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A

Ask Price

The price holders of shares desiring to sell their stock are willing to sell it at. Buyers will typically offer a price below the Ask Price. If no buyers meet the desired Ask Price no sale can be made. The difference between the Ask Price and Bid Price is the spread. Highly traded stocks typically have a very narrow spread (less than $0.01).

At-the-Money

In options trading, an option is at-the-money when the strike price of the option bought or sold matches the current market price of the underlying stock (i.e. the last stock trading price).

B

Bearish

The sentiment on the stock (or any market or asset) is projected to go down - decrease in value. Presumedly named after the fighting style of bears which attack in a downward motion as opposed to bulls which raise their head in an upward motion to impale their prey on their horns.

Bid Price

The price traders desiring to buy a stock are willing to buy it at. Buyers will typically offer a price below the Ask Price. If no buyers meet the desired Ask Price no sale can be made. The difference between the Bid Price and Ask Price is the spread. Highly traded stocks typically have a very narrow spread (less than $0.01).

Bridge Loan

A short-term loan used to finance the purchase or renovation of a property until permanent financing is obtained. Often used when constructing a new property and simultaneously trying to sell an old property. Can also be referred to as a gap loan or swing loan and is usually done for 6 months.

Bullish

The sentiment on the stock (or any market or asset) is projected to go up - increase in value.

Bullish Percent Index (BPI)

The Bullish Percent Index (BPI) is a breadth indicator that measures the percentage of stocks on Point and Figure Buy Signals within an index. It was developed by Abe Cohen in the mid-1950s and was originally applied to NYSE stocks. The BPI helps investors understand the internal health of an index by looking at the number of components that are on a bullish or bearish track. The BPI fluctuates between 0% and 100%, with values above 50% indicating a bullish market and values below 50% indicating a bearish market. The BPI reminds people of the RSI indicator, but differs from the Relative Strength Index (RSI) in that it is a breadth indicator, whereas the RSI is a momentum indicator. The RSI measures the magnitude of recent price changes to evaluate overbought or oversold conditions in an asset. In contrast, the BPI measures the percentage of stocks in an index that are on a bullish or bearish track.

C

CapEx (CAP-EX)

Capital Expenditure. The cost of acquiring or improving a property by upgrading big ticket physical assets such as roofing, HVAC, landscaping, or plumbing.

Cash Secured Put

A cash-secured PUT (CSP) is an options trading strategy that involves writing (sell order) a PUT option on a stock or ETF and simultaneously putting aside the capital to buy the stock if you are assigned (forced to buy the stock at the given strike).

CCIM

Certified Commercial Investment Member. A professional designation for commercial real estate practitioners who have completed advanced coursework and demonstrated expertise in financial analysis, market analysis, and investment decision making. States typically don't have a designated real estate license to separate residential practitioners from commercial, so this designation helps commercial agents show deeper expertise in their field.

Certified Property Manager (CPM)

A professional designation for property managers who have met the requirements of education, experience, and ethics set by the Institute of Real Estate Management (IREM).

Closing Period

The time between the signing of a purchase and sale agreement and the transfer of ownership of a property. The transfer of ownership happens on the closing date.

Commercial Mortgage-Backed Securities (CMBS)

Bonds backed by a pool of commercial mortgages, which provide investors with income from the interest and principal payments of the underlying loans. CMBS can be quite volatile as compared to residential backed securities just due to the nature of commercial property deals unlike residential properties which tend to follow simple standard 15 or 30-year mortgages.

Concessions

Economic incentives granted by an owner to encourage the leasing of space or the renewal of a lease, such as a month’s free rent or reduced security deposit for an apartment. Sometimes concessions may include upgrades or different finishes to the space which might not normally be allowed

Conventional Loan

A mortgage loan that is not insured or guaranteed by a government agency, such as FHA or VA. The mortgage will typically have a fixed term and a rate which doesn't change over the life of the loan. However, people mistakenly assume with a fixed conventional mortgage their payment will never go up. This is false; increases in property tax or home insurance will make your overall home loan go up, if these are baked into the loan payment each year.

Covered Call

A covered CALL is an options trading strategy that involves writing (sell order) a CALL option on a stock or ETF that you already own 100 shares in. The goal of this strategy is to generate income from the premium received while also potentially profiting from the appreciation of the underlying asset.

D

Day Trading

Trading a stock, typically buying and selling it within the same day with the intent to make a profit before the market closes. Many brokerages put a limit on how many day trades can be made in beginner accounts due to the high risk associated with day trading. Short selling a stock and buying it back the same day (buying to cover) would be considered a day trade as well.

Debt Service Coverage Ratio (DSCR)

The ratio of net operating income to mortgage debt service (NOI divided by mortgage debt service), which measures the ability of a property to generate enough income to cover its debt obligations. A DSCR of over 1.0 means sufficient cash flow to cover debt payments.

Deferred Maintenance

The postponement of repairs or improvements to a property, which may result in a decline in its value or functionality in the long term. This is sometimes done to maintain short-term profitability (stabilize costs) until new money can support the fixes.

Dividend Yield

A percent that represents the annual dividend paid to stock holders divided by the current (market) price of the shares (dividend/price). A company that pays out a $0.50 quarterly dividend which has a stock currently trading at $100 would mean a current dividend yield of 2%. Dividend yields of solid companies will typically be 5% or lower. Companies that tend to have much higher yields (over 10%) will typically be very high risk or be specialty assets like REITS or BDCs which come with their own set of risks. A dividend yield is an easy way to compare the current rate of investing in a stock versus putting your money in another investment with a given APY.

Dollar-cost Averaging (DCA)

Dollar-cost averaging is a strategy that involves investing the same amount of money in a target security at regular intervals, regardless of price. This strategy can help investors mitigate risk by turning the market’s natural ups and downs to their advantage. This strategy aims to prevent a poorly timed lump sum investment at a potentially higher price. By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices. This can lower the average cost per share and reduce the impact of volatility on the portfolio. Dollar-cost averaging is also known as the constant dollar plan.

Due Diligence

The process of investigating and verifying the physical, financial, and legal aspects of a property before purchasing it, such as inspecting the condition, reviewing the leases, and checking the title. This is done well before the closing date to ensure there are no surprises which could kill the deal.

E

Earned Income

Earned income is any income actively acquired through work or business activities. It is the opposite of unearned income. The Internal Revenue Service (IRS) considers earned income to include but may not be limited to wages, salaries, tips, annual bonuses, and self-employment income

Economic Vacancy

The percentage of potential rental income that is lost due to vacancy, concessions, bad debts, or collection losses. This is often compared to physical vacancy which counts how many units are actually not rented and available for lease. Economic vacancy will typically always be higher than physical vacancy if you have tenants that don't pay their rent on time or in full each month.

F

F.I.R.E. (FI/RE)

Financial Independence, Retire Early - A concept (and now a movement) where people practice extreme savings early in life to build up enough assets that allow them to live off the income from those assets and retire much earlier than the average age. Some people practicing FIRE can retire as early as 35 years old or younger.

Fear and Greed Index

The Fear and Greed Index, developed by CNNMoney, is a way to gauge stock market movements and whether stocks (overall) are fairly priced. The index ranges from 0 to 100, with 5 specific phases: Extreme Fear (0-25), Fear (25-45), Neutral (45-55), Greed (55-75), Extreme Greed (75-100). A higher index value means that there may be too much optimism in the market (overbuying) and that stocks may be due for a pullback. Likewise, Excessive Fear means traders are not optimistic and have been selling, which may be a good opportunity to buy stocks on the dip once prices stabilize. You can find the index at https://edition.cnn.com/markets/fear-and-greed

Float

The number of outstanding shares that can be traded on the market, typically through an exchange. When a company goes public and makes their stock available for trading on the exchange, some shares may be held back (owned) by the company. One of the most notorious low floats was from Saudi Aramco (one of the most valuable entities in the world); they went public with only 1.5% of the company shares available for trading which was still worth billions of dollars.

Flow of Funds Report

A document that details the sources and uses of funds for a real estate transaction, such as the loan amount, equity contribution, closing costs, and escrow deposits. It is a useful tool for investors (say in a multi-family deal) to understand how their investment dollars will be used, and to catch where there may be an underestimate or overestimate on different expenses.

G

Gross Potential Rent (GPR)

The maximum amount of rental income that a property could generate if it were fully occupied and charged the market rent.

Guarantor

A person or entity that agrees to be responsible for the debt or obligations of another party, such as a borrower or tenant, in case of default or non-payment. In multi-family deals the guarantor is typically someone with a high net worth in the millions.

H

Hard Money

A type of loan that is secured by the value of a property, rather than the creditworthiness of the borrower. Hard money loans typically have higher interest rates, shorter terms, and lower loan-to-value ratios than conventional loans. Most fix-and-flips use hard money loans as they are an easy way to get cash for a 6-month rehab and can be obtained on multiple properties simultaneously.

I

In-the-Money (ITM)

In options trading, an option is in-the-money when the strike price of the option bought or sold is profitable compared to the current market price of the underlying stock (i.e. the last stock trading price). For example, if you bought a Call hoping the stock would go to $100 and the stock is now trading at $110, that option is in-the-money by $10 as you could sell it for a profit since anyone buying it would be able to purchase the shares at $100 versus the current market price of $110.

Independent Rental Owner Professional (IROP)

A professional designation for multi-family rental property owners who have completed the education and certification program offered by the National Apartment Association (NAA).

K

Key Principal

The key principal works with the sponsor or syndicate lead to help reduce the risk of the real estate deal to the lender by insuring due diligence from all perspectives including project management, accounting, property assessment and more.

L

Land Use Restriction Agreement (LURA)

A legal document that imposes certain restrictions on the use, occupancy, and rent of a property, usually as a condition for receiving tax credits or subsidies. LURAs are used to provide affordable housing to low-income households.

Letter of Intent (LOI)

A written document that expresses the interest and intent of a potential buyer or tenant to purchase or lease a property, subject to further negotiations and due diligence. This is the first step for a syndicate lead securing a multi-family investment deal.

Loan to Cost Ratio (LTC)

The ratio of the total amount of a loan divided by the total cost of a project, which measures the degree of leverage and risk involved in a real estate investment.

Loan to Value Ratio (LTV)

The ratio of the amount of a loan to the appraised value or market value of a property, which measures the degree of leverage and risk involved in a real estate investment. This is one of the first things people look at to judge the soundness of a deal - a high LTV means greater risk. Most investors want an LTV below 80% and ideally as low as 50%, which is much harder to get if the property requires significant repairs and the market for similar houses in the area is down.

Low-Income Housing Tax Credit (LIHTC)

A federal program that provides tax credits to developers or investors who build or rehabilitate affordable housing for low-income households.

N

Net Operating Income (NOI)

The total annual income generated by a property after deducting operating expenses, such as taxes, insurance, maintenance, and utilities.

Net Rentable Square Feet (NRSF)

The total area of a property that can be leased to tenants, and may include a percentage of common areas, such as hallways, lobbies, and restrooms.

Non-Recourse Loan

A type of loan that limits the liability of the borrower to the collateral securing the loan, such that the lender cannot pursue the borrower’s personal assets in case of default. Non-recourse loans are good for borrowers.

O

Origination Fees

Fees charged by a lender for processing and underwriting a loan, usually expressed as a percentage of the loan amount. The research a lender does after you submit a loan app is covered in this origination fee.

Out-the-Money (OTM)

In options trading, an option is out-the-money (out of the money) when the strike price of the option bought or sold is unprofitable compared to the current market price of the underlying stock (i.e. the last stock trading price). For example, if you bought a Call hoping the stock would go to $100 and the stock is now trading at $90 and expires today, that option is out-the-money because your contract only allows you to buy the underlying stock at $100, $10 more than the current market price, so you'd lose $10 per share. Since you wouldn't want to exercise that option, the contract expires worthless.

P

Pass-Through Money

Funds that are collected by a property manager from tenants and passed through to the owner, such as utility payments, late fees, or application fees. Pass-through money can also refer to taxation where an entity is not taxed on income, but rather the proceeds flow through to the individuals who are taxed.

Personal Financial Statement (PFS)

A document that summarizes the assets, liabilities, income, and expenses of an individual or entity, usually required by a lender or investor to evaluate the creditworthiness or financial capacity of a borrower or partner.

Phase 1 Environmental (ESA)

A report that identifies the potential environmental risks or liabilities associated with a property, such as soil contamination, water pollution, or hazardous materials. In cases where something substantial is found in the Phase 1 assessment, a Phase 2 environmental assessment may be done.

Price Action

Price action is the flow of buy and sell stock orders represented by the price movements for that ticker. A company can have blow-out earnings and jump 10% after hours, then suddenly tank 15% the very next minute for no good reason. Price action is the pulse of the stock. Sometimes it can just lazily move throughout the day with little volume until one breaking story doubles the trade volume in a matter of minutes.

Private Placement Memorandum (PPM)

A document, prepared by an attorney that outlines all the key information for a real estate syndication deal (e.g. apartments). The PPM is given to potential investors (accredited and sophisticated) explaining the offering, how the money will be used from the capital raise, and risks involved in order for them to make a decision on whether to proceed with the investment.

Pro forma

A financial statement that projects the income, expenses, and cash flow of a property based on certain assumptions and projections.

Property Condition Assessments (PCA)

Used in commercial real estate deals, a report that evaluates the physical condition and maintenance needs of a property, including its structural, mechanical, electrical, and plumbing systems.

Purchase and Sale Agreement (PSA)

A legal contract (in writing) that specifies the terms and conditions of the sale and purchase of a property, such as the price, closing date, contingencies, and representations.

R

Ratio Utility Billing System (RUBS)

A method of allocating utility costs among tenants based on certain factors, such as unit size, occupancy, or usage, rather than installing individual meters.

Real Estate Brokerage Fee

A commission paid to a real estate broker for facilitating the sale or lease of a property, usually based on a percentage of the sale price or lease value. This can vary significantly based on whether the property is single-family home or commercial and the value of the deal. Residential brokerage fees have often been around 6% of sales price, but that is being challenged in recent years.

REIT

A REIT (pronounced 'REET') is a real estate investment trust. REITs are like stocks, ETFs, which are fairly liquid because they can be traded on the stock exchange. The product that REITs hold are real estate properties which may include, but may not be limited to, commercial (brick and mortar), residential, storage facilities, and even companies owning land rights for advertising like billboards. By "securitizing" real estate, these products are easier and faster to buy and sell than physical real estate.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technical indicator used to measure the strength of a security by comparing its average gains to its average losses over a given period. It was developed by J. Welles Wilder Jr. and introduced in his 1978 book, “New Concepts in Technical Trading Systems” 12. The RSI is displayed as an oscillator on a scale of 0 to 100. The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of price movements. Momentum is the rate of the rise or fall in price. The RSI provides signals that tell investors to buy when the security or currency is oversold and to sell when it is overbought. For example, suppose a stock’s price has been rising for several days, and the RSI is above 70, indicating that the stock is overbought. This could be a signal that the stock is due for a correction or a pullback. Conversely, if the RSI is below 30, the stock may be oversold, and it could be a signal that the stock is due for a rebound. When using RSI it is always critical to be aware of what timeframe you are using, a 1-minute RSI indicator which may be used by day traders can look vastly different than an RSI indicator on a daily or weekly chart. A stock can look very easily overbought on a 1-minute chart, but look oversold on a daily chart signaling to a swing trader there may still be time to catch an upswing in the stock price.

Rent Comps

Comparable properties that have similar characteristics and location to a subject property, used to determine the market rent or value of the subject property. In residential agents may just say "comparables" when referring to rental comps.

Reserve Replacement

A fund that is set aside for future capital expenditures or major repairs of a property, such as replacing the roof, HVAC, or appliances.

S

Sahm Rule

A rule developed by Claudia Sahm, founder of Sahm Consulting, that indicates if we are in a recession and forecasts if one is near. It compares the 3-month moving average of the national unemployment rate relative to its low during the previous 12 months. If it is 0.5 percentage point or greater that indicates a recession.

Schedule of Real Estate Owned (SREO)

A document that lists the properties owned by an individual or entity, along with relevant information, such as address, value, mortgage balance, and rental income. Helpful to lenders who may be looking to approve a borrower for a new deal and want to understand what the individual already owns

Section 8

A federal program that provides rental assistance to low-income households, either by paying a portion of the rent directly to the landlord or by issuing vouchers that can be used to rent any qualified unit. The name comes from Section 8 of the Housing Act of 1937, which authorized the payment of subsidies to private landlords on behalf of eligible tenants

Syndicate Sponsor

A person or entity that organizes and manages a group of investors who pool their money to invest in a real estate project. The group is called the syndicate and typically must have a certain number of accredited investors to be within SEC guidelines for investment deals.

T

Trailing Twelve Months (T12)

A financial statement that shows the income and expenses of a property for the past 12 months, usually used to calculate the net operating income and cap rate of a property. There is also a T3, which is the same methodology just using the last 3 months. A big improvement in T3 versus T12 may signal that things are starting to turnaround for a property, similar to a stock, looking at a moving average of 20 days versus a 100-day moving average.

U

Unearned Income

Unearned income is any income that is not acquired through work or business activities. It is money earned by doing nothing, in contrast to earned income, which is compensation received for performing a service like work. Unearned income can serve as a supplement to earned income before retirement and is often the only source of income in post-retirement years. Unearned income is directly contrasted with earned income, which is compensation paid for performing a service. The most common types of unearned or passive income include interest from savings accounts, bond interest, alimony, and dividends from stocks. Other examples of unearned income include inheritance money, rental income, and capital gains distributions. Tax rates on unearned income are different from rates on earned income. Most unearned income sources are not subject to payroll taxes, and none of them is subject to employment taxes, such as Social Security and Medicare.

Glossary

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