Investment Property and Non-QM Mortgage Terms Glossary

1099 Loan

A mortgage program for independent contractors and gig workers who receive 1099 income rather than W-2 wages. Income is documented through 1099 forms over 1 to 2 years instead of full tax returns, helping self-employed borrowers qualify based on gross contract income rather than net taxable income. Falls under the non-QM category.

• Bank Statement program

Accredited Investor

An individual or entity meeting SEC-defined financial thresholds that allow participation in private securities offerings, including real estate syndications. Individuals qualify with income over $200,000 annually ($300,000 joint) for the past two years with expectation of the same, or a net worth exceeding $1 million excluding primary residence. Relevant to investors participating in private real estate funds or syndications.

After-Repair Value (ARV)

The projected market value of a property after planned renovations are completed. Used by fix-and-flip and rehab lenders to size the loan and underwrite the deal. ARV is supported by an appraisal that includes the cost and scope of the planned work and comparable sales of recently renovated homes.

• Fix and Flip Calculator

Apartment Syndication

A real estate investment structure where a general partner (the operator) acquires and manages a multifamily property using capital pooled from multiple limited partner investors. The GP handles operations and receives a promote (carried interest) on profits. LPs receive preferred returns and a share of appreciation. Regulated as a securities offering under SEC Regulation D.

Appreciation

The increase in a property's value over time due to market demand, improvements, or broader economic conditions. Appreciation builds equity. Long-term appreciation has historically averaged 3 to 5% annually nationwide, though it varies significantly by market. Not guaranteed.

Asset Depletion Loan

A non-QM loan that allows high-net-worth borrowers to qualify using liquid assets rather than regular income. The lender calculates a hypothetical monthly income by dividing total eligible assets (retirement accounts, brokerage accounts) by the loan term in months. Useful for retirees or borrowers with significant savings but limited monthly income.

Balance Sheet

A financial statement summarizing a person's or company's assets, liabilities, and net worth at a specific point in time. Self-employed borrowers and real estate investors may be required to provide a business balance sheet as part of income documentation.

Bank Statement Loan

A mortgage for self-employed borrowers that uses 12 to 24 months of bank statements to verify income instead of tax returns or W-2s. Income is calculated from average monthly deposits. Solves the write-off problem for business owners whose taxable income understates true cash flow.

• Bank Statement program

BRRRR Strategy

An acronym for Buy, Rehab, Rent, Refinance, Repeat. An investment strategy where an investor purchases a distressed property below market value, renovates it, rents it, refinances with a DSCR or conventional investment loan based on the new appraised value, and uses the refinance proceeds to fund the next acquisition. Designed to recycle capital across multiple properties without continuous new capital injection.

Cap Rate

Short for capitalization rate. Calculated by dividing a property's net operating income (NOI) by its purchase price or value. A $300,000 property generating $24,000 NOI has a cap rate of 8%. Used to evaluate investment property return and compare properties regardless of financing. Higher cap rate generally means higher return and higher risk. Not the same as DSCR.

• DSCR Calculator

Cash Flow

The net income a rental property produces after all operating expenses and debt service are paid. Calculated as: gross rental income minus vacancy minus operating expenses minus mortgage payment. Positive cash flow means the property generates income above expenses. Negative cash flow requires the owner to subsidize the property from other income. The primary metric for evaluating rental property performance.

Cash Reserve

Funds the borrower retains after closing, separate from the down payment and closing costs. Lenders verify reserves as a cushion for future payments. Conventional loans may require 2 to 12 months of mortgage payments in reserves depending on property type and loan amount. Investment property loans typically require more reserves than primary residence loans.

Cash-on-Cash Return

The ratio of annual pre-tax cash flow to the total cash invested in a property, expressed as a percentage. A property requiring $80,000 cash to close that generates $8,000 in annual cash flow has a 10% cash-on-cash return. Accounts for financing costs, unlike cap rate. One of the primary metrics investors use to evaluate rental property performance.

• DSCR Calculator

Class A / B / C Property

A classification system for multifamily and commercial properties based on age, condition, location, and amenity level. Class A: newer construction, premium finishes, institutional grade, lowest cap rates. Class B: older but well-maintained, moderate rents, value-add opportunity. Class C: older, lower-income neighborhoods, higher cap rates, highest risk and management intensity. Classes are relative to each local market.

Co-GP (Co-General Partner)

A partner in a real estate syndication who shares general partner responsibilities with the lead sponsor. Co-GPs often bring specific expertise (capital raising, operations, construction management) in exchange for a share of the general partner economics. Co-GP arrangements require clearly defined roles and compensation splits in the operating agreement.

Debt Service

The total required cash payment for principal and interest on a loan during a given period, typically calculated monthly or annually. The denominator in the DSCR formula. Annual debt service equals 12 monthly principal and interest payments. Higher debt service (from larger loans or higher rates) requires stronger NOI to maintain an acceptable DSCR.

• DSCR Calculator

Depreciation

A decrease in a property's value due to age, deterioration, market conditions, or obsolescence. The opposite of appreciation. Also a tax concept: the IRS allows investment property owners to deduct a portion of the property's value each year as a depreciation expense, reducing taxable rental income.

Distressed Property

A property in physical disrepair, financial default, or under foreclosure that is typically available at below-market pricing. Distressed properties attract investors seeking value-add opportunities but require careful due diligence on repair scope and costs. Financing options are limited since most conventional programs require the property to be habitable at origination. Hard money and bridge loans are common for distressed acquisitions.

Due Diligence

The process of thoroughly investigating a property before purchasing it. For residential properties, includes a home inspection, title search, review of HOA documents, and appraisal. For investment properties, also includes review of rent rolls, operating statements, leases, deferred maintenance, environmental assessments, and market rent analysis. The due diligence period is defined in the purchase contract.

Equity Multiple

A metric used in real estate investing that shows the total return on invested capital over the life of an investment. Calculated by dividing total distributions received (including the return of original investment) by the original equity invested. An equity multiple of 2.0x means the investor received $2 for every $1 invested. Used to compare investments with different hold periods.

Fix and Flip Loan

A short-term loan used by real estate investors to purchase and renovate a property for resale. Typically a bridge loan with higher rates and shorter terms than conventional financing. Qualification is based primarily on the property's after-repair value (ARV) and the investor's track record.

• Fix and Flip Calculator

General Partner (GP)

The managing partner in a real estate limited partnership or syndication who is responsible for finding, acquiring, operating, and eventually selling the property. The GP makes all day-to-day decisions and has fiduciary responsibility to limited partners. GP compensation typically includes acquisition fees, asset management fees, and a promoted interest (carried interest) on profits above a preferred return threshold.

Gross Rent Multiplier (GRM)

A quick valuation metric calculated by dividing a property's purchase price by its annual gross rental income. A property selling for $600,000 with $60,000 in annual gross rent has a GRM of 10. Lower GRM generally indicates better value. GRM does not account for expenses or vacancy, making it a rough screening tool rather than a full analysis.

Hard Money Loan

A short-term, asset-based loan secured primarily by the property's value rather than the borrower's creditworthiness. Used by investors for fix-and-flip deals, bridge financing, or properties that do not qualify for conventional financing. Higher rates and fees than conventional loans. Funded by private lenders or investor groups rather than banks.

Hold Period

The length of time an investor plans to own a property before selling. Affects financing strategy (shorter holds favor interest-only bridge loans; longer holds favor fixed-rate permanent financing), tax treatment (short-term vs. long-term capital gains), and return calculations. Syndication business plans typically project 3 to 7 year hold periods.

House Flipping

The strategy of purchasing a property below market value, renovating it, and reselling it quickly for a profit. Fix-and-flip investors typically finance acquisitions with hard money loans or bridge loans given the short hold period. Profit depends on the accuracy of the after-repair value estimate, renovation costs, and timeline. Subject to short-term capital gains tax if held less than one year.

• Fix-and-Flip Calculator

Income Property

Real estate purchased mainly to generate rental income or resale profit rather than for the owner's residence. Includes single-family rentals, multifamily properties, and short-term rentals. Financing for income properties typically requires a larger down payment and carries a slightly higher rate than owner-occupied loans.

• DSCR program

Interest-Only Payments

Monthly loan payments that cover only the accrued interest with no reduction to the principal balance. Common in certain adjustable-rate mortgages during the initial period and in some DSCR and bridge loan programs. Payments are lower than fully amortizing payments, but the balance does not decrease. After the interest-only period, payments increase to cover both principal and interest.

Internal Rate of Return (IRR)

A measure of the annualized return on a real estate investment that accounts for the timing of all cash flows including purchase, ongoing distributions, and sale proceeds. IRR weights earlier cash flows more heavily than later ones. A higher IRR indicates a better return. Commonly used in real estate syndications to project and report investor returns. More precise than cash-on-cash return for multi-year investments.

Investment Property

Real estate purchased as an investment rather than as a primary residence. Includes rental homes, vacation rentals listed on short-term rental platforms, and multi-unit buildings. Investment properties typically require 20 to 25% down and carry higher rates than primary residence loans. DSCR loans are popular for investment property financing.

• DSCR program

Investor

In real estate, a borrower who purchases or owns property as a financial investment rather than as a personal residence. Investment property carries higher rates and larger down payment requirements than primary residence financing. DSCR loans are specifically designed to qualify investors based on property cash flow rather than personal income.

• DSCR program

Limited Partner (LP)

A passive investor in a real estate syndication who provides capital but has no management role or liability beyond the amount invested. LPs receive preferred returns, distributions from cash flow, and a share of the profits at sale. LP investment in private placements requires accredited investor status in most structures. LPs cannot participate in management decisions without risking reclassification.

Liquidity

The ability to quickly convert assets to cash without significant loss of value. Lenders evaluate liquidity when verifying reserves and assets. Checking, savings, and money market accounts are fully liquid. Retirement accounts are partially liquid with potential penalty. Real estate and business equity are illiquid. Lenders typically require liquid or near-liquid assets for down payment and reserves.

Loan-to-Cost Ratio (LTC)

The ratio of the loan amount to the total cost of a real estate project, including acquisition, construction, and soft costs. Used in construction and bridge lending. If a project costs $1,000,000 total and the lender provides $750,000, the LTC is 75%. Different from LTV, which compares the loan to the completed or current market value rather than the cost.

• Construction program

Multifamily Property

A residential building containing two or more housing units. Properties with 2 to 4 units are classified as residential and can be financed with conventional, FHA, and VA loans if owner-occupied. Properties with 5 or more units are commercial real estate requiring commercial financing. Multifamily investing is valued on income potential rather than comparable sales.

• DSCR program

Net Operating Income (NOI)

The income a rental property generates after operating expenses are subtracted, before debt service and income taxes. Calculated as: gross rental income minus vacancy allowance minus operating expenses (taxes, insurance, management, maintenance, HOA). The numerator in the DSCR formula. The foundation of investment property financial analysis.

• DSCR Calculator

Non-Owner Occupied

A property the borrower does not live in, such as a rental, second home, or vacation home. Non-owner-occupied loans typically require a larger down payment, carry a higher rate, and have stricter reserve requirements than owner-occupied loans because lenders view them as higher risk.

Non-QM Loan

A mortgage that does not meet the standard qualified mortgage guidelines set by Fannie Mae and Freddie Mac. Includes bank statement loans, DSCR loans, asset depletion loans, and other programs designed for borrowers with non-traditional income documentation.

• Bank Statement program

Occupancy Rate

The percentage of a property's total units that are currently rented. A 10-unit property with 9 tenants has a 90% occupancy rate. The inverse (vacancy rate) is used in NOI calculations. Lenders typically use a stabilized occupancy assumption (often 90 to 95%) rather than actual occupancy when underwriting investment loans on newly acquired or repositioned properties.

Operating Expenses

All recurring costs required to maintain and operate a rental property, excluding debt service and income taxes. Include property taxes, insurance, property management fees, maintenance and repairs, utilities (if landlord-paid), landscaping, and reserves for capital expenditures. Lenders use operating expenses to calculate NOI for DSCR qualification.

• DSCR Calculator

Preferred Return

A minimum return that limited partners in a real estate syndication receive before the general partner receives their promoted interest. Expressed as an annual percentage of invested capital (commonly 6 to 8%). If the property generates sufficient cash flow, LP investors receive the preferred return first. If cash flow is insufficient, the preferred return accrues and is paid from sale proceeds. Protects passive investors from GP profit-taking before investor capital is returned.

Private Placement Memorandum (PPM)

A legal disclosure document provided to prospective investors in a private securities offering such as a real estate syndication. Describes the investment opportunity, risks, management team, fees, use of funds, and investor rights. Required for Regulation D offerings. Investors should read the PPM in full and consult a financial advisor before investing. Not a marketing document.

Promote (Carried Interest)

The general partner's share of profits above the limited partners' preferred return threshold in a real estate syndication. A typical structure might give LPs 70% of profits and the GP 30% as promote after LPs receive their preferred return and capital back. The promote compensates the GP for deal sourcing, execution, and management. Also called carried interest.

Regulation D (Reg D)

A Securities and Exchange Commission rule providing exemptions from registration requirements for private securities offerings including real estate syndications. Most syndications use Rule 506(b) (up to 35 non-accredited investors, no general solicitation) or Rule 506(c) (only accredited investors, general solicitation permitted). Non-compliance can result in SEC enforcement action and civil liability to investors.

Rent Roll

A document listing all rental units in a property, the current tenant for each, monthly rent, lease start and end dates, security deposit held, and payment status. Lenders and buyers use the rent roll during due diligence to verify current income, lease terms, and vacancy. Discrepancies between the rent roll and actual leases or bank deposits are red flags.

Reverse Mortgage

A loan available to homeowners aged 62 or older that converts home equity into cash without requiring monthly mortgage payments. The most common version is the federally insured Home Equity Conversion Mortgage (HECM). The loan balance grows over time and is repaid when the borrower sells, moves out, or passes away.

Stabilized Asset

A rental property that has reached its target occupancy (typically 90% or higher) and is generating normalized operating income. Stabilized properties are valued on income and qualify for DSCR financing at more favorable terms than transitional or lease-up properties. Lenders require a minimum stabilized period (often 90 days) before underwriting permanent DSCR financing.

Syndication

The process of pooling capital from multiple investors to acquire a real estate asset that would be too large or capital-intensive for a single investor. The sponsor (GP) manages the investment; investors (LPs) provide capital and receive passive returns. Structured as a limited liability company or limited partnership. Governed by a PPM and operating agreement. Subject to SEC securities laws.

Vacancy Rate

The percentage of a property's units that are unoccupied at a given time. The inverse of occupancy rate. Used in NOI calculations: lenders subtract a vacancy allowance (typically 5 to 10%) from gross potential rent to estimate effective gross income. A higher vacancy rate reduces NOI and DSCR. Lenders may use market vacancy rather than actual vacancy for underwriting purposes.

Value-Add

A real estate investment strategy focused on acquiring properties with below-market rents or deferred maintenance, improving them through renovations or better management, and increasing rents and property value. Value-add multifamily deals are financed with bridge loans during the improvement phase and refinanced with permanent DSCR or agency financing once stabilized. Higher risk than core investments; higher potential return.