Hard Money Glossary

Below are some hard money terms that are useful for new real estate investors to know as they do their research about real estate investing:

Appraisal– An appraisal is used to determine the value of the home by an experienced appraiser.

ARV– The ARV or After Repair Value is what the home will be worth once the repairs have been completed on the property.  The ARV is a good metric to determining the overall quality of the investment and at Lima One Capital we will lend up to 70% of the ARV.

Cash-Out– Pulling equity out of a non-owner occupied, single family residential property.

Closing Costs– A closing cost is a fee charged to the borrower when the loan is closed.  Lima One Capital offers fixed closing costs to our borrowers.

Complete Rehab– Financing the purchase and rehab of a non-owner occupied, single family residential property.

Construction– Establishing a construction loan on a non-owner occupied, single family residential property owned free and clear, using the subject property as the collateral.

Junk Fees– Unnecessary and costly fees that are charged by most hard money lenders.  At Lima One Capital borrowers can always be assured that they will never be charged any hidden costs or junk fees.

Leverage– The use of various financial instruments or borrowed capital to increase the potential return on an investment.  At Lima One Capital we offer our borrowers 90% loan to cost allowing our borrowers the ability to earn higher profits and do more deals.

Lien– A claim against a real property.  Lima One Capital assumes a first lien position on the properties we lend on.

Long Term Rental– Financing the acquisition and rehab of a non-owner occupied, single family residential property that the borrower is going to keep as a rental property.

Origination Fee– An up-front fee charged by a lender for originating a new loan, used as compensation for putting the loan in place.  Origination fees are quoted as a percentage of the total loan.  Can also be referred to as points.

Personal Guarantee­- A personal guarantee is a guarantee in which an individual agrees to be responsible for the financial obligations of a debtor or borrower to a lender, in the event that the debtor or borrower fails to pay an amount owing under the loan agreement.

Principle– The base amount of the hard money loan is borrowed by the investor.

Proof of Funds– A letter that states the borrower is pre-approved for a hard money loan.

Transactional Funding– Financing designed for wholesalers.  Funding clients acquisition of the property (A-B transaction), given the property is sold in the same attorney’s office on the same day (B-C transaction), typically simultaneous transaction/double closing.

The above terms are just some of the hard money lending terms real estate investors should familiarize themselves with when looking to do their next deal and working with a hard money lender.