Hard Money Glossary
Essential terminology for real estate investors. Learn the language of hard money lending, deal analysis, and property investment.
A
ARV (After Repair Value)
The estimated value of a property after all repairs and renovations are completed. Lenders use ARV to determine loan amounts for fix & flip projects.
Example:
If you buy a property for $200K, put $50K into renovations, and the ARV is $350K, your potential profit is $100K minus holding costs and fees.
Asset-Based Lending
Lending decisions based primarily on the value of the collateral property rather than the borrower's credit history or income. Hard money loans are asset-based.
Example:
A hard money lender focuses on the property's value and exit strategy, not your W-2 income or credit score.
B
Balloon Payment
A large lump-sum payment due at the end of a loan term. Most hard money loans are interest-only with a balloon payment of the full principal at maturity.
Example:
You borrow $200K for 12 months. You pay interest-only monthly ($2,000/month), then pay the full $200K principal at month 12.
BPO (Broker Price Opinion)
A property valuation performed by a licensed real estate broker, typically less expensive than a full appraisal. Lenders often use BPOs for hard money loans.
Example:
Lender orders a BPO instead of an appraisal to save time and cost, getting a $350K value estimate in 2 days vs. 2 weeks.
Bridge Loan
Short-term financing used to 'bridge' the gap between two transactions, such as buying a new property before selling your current one.
Example:
You need to close on a new investment property in 2 weeks but your current flip won't sell for another month—a bridge loan covers the gap.
C
Cap Rate (Capitalization Rate)
The rate of return on a rental property based on net operating income. Formula: NOI / Property Value. Used to evaluate rental investments.
Example:
Property generates $24,000/year NOI and is worth $300K. Cap rate = $24,000 / $300,000 = 8%.
Cash-Out Refinance
Replacing your existing loan with a new, larger loan and taking the difference in cash. With hard money, this provides quick access to equity.
Example:
Your property is worth $400K with a $200K loan. You refinance for $300K (75% LTV) and take $100K cash out for your next deal.
Cash-on-Cash Return
Annual return on the actual cash invested in a property. Formula: Annual Cash Flow / Cash Invested. Important metric for rental properties.
Example:
You invest $50K cash, property generates $6,000/year cash flow. Cash-on-cash return = $6,000 / $50,000 = 12%.
Comparable Sales (Comps)
Similar properties recently sold in the same area, used to determine a property's market value. Essential for ARV calculations in fix & flip deals.
Example:
To value your flip, you find 3 similar renovated homes sold in the last 3 months: $340K, $350K, $360K. Your ARV estimate: $350K.
Construction Loan
Financing for ground-up construction or major renovations. Funds are typically disbursed in draws as work is completed.
Example:
Building a new spec home from vacant land with funds released at foundation, framing, rough-in, and completion stages.
D
Draw Schedule
A predetermined schedule for releasing renovation funds based on project milestones. Common in construction and rehab loans.
Example:
Lender releases 25% of rehab budget after demo, 25% after rough-in, 25% after drywall, and final 25% at completion.
DSCR (Debt Service Coverage Ratio)
Ratio of net operating income to debt obligations. Used for rental properties to ensure cash flow covers the mortgage. For long-term financing, see RefiRyan.com.
Example:
Property generates $3,000/month rent, expenses are $1,000, loan payment is $1,500. DSCR = $2,000/$1,500 = 1.33x
E
Exit Strategy
Your plan for paying off the hard money loan. Common exit strategies include: sell (flip), refinance to long-term loan, or rental income.
Example:
Fix & flip exit: sell within 6 months. BRRRR exit: refinance to conventional loan after stabilizing as rental.
F
Fix & Flip
Investment strategy of buying a distressed property, renovating it, and selling it quickly for profit. Hard money is ideal for these short-term projects.
Example:
Buy a distressed home for $150K, invest $40K in renovations, sell for $250K = $60K profit minus costs.
G
GRM (Gross Rent Multiplier)
Ratio of property price to annual gross rental income. Lower GRM = better value. Used to quickly compare rental properties.
Example:
Property costs $300K and generates $30K/year rent. GRM = $300,000 / $30,000 = 10x.
I
Interest-Only Payment
Monthly payment that covers only the interest on the loan, not the principal. Common in hard money loans, with principal due at maturity.
Example:
$200K loan at 12% annual rate = $2,000/month interest-only payment. Principal of $200K due at loan end.
L
LTC (Loan-to-Cost)
Percentage of total project cost (purchase + renovation) that the lender will finance. Typical hard money LTC: 75-90%.
Example:
Purchase price $200K + $50K rehab = $250K total cost. At 80% LTC, lender provides $200K, you bring $50K down payment.
LTV (Loan-to-Value)
Loan amount as a percentage of the property's value (purchase price or ARV). Lower LTV = less risk for lender.
Example:
Property worth $300K with a $225K loan = 75% LTV. Hard money lenders typically go up to 65-75% of ARV.
M
MAO (Maximum Allowable Offer)
The highest price you should pay for a property to hit your target profit margin. Critical calculation for fix & flip investors.
Example:
Target profit $50K, ARV $350K, rehab $50K, holding costs $10K, selling costs $28K. MAO = $350K - $50K - $10K - $28K - $50K = $212K.
O
Origination Fee
Fee charged by the lender for processing and originating the loan. Often expressed as points (1 point = 1% of loan amount).
Example:
$200K loan with 2 points origination fee = $4,000 fee. This is separate from interest and other closing costs.
P
Points
Upfront fee charged by lender, calculated as a percentage of loan amount. 1 point = 1% of loan. Hard money typically charges 2-4 points.
Example:
$200K loan with 3 points = $6,000 fee paid at closing.
Prepayment Penalty
Fee charged if you pay off the loan early. Some hard money loans have prepayment penalties, others don't. Always ask before signing.
Example:
Loan has 6-month prepayment penalty. If you pay off in month 3, you owe 3 months of interest as penalty.
Private Money
Lending from private individuals or non-institutional sources. Can be less formal than hard money but often has similar terms.
Example:
A wealthy individual lends $150K for your flip at 10% interest secured by the property deed.
R
Rehab Budget
Estimated cost of all renovations and repairs. Lenders review this carefully to ensure the project is feasible and profitable.
Example:
$30K for kitchen, $15K for bathrooms, $10K for flooring, $5K for paint = $60K total rehab budget.
ROI (Return on Investment)
Percentage return on your invested capital. Formula: (Profit / Total Investment) × 100. Key metric for evaluating deal profitability.
Example:
You invest $50K cash, make $15K profit. ROI = ($15,000 / $50,000) × 100 = 30%.
U
Underwriting
The lender's process of evaluating a loan application, including property value, borrower experience, exit strategy, and deal feasibility.
Example:
Hard money underwriting focuses on property value and exit strategy, not credit scores like traditional lenders.
This glossary is growing. We're adding more terms weekly. Have a term you'd like defined? Text us and let us know.
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