Annual Percentage Rate: this is the total yearly cost of taking out a loan and it is measured in the percentage of the loan.

A balloon payment is a large lump sum payment due at the end of a loan term, typically associated with certain loans. It allows for lower regular payments but requires borrowers to make a substantial final payment or refinance the remaining balance.

A bridge loan is a temporary financing solution that provides borrowers with time and/or immediate funding until they secure permanent financing. Bridge loans are commonly utilized when borrowers are renovating a property or seeking a long-term commercial tenant. Their purpose is to bridge the gap between current and future financing needs, offering flexibility during transitional phases of a business venture.

The cap rate, also known as the “capitalization rate,” is a valuation method used to assess a property’s income-generating potential. Expressed as a percentage, it is determined by dividing the property’s net operating income by its purchase price. The cap rate offers insight into the property’s profitability and serves as a benchmark for comparing investment opportunities.

The taxable income resulting from selling an investment property, calculated by subtracting sales-related costs, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.

Additional funds set aside during construction or renovation projects to cover potential cost overruns.

Upper and lower limits defined on an adjustable-rate mortgage, often referred to as “floor” and “cap.”

Total property cost, including hard and soft costs, minus depreciation. Capital gains are calculated by subtracting the cost basis from the sales price.

A method to reduce fees when prepaying a fixed-rate CRE loan by exchanging collateral with another cash-flowing asset instead of cash payment.

The rate used to discount money or cash flow, accounting for the risk-free rate of interest and risk premium.

Debt service coverage ratio, reflecting the relationship between a property’s annual NOI and mortgage debt service.

A one-time payment to the lender when fully repaying a loan, either through prepayment or at maturity.

A fixed interest rate is when the interest rate doesn’t fluctuate for the duration of the loan. This means your payment will stay the same month to month.

Gross income is the sum of money you earn in a year before taxes and other deductions. These earnings include wages, salaries, interest payments, etc.

A method to value a property based on projected annual gross rents multiplied by a given factor.

Expenses related to physical aspects of a real estate deal, such as construction materials and labor.

Entity providing a loan for a commercial real estate transaction, often a bank.

Utilizing debt in real estate financing to amplify investment returns.

London Interbank Offered Rate, the interest rate at which banks lend funds to each other in the international market.

Loan amortization is the spreading out of payments over multiple periods.

Comparison of the loan amount to the cost of constructing a project, helping lenders assess risk before offering a construction loan.

Loan amount divided by the property value, representing the borrowing amount relative to the property’s total market value.

Intermediate debt between secured senior debt and equity, not secured by the asset itself.

Potential rental income plus other income, minus vacancy, credit losses, and operating expenses.

Commercial mortgage allowing additional borrowing up to a specified limit without obtaining a separate loan.

Cash outlay for property operation and maintenance, including taxes, insurance, management fees, utilities, and legal/accounting expenses.

Start date of a new loan.

Loan kept on a lender’s books rather than being sold off, potentially subject to less stringent underwriting requirements.

Principal is the initial amount of money you initially agreed to pay back.

Record of tenants’ names and rents due, providing proof of property cash flow.

Loan under $5 million offered for various commercial properties, typically with less rigorous underwriting requirements and faster closing.

Construction-related fees not directly tied to labor or building materials, such as origination, architecture, and accounting fees.

Aggregate debt incurred for property financing, including construction debt, mezzanine financing, bridge loans, and permanent financing.

A loan with a variable interest rate is when the interest rate fluctuates over time, this means that the payment may not stay the same.