Ten Terms Every Real Estate Investor Should Know
As a real estate investor looking to invest in either fix-and-flip, rental, or multifamily properties by obtaining financing through a hard money lender, having a strong understanding of the terminology will go a long way in making the process of acquiring financing as smooth as possible for the investor.
Below are ten terms that will be beneficial to a real estate investor as they go through the process of financing their investments through a hard money lender:
1) Appraisal- An appraisal is completed by an experienced appraiser and is used to determine the value of a home.
2) ARV- ARV stands for After Repair Value, which is what the property will be worth once the necessary rehab has been completed.
3) Closing Costs- A closing cost is a fee charged to the borrower when the loan is closed.
4) Junk Fees- Unnecessary and costly fees that are charged most hard money lenders. These fees can include application, processing, or any other miscellaneous fees that are extra out of pocket costs to an investor. Investors should be wary of lenders that charge large amounts of junk fees.
5) Leverage- Leverage is the use of various financial instruments or borrowed capital to increase the potential return on investment.
6) Lien- A claim against a real property.
7) 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.
8) 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.
9) Principle- The base amount of the hard money loan is borrowed by the investor.
10) Proof of Funds- A letter that states the borrower is pre-approved for a hard money loan
Having a good understanding of these terms will provide investors with a good sense of what to expect when going through the process of working with a hard money lender and provide them with a path to investing success!
At Lima One Capital we are the nation’s premier lender for real estate investors. We make it easy to finance all of your fix-and-flip, rental, and multifamily investments. We are a national lender lending across in the country in 41 states as well as Washington, D.C. We have a passion for working with real estate investors and providing them with the financing they need to be successful. If you have any questions about Lima One Capital or our loan programs feel free to reach out to us at 800–390–4212 or send us an email at firstname.lastname@example.org!