An individual that meets a certain level of financial sophistication, net worth, or income and is allowed to participate in private investment opportunities. To qualify, generally an individual must meet one of the following criteria:

o Earn an income of more than $200,000 (or $300,000 jointly with a spouse) in each of the last two years and reasonably expects to earn the same for the current year.

o Have a net worth over $1 million, either individually or together with a spouse, excluding the value of a primary residence.

In real estate, this refers to activities that require the investor to be physically or actively involved for the investment to operate or make money. It is a hands-on way of investing. Active investing can include activities such as real estate wholesaling, flipping houses, or property management.

The future value of a property after it has been renovated.

The increase in a property’s value over time. A property’s value can appreciate organically over time or can appreciate with renovations or property improvements, also known as forced appreciation.

Anything owned that adds financial value. Examples include rental homes, commercial properties, or land.

A rate of return percentage representing an investment’s historical average return over the hold period. It is calculated by taking the total profit received and dividing it by the original amount invested and then dividing that by the number of years the investment was held.

Ex: $50,000 Profit / $100,000 Invested = 50% Return / 5 years = 10% Average Annual Return

The percentage of a commercial property that must be leased to cover all expenses. It's the point at which the property neither makes a profit nor incurs a loss.

A short-term loan used until permanent financing can be secured.

An acronym for Buy, Renovate, Rent, Refinance, and Repeat. This is an investing strategy where investors buy a rundown property, renovate it, rent it out, and then refinance the property instead of selling it. They usually can take back out the money they initially put into the property and use those funds to repeat the method on a different property.

Money used for major repairs or improvements to a property, such as replacing a roof, updating the electrical wiring, or re-piping the plumbing.

The profits earned when you sell an asset that has increased in value.

A tax levied on the profits earned from the sale of an asset.

The different layers of money that go into funding a real estate project. It outlines who will receive the income and profits generated by the property and in what order. The capital stack can include senior debt, mezzanine debt, preferred equity, or common equity.

The rate of return percentage for an all-cash purchase of a property based on its income; not taking any financing or debt into consideration. It is calculated by taking the property’s annual net operating income (NOI) divided by the purchase price.

Ex: $12,000 NOI / $200,000 Purchase Price = 6% Cap Rate

The money coming in and going out from an investment property.

The rate of return percentage on the amount of money invested in a property taking financing and debt into consideration. It is calculated by taking the net operating income (NOI) divided by the total cash outlay.

Ex: $2,400 NOI / $40,000 Down Payment = 6% Cash-On-Cash Return

The original purchase price of a property including any closing costs and the cost of any major improvements.

An analysis of an income producing property that identifies and categorizes the property’s various components to accelerate depreciation deductions. The cost segregation study is used as a tax strategy aiming to reduce tax liability.

The method of raising capital for real estate projects or acquisitions from many investors at smaller amounts each.

A measurement of an investment’s available cash flow to pay current debt obligations. It is a ratio used by lenders to determine if the property’s cash flow will cover the loan payments. It is calculated by taking the net operating income (NOI) and dividing it by the total debt service (the annual cost of the loan obligations). This includes the principal and interests and may also include the taxes and insurance (aka PITI).

Ex: $100,000 NOI / $80,000 Total Debt Service = 1.25 DSCR

A strategy used to deduct from your taxes the costs of buying and improving a property over its useful life. The IRS allows property owners to deduct a certain amount from their taxable income each year thus lowering their tax liability.

A property that may need significant renovations to be ready to rent or sell. Types of distressed properties may include fire damaged, code violations, or trashed rentals. Oftentimes conventional lenders will not lend on distressed properties.

An owner facing some type of personal challenges or situations which causes them to be motivated to sell their property. This can be a financial challenge such as facing foreclosure, bankruptcy, or tax liens. This could also be a circumstantial issue such as a divorce, relocation, or a tired landlord.

The process of reviewing and evaluating an investment to determine if it’s a good investment opportunity before proceeding with the transaction. This can include reviewing the financial projections, contractual documents, the parties involved, and all other relevant facts and assumptions around the deal.

The deposit amount a buyer pays upon entering a real estate contract as a show of “good faith” that they intend to purchase the property.

The ownership interest in a property. It represents the portion of the property’s value that belongs to the owner(s). It’s calculated by taking the market value of a property minus the outstanding mortgage balance.

Ex: $1,000,000 Market Value - $600,000 Mortgage Balance = $400,000 Equity. Real estate builds equity over time as mortgages are paid down and as property values increase.

A return metric that illustrates how many dollars an investor will get back on every dollar invested. It’s calculated by taking the total cash distributions received from an investment (including cash returns plus return of capital) divided by the total initial investment.

Ex: $200,000 Total Cash Distribution / $100,000 Initial Investment = 2 Equity Multiple (2.0x)

This says that every $1 invested will receive $2 back.

An interest rate that changes periodically throughout the life of the loan.

An investment vehicle whereby a collection of properties is owned. Investor’s money is tied to the success of the fund rather than one individual asset.

The active partner or investor in a real estate deal. The GP will typically find and put the deal together, secure the financing, oversee the development or renovations, and operate the day-to-day activities of the asset. In real estate syndications, the GP is also referred to as the Sponsor, Syndicator, or Operator.

An individual or entity that guarantees to cover a debt or lease obligation if the primary party (i.e., borrower or tenant) defaults.

A short-term, high-interest rate loan. They are typically no more than 24 months in length and can carry interest rates upwards of 16%. Hard money loans are commonly used for fix and flip properties.

Refers to how long a property is kept (or held) before selling it. Holding periods can vary from several months to several years.

A revolving line of credit secured by a homeowner’s equity in their property. The funds drawn from a HELOC can be used for various purposes.

A loan that requires only interest payments be made over the course of the loan and does not require any principal pay down. The amount borrowed does not decrease with each payment since all payments only go towards the interest due on the loan.

A rate of return metric that represents the true annual rate of growth of an investment, considering the time value of money and compounding interest. It measures the percentage rate earned on each dollar invested for each period it is invested. You can think of it as a time-sensitive compounded annual rate of return. It is the most comprehensive measure of an investment’s profitability.

A partnership between two or more parties to combine resources and efforts for a real estate deal; typically to develop or invest in a property. One party may provide the capital while the other party may bring the labor and expertise.

A tax form each partner in a business partnership receives to report to the IRS their income, losses, capital gains, dividends, etc. from the partnership for that tax year. With the K-1, a partner's earnings can be taxed at an individual tax rate versus the corporate tax rate.

Refers to using borrowed capital to increase the potential return on an investment. It allows investors to purchase an asset with a smaller amount of their own money out of pocket, magnifying potential gains.

A business structure that protects the individual owners from being personally responsible for the company’s debts or liabilities. Real Estate investors tend to hold their properties in LLCs to protect their personal assets and to protect each asset from other assets.

The passive partners or investors in a real estate deal. They provide capital in exchange for an equity stake in the investment. They do not partake in any of the management or operations of the investment and are only liable up to the amount they contribute. In real estate syndications, the Power Pool Fund is a Limited Partner.

The percentage amount of your mortgage compared to the appraised value of the property. For example, if a home is worth $100,000 and you put a $20,000 down payment on it, then your loan amount would be $80,000 or an 80% LTV. The higher your down payment, the lower your LTV ratio ($25k down/75% LTV). The lower your down payment, the higher your LTV ratio ($10k down/90% LTV).

An urban city and its broad surrounding areas. MSAs are used by real estate investors to assess and understand the real estate landscape in a given region.

A loan used to purchase real estate. The borrower (mortgagor) receives funds from a lender (mortgagee), and in return, the borrower agrees to repay the loan over time. The property itself serves as collateral, and if the borrower fails to make payments, the lender has the right to foreclose on or take the property.

The revenue a property generates minus all reasonably necessary operating expenses. It calculates how profitable an investment property is in any given year. Revenue can include items such as gross rents or parking fees while operating expenses can include things such as property taxes, insurance, property management fees, etc.

A loan where in case of a borrower default, the lender can take the collateralized property, but cannot go after the borrower’s other assets.

A document used by LLCs to outline the company’s rules, regulations, and other provisions for how the company operates.

In real estate, this refers to activities that do not require any physical or active involvement for the investment to operate or make money. Investors mainly invest their capital and not much, if any, of their time or labor. In real estate syndications, passive investors are also known as Limited Partners.

This refers to the order in which profits from a real estate deal are distributed amongst investors. The priority order of distributions is maintained up until a certain percentage has been met. Once met, then profits are distributed to any other subordinate stakeholders in the deal.

For example, a syndicator may pay the passive investors an 8% preferred return. This means that all the passive investors will get paid the first 8% of profits the investment makes before the syndicator gets any cut of the profits.

The legal document outlining the details and disclosures of a private real estate offering. It includes items such as financials, projected returns, risks, and responsibilities of each party. The PPM may also be referred to as an Offering Memorandum (OM).

A financial statement projecting the income and expenses of an investment using various knowns and assumptions. It is used to help evaluate the potential risks and benefits of an investment. It is a financial projection of how a property could/should/would perform, not an actual report.

An agreement between a lender and a borrower that lays out the specific terms in which the borrower promises to pay back the lender. It will spell out the payment terms, interest amount, due date, length of the loan, and any other specifics the borrower and lender agree to.

The sponsor’s share of the profits for their labor and work in finding, managing, and successfully executing the business plan on the investment. This is separate from other sponsor fees such as asset management or acquisition fees. For example, a deal may have a Promote of 80/20. This means 80% of profits will go to the passive investors/limited partners and the other 20% of profits will go to the sponsor.

A company that owns, operates, or lends on income-producing real estate. Individual investors can buy shares of the REIT and earn dividends from the earnings of the real estate holdings. REITs may own many types of real estate assets, including apartment complexes, shopping centers, office buildings, hotels, etc. Public REITs trade shares like a stock and can be bought on the major exchanges. Private REITs can be invested in through real estate crowdfunding platforms.

A method used to assess the rental value of a property in the area by evaluating what nearby properties are renting for that have similar characteristics. This can include features such as square footage, bed/bath count, and property type.

A metric that measures the profit received or ‘returned’ on an investment after deducting all expenses. ROI is typically measured annually and calculated as a percentage of the initial investment. It’s calculated by taking what you made and dividing it by what you invested.

Ex: $10,000 made / $100,000 invested = 10% ROI

ROI may also simply be referred to as a “return”.

A classification of investor indicating someone who possesses a high level of knowledge, experience, and financial resources to participate in more advanced types of real estate investments.

The person or company that actively oversees and manages all aspects of the real estate investment on behalf of the passive investors. They handle all the work involved with a commercial real estate investment which can involve finding the deal, raising the capital, managing the renovations, and overseeing any third-party service providers. Oftentimes they will invest their own capital in the deal and therefore interests are more aligned with the passive investors. The Sponsor may also be referred to as the General Partner (GP), Syndicator, or Operator.

A contract between the sponsor and the limited partner that details the terms and conditions under which an investor agrees to purchase an interest in a private placement offering or real estate syndication. It outlines the amount of equitable interest being transferred to the limited partner for the amount they are investing. The subscription agreement documents and formalizes the real estate transaction, helping to protect the interests of both parties and ensure compliance with legal and regulatory requirements.

In commercial real estate, a syndication is a way of raising capital for a real estate opportunity whereby the syndicator/sponsor/general partner pools capital from multiple passive investors/limited partners and they all have an ownership interest in an entity that owns the investment asset. A syndication can own many types of investment assets, such as single properties, promissory notes, or a fund consisting of multiple properties. The syndication usually requires a minimum investment amount typically anywhere from $50,000 to $100,000.

A lease agreement on a property whereby the tenant agrees to pay the property taxes, insurance, and maintenance expenses. These payments are in addition to the rent and utilities. A commercial lease can be triple, double, or single net lease requiring the tenant to cover one, two, or all three types of the property’s expenses.

The process of determining the current market value of a property.

A real estate strategy that seeks to increase the value of a property through renovations, upgraded amenities, physical improvements, or enhancements to the overall condition of a property. The improvements create an increased value of the property and can result in higher rents, increased occupancy, and a higher selling price when the property is sold.

This refers to the distribution structure or method used to allocate returns to different stakeholders in a real estate syndication. The term "waterfall" is derived from the idea that profits flow down, like water, from one level or group of investors to another, based on a predetermined hierarchy or set of rules. Waterfall structures can vary from deal to deal and are designed to ensure the distribution of profits is in alignment with the respective roles and financial contributions of the various investors. An example of a waterfall might be a preferred return of 8% to limited partners, followed by an 80/20 split to limited partners and general partners respectively up to a 15% return, then a 50/50 split for profits over 15%.

The annual income generated from the property, expressed as a percentage of the total investment cost. Yield is also commonly called the return.