection loss is the portion of a property’s potential gross rent lost to unrented time and to rent billed but not collected. Subtracting it from potential gross rent produces effective gross income.

Loan & ownership structures 13 terms

The way a loan or an entity is put together — hard money, non-QM, blanket mortgages, LLC vesting — and what each structure actually does rather than what it is assumed to do.

Asset-Based Lending

Asset-based lending underwrites primarily on the value and income of the collateral rather than the borrower’s personal income. In real estate this covers hard money, bridge and DSCR loans.

Blanket Mortgage

A blanket mortgage is a single loan secured by two or more properties. It consolidates a portfolio into one payment, one rate and one maturity.

Cash-Out Refinance (Rental Property)

A cash-out refinance replaces an existing loan on a rental with a larger one, paying the borrower the difference in cash. The proceeds are loan proceeds, not taxable income.

Cost Segregation Study

A cost segregation study reclassifies parts of a building into 5, 7 and 15-year depreciation lives instead of 27.5 or 39, moving deductions into the early years of ownership.

Cross-Collateralization

Cross-collateralization means pledging more than one property as security for a single loan, so the lender can look to multiple assets if the borrower defaults.

Delayed Financing Exception

The delayed financing exception allows a buyer who purchased a property with cash to take a cash-out refinance immediately, without waiting out the usual seasoning period.

Hard Money Loan

A hard money loan is short-term real estate financing secured by the property and underwritten mainly on its value, typically from a private lender rather than a bank.

Interest-Only DSCR Loan

An interest-only DSCR loan requires only interest payments for an initial period, typically five to ten years, before converting to fully amortising payments for the remaining term.

LLC for Rental Property

An LLC is a legal entity that can hold title to rental property, separating the property’s liabilities from the owner’s personal assets. Most investor lenders permit it; most conventional lenders do not.

No-Income-Verification Mortgage

A no-income-verification mortgage qualifies a borrower without tax returns, W-2s or pay stubs. On investment property this generally means a DSCR loan, which qualifies on the property’s rent instead.

Non-QM Loan

A non-QM loan is a mortgage that does not meet the Qualified Mortgage standard, usually because it verifies income by some route other than tax returns. It is a documentation category, not a credit-quality one.

Self-Directed IRA (Real Estate)

A self-directed IRA is a retirement account held at a custodian that permits alternative assets, including real estate. The IRA owns the property; all income and expenses flow through the account.

Umbrella Policy (Rental Property)

An umbrella policy provides additional liability coverage above the limits of your underlying landlord and auto policies, typically in increments of $1 million.

Strategies 10 terms

The plays themselves: how investors buy, hold, flip, furnish and finance property, and where each approach runs into its own constraints.