Creative Finance Glossary

After Repair Value - the property's value after renovations.

After Repair Value is the estimated market value of a property after all planned repairs and renovations are completed. Used to determine potential equity, refinance amounts, and overall deal profitability.

The price the seller is requesting for the property.

Asking price is the listed or requested price for a property. In creative finance deals, the final purchase price often differs from asking price through negotiation. The asking price is a starting point, not necessarily what you'll pay.

The schedule of loan payments over time.

Amortization is the process of spreading loan payments over time. An amortization schedule shows how each payment is divided between principal and interest. Early payments are mostly interest; later payments are mostly principal. Fully amortized loans are paid in full at term end.

Fee earned by the investor for assigning a purchase contract.

Assignment Cash is the fee an investor earns for assigning their purchase contract to another buyer. Unlike a down payment (which goes to the seller), assignment cash goes to the investor. This represents the investor's profit for finding and securing the deal before passing it on.

Annual percentage increase in property value.

The expected year-over-year increase in a property's market value. Used to project future equity and exit proceeds. National historical average is roughly 3-4% annually, but varies dramatically by market and economic conditions. Conservative underwriting typically uses 2-3%.

Miscellaneous administrative expenses per month.

Catch-all for small recurring expenses: bookkeeping, legal, advertising for vacancies, landlord software subscriptions, travel to property, etc. Typically $50-$200/month depending on property size and how hands-on you are.

Dollar amount of each missed mortgage payment.

The per-payment amount owed for each missed payment on a delinquent loan. Multiply by the number of missed payments to get the total arrears. Late fees and escrow shortages are additional costs on top of this.

Average percentage of rehab funds drawn during construction.

In draw-based interest calculation, the average percentage of rehab funds outstanding during the rehab period. Typically 50-60% since funds are drawn progressively. Used to estimate carrying costs more accurately than assuming the full amount is drawn.

Buy, Rehab, Rent, Refinance, Repeat - a wealth-building strategy.

A real estate investment strategy: Buy a distressed property below market value, Rehab it to increase value, Rent it out to tenants, Refinance to pull out equity (ideally your initial investment), and Repeat the process with the extracted capital.

A large lump-sum payment due at the end of a loan term.

A balloon payment is a large final payment due at the end of a loan term when the loan isn't fully amortized. Common in seller financing deals. For example, a 30-year amortization with a 5-year balloon means regular payments for 5 years, then the remaining balance is due in full.

Interest rate on the short-term bridge or hard money loan.

The annual interest rate on a bridge or hard money loan used to acquire and rehab a property. Hard money rates typically range from 10-15%. Since these are short-term loans (6-18 months), the total interest cost is manageable despite the higher rate.

How the acquisition and rehab are funded in a BRRRR deal.

The source of short-term funding for buying and rehabbing a BRRRR property. Options include hard money (private lender), private money (individual investor), or cash (your own funds). Each has different costs, terms, and speed of funding.

Length of the short-term acquisition/rehab loan in months.

The duration of the bridge or hard money loan, typically 6-18 months. Must be long enough to complete rehab, stabilize with tenants, meet any seasoning requirements, and close the refinance. Extensions may be available but often cost additional fees.

Whether the bridge loan requires only interest payments.

Most bridge and hard money loans are interest-only during their term, meaning you pay only the interest each month with the full principal due at payoff (refinance). This keeps carrying costs lower during the rehab period.

Annual return based on actual cash invested.

Cash-on-Cash Return (CoC) measures the annual pre-tax cash flow relative to the total cash invested. Calculated as Annual Cash Flow ÷ Total Cash Invested × 100. A common target is 8-12% for rental properties.

Net Operating Income divided by property value.

Capitalization Rate (Cap Rate) is calculated as Net Operating Income ÷ Property Value × 100. It measures a property's potential return independent of financing. Used to compare properties and markets. Higher cap rates indicate higher returns but often higher risk.

Money left after all expenses and debt service.

Cash flow is the monthly or annual income remaining after all operating expenses, debt payments, and reserves. Positive cash flow means the property pays for itself and generates profit. Negative cash flow requires the investor to contribute money each month.

Total upfront capital needed to acquire and close on the deal.

Cash Required is the total amount of money you need to bring to closing plus any immediate costs like repairs or reserves. Includes down payment, closing costs, prepaid expenses, and any cash to seller. This is your initial investment in the deal.

Non-traditional methods of financing real estate purchases.

Creative finance refers to any real estate acquisition strategy that doesn't use conventional bank financing. Includes seller financing, subject-to, lease options, wraparound mortgages, and various hybrid approaches. Allows investors to acquire properties with less money down and more flexible terms.

Capital Expenditures - major repairs and improvements.

Capital Expenditures are major, non-recurring expenses for property improvements or replacements like a new roof, HVAC system, or major renovations. Smart investors reserve 5-10% of rent for future CapEx to avoid cash crunches when major repairs are needed.

Fees and expenses paid when finalizing a real estate transaction.

Closing costs include all fees required to complete a real estate purchase: title insurance, escrow fees, attorney fees, recording fees, appraisal, and lender fees. Typically 2-5% of the purchase price for buyers, though creative finance deals may have lower closing costs.

The rent used for cash flow and underwriting calculations.

This is the monthly rent you expect to collect on this property. Set it to the current tenant's rent if occupied, or your target rent based on your strategy (LTR, MTR, Section 8, or a blend). This value drives your cash flow, DSCR, and offer calculations throughout the deal.

The upfront cash payment made directly to the seller at closing.

Cash to Seller is the portion of the purchase paid immediately to the seller in cash at closing. In seller-financed deals, this is the gap between the purchase price and the seller-financed amount. This is different from Assignment Cash, which goes to the investor.

Total funds needed at closing to complete the purchase.

Cash to close is the total amount of money a buyer needs to bring to closing, including down payment, closing costs, prepaids (insurance, taxes), and any credits. In creative finance, this can be significantly lower than traditional purchases.

Percentage of invested capital returned through refinancing.

Cash recovery measures how much of your initial investment you get back, typically through refinancing. In BRRRR, 100%+ cash recovery (getting all your money out) enables infinite returns since you keep the asset with no money left invested.

Remaining capital invested after BRRRR refinance.

Cash left in deal is the amount of your original investment that remains tied up in the property after refinancing. In a perfect BRRRR, this is $0 or negative (meaning you pulled out more than you put in). Lower is better for capital recycling.

Cash set aside at closing for initial operating expenses.

Money reserved at closing to cover initial operating costs like the first mortgage payment, property taxes, insurance, and unexpected repairs before rental income starts flowing. Typically 2-6 months of expenses. Added to your total cash to close.

Maximum percentage of cost basis the lender will finance.

In a 'lesser of' refinance constraint, the lender caps the loan at the lower of (appraised value × LTV) or (total cost basis × this percentage). Cost basis includes purchase price, rehab costs, and closing costs. Typically 100% of cost basis.

Debt Service Coverage Ratio - income vs debt payments.

Debt Service Coverage Ratio is calculated as NOI ÷ Annual Debt Service. A DSCR of 1.25 means the property generates 25% more income than needed for loan payments. Lenders typically require 1.2-1.25 minimum for investment property loans.

A clause allowing lenders to demand full payment upon property transfer.

A due-on-sale clause in a mortgage allows the lender to demand immediate full repayment if the property is sold or transferred. This is a key consideration in subject-to deals. While lenders have this right, they don't always exercise it, especially when payments remain current.

A document securing a loan with real property.

A deed of trust is a legal document that secures a loan by using real property as collateral. It involves three parties: the borrower (trustor), lender (beneficiary), and a neutral third party (trustee) who holds the title until the loan is repaid.

Upfront cash paid toward the purchase price.

A down payment is the initial cash contribution toward a property purchase. Traditional loans require 20-25% down for investment properties, while creative finance strategies like seller financing may accept lower down payments (5-20%).

Debt-to-Income ratio - monthly debt payments vs gross income.

Debt-to-Income (DTI) ratio compares your monthly debt payments to your gross monthly income. Lenders use DTI to assess borrowing capacity. In subject-to deals, the loan stays on the seller's DTI, potentially affecting their ability to get new financing.

A building with two separate living units.

A duplex is a residential building divided into two separate living units, each with its own entrance, kitchen, and bathroom. Popular for house hacking (living in one unit, renting the other) and counts as residential for financing purposes.

Total annual payments toward loan principal and interest.

Debt service refers to the total payments made toward loan obligations, including both principal and interest. Annual debt service is used to calculate DSCR (Debt Service Coverage Ratio). In creative finance, total debt service may include payments on multiple loans.

Expenses incurred when selling the property at exit.

Costs associated with selling a property, including agent commissions (5-6%), seller closing costs (1-3%), transfer taxes, title fees, and any concessions. Used in exit strategy projections to estimate net proceeds from a future sale.

Instant equity gained by buying below market value.

Equity capture is the immediate equity created when purchasing a property below its market value. For example, buying a $100,000 property for $80,000 captures $20,000 in equity. Common in distressed property purchases and creative finance deals.

The difference between property value and amount owed.

Equity is the difference between a property's current market value and any outstanding mortgage or loan balance. Equity increases as you pay down the loan or as the property appreciates in value. Can be accessed through refinancing or home equity loans.

Gross rent minus vacancy allowance.

Effective rent is the actual expected rental income after accounting for vacancy. Calculated as: Monthly Rent × (1 - Vacancy Rate). For example, $2,000 rent with 5% vacancy = $1,900 effective rent. Used for realistic cash flow projections.

Effective Gross Income - total rental income after vacancy and other income.

Effective Gross Income (EGI) is the total potential rental income minus vacancy and credit losses, plus any additional income (laundry, parking, etc.). Calculated as: Gross Potential Rent - Vacancy - Credit Loss + Other Income. EGI is the starting point for calculating NOI.

Neutral third party holding funds during a transaction.

Escrow is a neutral third party (escrow company or attorney) that holds funds and documents during a real estate transaction. They ensure all conditions are met before releasing funds to the seller and deed to the buyer.

Earnest Money Deposit - good faith deposit when making an offer.

Earnest Money Deposit (EMD) is a good faith deposit made when submitting an offer on a property. Typically 1-3% of the purchase price, it shows the seller you're serious. The deposit is held in escrow and applied to closing costs if the deal closes, or refunded if it falls through due to contingencies.

Return on investment when exercising a lease option to purchase.

Exercise ROI measures the total return when a lease option tenant-buyer exercises their right to purchase. It accounts for the option fee paid, rent credits accumulated, and the difference between strike price and market value at exercise time.

Local property tax rate applied to assessed value.

The annual property tax rate in the property's jurisdiction, expressed as a percentage of assessed value. Used to estimate taxes after reassessment. Ranges from 0.3% (Hawaii) to 2.5%+ (New Jersey, Texas). Check your county assessor for exact rates.

Deficit in the escrow account from missed tax/insurance payments.

When mortgage payments are missed, the escrow account (which pays taxes and insurance) develops a shortage. This must be repaid to bring the loan current. The lender may spread the shortage over future payments or require a lump sum.

For Sale By Owner - property sold without a real estate agent.

For Sale By Owner (FSBO) properties are sold directly by the owner without a listing agent. These can be good opportunities for creative finance deals as owners are often more flexible on terms. Found on sites like FSBO.com, Craigslist, and Facebook Marketplace.

Gross Rent Multiplier - property price vs annual rent.

Gross Rent Multiplier is calculated as Property Price ÷ Annual Gross Rent. It provides a quick way to compare properties. Lower GRM indicates potentially better cash flow. Varies significantly by market.

A deal combining Subject-To with additional seller financing.

A creative finance structure that layers multiple financing techniques. Typically combines taking over an existing mortgage (Subject-To) with a second-position seller-financed note to cover the gap between the loan balance and purchase price. This minimizes cash needed while still compensating the seller for their equity.

Homeowners Association - organization managing common areas.

A Homeowners Association is an organization in a subdivision, planned community, or condominium that makes and enforces rules and collects fees for maintenance of common areas. HOA fees can significantly impact cash flow and should always be factored into deal analysis.

Short-term, high-interest loans secured by real estate.

Hard money loans are short-term, asset-based loans from private lenders, typically used for property purchases and rehabs. They feature higher interest rates (10-15%) and points (2-4%) but offer fast funding (days vs weeks) and focus on property value rather than borrower credit.

Ongoing expenses while owning a property before renting or selling.

Holding costs are the recurring expenses incurred while holding a property, including utilities, insurance, property taxes, loan interest, and maintenance. Critical in BRRRR and flip strategies where properties may sit vacant during renovation.

Planned number of years to hold the property before exiting.

Your target holding period before selling or refinancing. Used in multi-year projections to calculate total returns, accumulated equity, and exit proceeds. Typical creative finance holds are 3-7 years, though some strategies (like BRRRR) aim for indefinite holds.

Whether HOA dues are included in the monthly loan payment.

Some loans include HOA dues in the escrowed monthly payment alongside taxes and insurance. When escrowed, HOA is part of the total PITI+HOA payment rather than paid separately.

Payment structure for the seller's second-position note.

How the second-position seller-financed note is structured in a hybrid deal. Options include fully amortizing (P&I), interest-only, or hybrid (IO then amortizing). Interest-only reduces payments but doesn't pay down the balance.

Whether the seller's second note has a balloon payment.

If enabled, the second-position seller note in a hybrid deal has a balloon payment — the remaining balance comes due in a lump sum at a specified date. Requires a plan to refinance or sell before the balloon date.

One-time or recurring fee levied by the HOA for major projects.

A special assessment is an additional fee charged by an HOA beyond regular dues, typically for major repairs or improvements (roof replacement, parking lot repaving, etc.). Can be a one-time lump sum or spread over monthly payments. Added to your operating expenses.

The annual cost of borrowing money, expressed as a percentage.

Interest rate is the annual percentage charged by a lender for borrowing money. It determines how much you pay in interest over the loan term. Creative finance deals often negotiate rates between market rates and seller's opportunity cost.

Property coverage protecting against damage and liability.

Property insurance protects against damage from fire, weather, theft, and other perils. Landlord policies also include liability coverage. Annual premiums typically cost 0.5-1% of property value and are a required operating expense.

Months where only interest is paid, no principal reduction.

A period at the start of a loan where monthly payments cover only the interest, not principal. This lowers your monthly payment during the IO period but means the loan balance stays flat. Common in seller-finance and bridge loans. After the IO period ends, the loan amortizes normally.

Expected annual increase in insurance premiums.

The projected year-over-year increase in property insurance costs. Insurance premiums have been rising 5-10% annually in many markets due to increased claims and natural disasters. Used in multi-year expense projections.

Whether insurance premiums are included in the monthly loan payment.

When insurance is escrowed, the lender collects a monthly insurance payment alongside P&I and pays the premium from the escrow account. In subject-to deals, the existing loan may include escrowed insurance in the PITI payment.

How interest is calculated on rehab funds during construction.

Determines how interest accrues on rehab funds. 'Full balance' charges interest on the entire loan from day one. 'Draw-based' charges interest only on funds actually disbursed, which is more common and costs less since rehab funds are drawn incrementally.

A lease with an option to purchase the property at a later date.

A strategy combining a rental agreement with an option to buy. The tenant pays an option fee for the right (not obligation) to purchase at a predetermined price within a set timeframe. Part of the rent may be credited toward the purchase. Popular for helping buyers who need time to qualify for financing.

Loan-to-Value ratio - loan amount vs property value.

Loan-to-Value ratio is the mortgage amount divided by the property's appraised value. For example, an $80,000 loan on a $100,000 property = 80% LTV. Lower LTV means more equity and typically better loan terms.

Long-Term Rental - traditional 12+ month lease arrangements.

Long-Term Rental (LTR) is the traditional rental model with leases of 12 months or longer. LTR offers stable, predictable income with lower turnover costs but typically generates lower monthly revenue than short-term or mid-term rental strategies.

Loan amount as a percentage of total project cost.

Loan-to-Cost (LTC) compares the loan amount to the total cost of acquiring and rehabbing a property. For example, if you buy for $100k and rehab for $50k ($150k total), an 85% LTC loan would be $127,500. Different from LTV, which compares loan to property value.

The current remaining balance on an existing mortgage.

The outstanding principal owed on the seller's existing mortgage. In a subject-to deal, this is the loan you're taking over. The difference between the purchase price and the loan balance is the seller's equity, which you may need to cover with cash to seller.

The type of existing mortgage (conventional, FHA, VA, etc.).

The type of the seller's existing mortgage. FHA and VA loans have specific rules about assumptions and transfers. Conventional loans typically have due-on-sale clauses. Knowing the loan type helps assess subject-to risk and whether formal assumption is possible.

Whether the existing loan is current or delinquent.

The payment status of the seller's existing mortgage. A current loan means all payments are up to date. A delinquent loan has missed payments, late fees, and possibly escrow shortages that must be resolved as part of the deal. Delinquent loans may offer more motivated sellers but require additional cash to cure arrears.

Penalties assessed for late mortgage payments.

Fees charged by the lender for each late payment, typically 3-6% of the payment amount. Accumulate on delinquent loans and must be paid to bring the loan current in a subject-to deal.

Legal costs and other fees on a delinquent loan.

Fees the lender has incurred on a delinquent loan including attorney fees, collection costs, property inspections, and foreclosure filing fees. These must be paid to reinstate the loan in a subject-to deal.

Mid-Term Rental - furnished rentals for 1-6 month stays.

Mid-Term Rental (MTR) targets guests staying 1-6 months, such as travel nurses, corporate relocators, or students. MTR units are typically furnished and command higher rents than LTR while avoiding the intensive management of short-term rentals.

Residential property with multiple separate living units.

Multi-family properties contain multiple separate living units in one building, from duplexes (2 units) to large apartment complexes. Benefits include multiple income streams, economies of scale, and potentially qualifying for commercial financing at 5+ units.

Monthly amount set aside for routine repairs and upkeep.

A monthly allocation for ongoing property maintenance — plumbing fixes, appliance repairs, painting, etc. Can be set as a fixed dollar amount or a percentage of rent (typically 5-10%). Separate from CapEx reserves which cover major replacements.

Number of mortgage payments the seller has missed.

The count of missed payments on a delinquent loan. Each missed payment must be cured (paid) as part of a subject-to deal, plus any late fees. This adds to your total cash to close but often creates negotiating leverage for a lower purchase price.

Who handles property maintenance during the lease option.

Defines whether the tenant or landlord is responsible for property maintenance during the lease option period. Triple-net (tenant responsible) reduces your expenses but may affect property condition. Landlord-responsible keeps control but adds costs.

Who pays for large repairs (roof, HVAC, etc.) during the lease.

Defines who is responsible for capital expenditures like roof replacement, HVAC, or foundation work during the lease option period. This should be clearly defined in the lease option agreement to avoid disputes.

Net Operating Income - income minus operating expenses.

Net Operating Income is calculated as Gross Income - Operating Expenses (excluding debt service and capital expenditures). It represents the property's earning potential before financing costs and is used to calculate cap rate and property value.

Date of the next mortgage payment on the existing loan.

The date the next mortgage payment is due on the seller's existing loan. Important for subject-to deals to ensure no payments are missed during the transfer process and to calculate any pro-rated amounts at closing.

Upfront payment for the right to purchase a property later.

A non-refundable payment made to the seller for the exclusive right to purchase a property at a predetermined price within a specified period. Typically 1-5% of the purchase price. This is your upfront cash outlay in a lease option deal — it secures your right to buy but is lost if you don't exercise the option.

Expected annual increase in general operating expenses.

The projected year-over-year increase in operating expenses like maintenance, property management, and utilities. Typically tied to inflation (2-4%). Applied to multi-year cash flow projections to estimate future expenses.

Monthly utility costs paid by the property owner.

Utility expenses (water, sewer, trash, gas, electric) that the landlord pays rather than the tenant. Common in multi-family properties or when utilities aren't separately metered. Reduces your net operating income.

Upfront fee paid to originate a loan, each point = 1% of loan amount.

A fee charged at closing for originating a loan. Each point equals 1% of the loan amount. For example, 2 points on a $200,000 seller-finance note costs $4,000 upfront. Some seller-finance deals include points as a negotiated closing cost.

A written promise to pay a specific amount.

A promissory note is a legal document containing a written promise to pay a stated sum to a specified party at a specified date or on demand. In seller financing, the note outlines the loan terms, interest rate, payment schedule, and default provisions.

The original loan amount, not including interest.

Principal is the original amount borrowed or the remaining balance of a loan, excluding interest. Each loan payment typically includes both principal (paying down the loan) and interest (cost of borrowing).

Principal, Interest, Taxes, and Insurance.

PITI represents the four components of a typical mortgage payment: Principal (loan paydown), Interest (cost of borrowing), Taxes (property taxes, often escrowed), and Insurance (homeowner's insurance, often escrowed). Used to calculate total monthly housing costs.

Principal and Interest - the two components of a loan payment.

P&I (Principal & Interest) refers to the portion of a mortgage payment that goes toward paying down the loan balance (principal) and compensating the lender (interest). This excludes taxes and insurance, which together make up PITI.

Upfront fees charged by lenders, each point equals 1% of the loan.

Points are upfront fees paid to a lender at closing, where each point equals 1% of the loan amount. For example, 2 points on a $100,000 loan costs $2,000. Hard money lenders commonly charge 2-4 points as origination fees.

Professional service handling tenant relations and property maintenance.

Property management involves overseeing rental properties including tenant screening, rent collection, maintenance coordination, and legal compliance. Managers typically charge 8-12% of monthly rent. Self-management saves money but requires time and landlord knowledge.

Annual taxes assessed by local government based on property value.

Property taxes are levied by local governments based on assessed property value. Rates vary by location (0.5-2.5% annually). Taxes are typically escrowed into mortgage payments or paid directly to the county. Always verify current rates before purchasing.

Choose between entering P&I only or the full PITI payment.

Select how you want to enter the existing loan payment. 'P&I only' lets you enter just principal and interest, with taxes and insurance calculated separately. 'PITI total' lets you enter the full payment including escrowed taxes, insurance, and HOA.

Fee charged for paying off a loan early.

A fee imposed by the lender if the loan is paid off before a specified period. Common in some seller-finance notes and commercial loans. Typically 1-5% of the outstanding balance. Must be factored into exit strategy costs if you plan to refinance or sell early.

How the loan is structured — fully amortizing, interest-only, or hybrid.

The payment structure of a seller-financed note. Fully amortizing means payments include both principal and interest, paying off the loan by term end. Interest-only means you pay only interest (lower payments but no paydown). Hybrid starts interest-only then switches to amortizing.

Months during which early payoff incurs a penalty.

The window of time (in months) during which paying off the loan early triggers a prepayment penalty. After this period, the loan can be prepaid without penalty. Important for planning your refinance or exit timeline.

Percentage of balance charged for early payoff.

The penalty amount expressed as a percentage of the outstanding loan balance. For example, a 3% penalty on a $150,000 balance means a $4,500 fee. Added to refinance costs or exit costs if you pay off within the penalty period.

Annual private mortgage insurance rate on the refinance loan.

Private Mortgage Insurance (PMI) may be required if the refinance LTV exceeds 80%. The annual PMI rate (typically 0.5-1.5% of the loan balance) is added to your monthly payment. PMI drops off once you reach the specified LTV threshold.

LTV threshold at which PMI is automatically removed.

The loan-to-value ratio at which private mortgage insurance is canceled, typically 78-80%. Once your loan balance pays down enough (or the property appreciates enough) to reach this LTV, PMI drops off, reducing your monthly payment.

Portion of each lease payment credited toward the purchase price.

A monthly dollar amount from your lease payment that accumulates as a credit toward the final purchase price when you exercise the option. For example, if your lease payment is $1,500/mo and rent credit is $200/mo, after 24 months you'd have $4,800 credited toward the strike price, reducing your amount due at closing.

Renovations or repairs made to improve a property's condition.

Rehab (rehabilitation) refers to repairs, renovations, or improvements made to a property to increase its value or make it rentable. Rehab costs are a critical factor in BRRRR and fix-and-flip strategies, typically ranging from cosmetic updates to full gut renovations.

Replacing an existing mortgage with a new loan.

Refinancing replaces your current mortgage with a new loan, often to get better terms, lower rates, or access equity (cash-out refinance). In BRRRR, the refinance step recovers invested capital by taking out a new loan based on the improved property value.

Return on Investment - profit relative to money invested.

Return on Investment (ROI) measures the profitability of an investment relative to its cost. Calculated as (Gain - Cost) / Cost × 100. In real estate, ROI can include cash flow, appreciation, loan paydown, and tax benefits.

Difference between rent collected and rent paid out.

Rent spread is the profit margin between what you collect in rent and what you pay out. In sandwich lease options, it's the difference between rent received from the tenant-buyer and rent paid to the property owner.

Annual percentage increase in rental income.

The expected year-over-year increase in rent, expressed as a percentage. Used in multi-year projections to forecast future cash flow. Historical national averages are 3-5%, but vary by market. Conservative underwriting typically uses 2-3%.

Months left on the existing loan before it's fully paid off.

The number of months remaining on the existing mortgage's amortization schedule. A loan originally at 360 months (30 years) with 10 years of payments made has 240 months remaining. This affects the monthly P&I calculation and how quickly the loan pays down.

Interest rate on the refinance loan after stabilization.

The interest rate you expect on the permanent refinance loan. In BRRRR, this is the rate on the long-term mortgage that replaces your bridge/hard money loan after rehab and stabilization. Current market rates depend on property type, LTV, credit score, and DSCR.

Length of the refinance loan in years.

The amortization period for the permanent refinance loan, typically 30 years for investment properties. A longer term means lower monthly payments (better cash flow) but more total interest paid. Some investors use 15 or 20-year terms for faster payoff.

How operating reserves are factored into cash flow calculations.

Determines whether maintenance, CapEx, and vacancy reserves are deducted from cash flow calculations. 'Deduct from CF' reduces your reported cash flow but gives a more conservative picture. 'Track separately' shows higher cash flow but you should still set aside reserves.

Whether rent credit is a fixed dollar amount or percentage of rent.

How the rent credit is calculated each month. Fixed means a set dollar amount (e.g., $200/mo). Percentage means a portion of the monthly lease payment (e.g., 15% of $1,500 = $225/mo). The accumulated total is deducted from the strike price at exercise.

Permission to rent the property to a tenant-buyer (sandwich lease).

Whether the lease option agreement permits you to sublease the property to a tenant-buyer. Required for a sandwich lease option strategy where you're in the middle between the seller and an end tenant-buyer. Without this right, you can only occupy or leave it vacant.

Number of times the lease option can be renewed/extended.

The maximum number of times you can renew or extend the lease option period, typically for an additional fee. Provides insurance against running out of time to exercise. Each renewal extends your option period by the agreed-upon length.

Cost to extend the lease option for another period.

The fee paid to the seller to renew the lease option for an additional period. Usually a flat fee ($1,000-$5,000) or a percentage of the strike price. This fee is typically non-refundable and may or may not be credited toward the purchase price.

Lender rules that may limit your refinance loan amount.

Lender restrictions on the maximum refinance loan. 'Standard LTV' bases the loan on appraised value × LTV. 'Lesser of' limits the loan to the lower of (appraised value × LTV) or (cost basis × limit %). 'Seasoning' requires a minimum ownership period before allowing appraised-value-based refinance.

How existing liens are handled when refinancing a hybrid deal.

In a hybrid deal with a balloon on the seller second, you need a plan for refinancing. 'Pay both' means the refi pays off both the first mortgage and the seller second. 'Subordination' means the seller second stays in place (subordinated) behind the new first mortgage.

Taking over an existing mortgage while keeping it in the seller's name.

A creative finance strategy where the buyer takes ownership of the property 'subject to' the existing mortgage. The loan stays in the seller's name, but the buyer makes the payments and gets the deed. This allows buyers to acquire properties without qualifying for new financing.

The seller acts as the bank, providing financing directly to the buyer.

An arrangement where the seller finances the purchase instead of a traditional bank. The buyer makes payments directly to the seller according to agreed-upon terms including interest rate, term, and any balloon payment. This creates a note secured by the property.

A lease option where you're in the middle between seller and end-buyer.

A lease option strategy where an investor leases a property with an option to buy from the seller, then subleases it with an option to buy to an end tenant-buyer. The investor profits from the spread in option fees, monthly rent, and final purchase price.

Federal housing assistance program providing rent subsidies.

Section 8, officially the Housing Choice Voucher Program, provides rental assistance to low-income families. HUD pays a portion of rent directly to landlords. Benefits include guaranteed rent payments and reduced vacancy, though properties must pass inspections and meet Fair Market Rent limits.

Required ownership period before refinancing.

Seasoning is the minimum time a property must be owned before it can be refinanced. Most lenders require 6-12 months of seasoning before allowing a cash-out refinance based on the new appraised value rather than purchase price.

Monthly payment the seller receives from the buyer.

For seller-finance deals this is the buyer's monthly P&I payment on the seller-held note. For subject-to deals this is the existing loan payment that continues to pay down the seller's original mortgage. Either way, it represents ongoing monthly income to the seller.

How attractive the offer is to the seller based on upfront cash.

A quick heuristic rating (Low / Medium / High) based on the amount of upfront cash the seller receives. High = > $20k upfront, Medium = $5k–$20k, Low = < $5k. Higher upfront cash generally makes an offer more compelling to sellers, but total proceeds and monthly income also matter.

Length of the seller's second-position note in a hybrid deal.

The amortization period for the second-position seller-financed note in a hybrid deal. This note sits behind the existing first mortgage (subject-to). Shorter terms mean higher payments but the seller is paid off sooner.

Total selling expenses as a percentage of the sale price.

The estimated total cost of selling the property, expressed as a percentage of the sale price. Includes agent commissions, closing costs, transfer taxes, and other disposition expenses. Typically 6-10%. Used in exit strategy and ROI projections.

Months needed after rehab to place tenants and season for refi.

The time between completing rehab and closing the refinance. Includes tenant placement (1-2 months), reaching lender-required seasoning period, and processing the refinance application. Typically 2-6 months. You pay carrying costs during this period.

Transaction Coordinator fees for managing deal paperwork.

Transaction Coordinator (TC) fees cover the cost of a professional who manages all the paperwork and deadlines in a real estate transaction. TCs handle contracts, disclosures, and communication between parties, typically charging $300-$600 per transaction.

A renter with an option to purchase the property.

A tenant-buyer is a renter in a lease option agreement who has the right (but not obligation) to purchase the property at a predetermined price. They typically pay an option fee upfront and may receive rent credits toward the purchase price.

Protection against ownership claims or title defects.

Title insurance protects against losses from defects in the property's title, such as liens, easements, or ownership disputes. Required by most lenders and highly recommended for buyers. A one-time premium paid at closing.

Combined monthly payments across all loans on a property.

Total debt service is the sum of all monthly loan payments on a property. In hybrid deals with multiple financing layers (e.g., subject-to first mortgage plus seller-financed second), total debt service combines both payment obligations.

Seller's total income from the deal over the full loan term.

Total proceeds is the sum of the seller's upfront cash (down payment / cash to seller) plus all ongoing monthly payments over 30 years (360 months). Formula: Upfront Cash + (Monthly Payment x 360). This shows the seller's total financial outcome from a creative finance deal, which is often significantly more than a traditional cash sale.

Upfront fee your tenant-buyer pays for the right to purchase.

In a sandwich lease option, this is the non-refundable option fee your tenant-buyer pays you for the right to buy the property. Typically 3-5% of the strike price. This is income to you and offsets your own option fee paid to the seller.

Monthly rent your tenant-buyer pays you in a sandwich lease.

The monthly rent your tenant-buyer pays you in a sandwich lease option. The spread between what you pay the seller (your lease payment) and what you collect from the tenant-buyer (minus expenses) is your monthly cash flow.

Price at which your tenant-buyer can exercise their purchase option.

The predetermined price your tenant-buyer can purchase the property for in a sandwich lease option. Typically set above your own strike price with the seller, so when the tenant-buyer exercises, you profit from the spread between the two strike prices minus accumulated rent credits.

Expected annual increase in property taxes.

The projected year-over-year increase in property taxes, used in multi-year expense projections. Property taxes can increase due to reassessments, millage rate changes, or local ballot measures. Historical average is 2-4% annually but varies by jurisdiction.

How property taxes are recalculated after purchase.

Many jurisdictions reassess property taxes based on the purchase price. 'Reassess to purchase price' recalculates taxes using your purchase price and the local effective tax rate. 'Keep current' assumes taxes stay at their current level. This significantly impacts cash flow projections.

Whether property taxes are included in the monthly loan payment.

When taxes are escrowed, the lender collects a monthly tax payment alongside P&I and holds it in an escrow account, paying the tax bill on your behalf. In subject-to deals, the existing loan may include escrowed taxes in the PITI payment.

How your tenant-buyer's rent credit is calculated.

Whether the rent credit you offer your tenant-buyer is a fixed dollar amount or percentage of their monthly rent. The tenant-buyer's rent credit is typically the same or less than the rent credit the seller gives you, ensuring you don't lose money on the credit spread.

Percentage of time a rental sits empty.

Vacancy rate is the percentage of time a rental property is expected to be unoccupied. Used to project realistic income. A 5% vacancy rate means the property is expected to be empty about 18 days per year. Markets and property types have different typical vacancy rates.

A new mortgage that wraps around an existing one.

A form of seller financing where the seller creates a new note that 'wraps around' their existing mortgage. The buyer makes one payment to the seller, who then pays the underlying mortgage. The seller profits from the interest rate spread.