Commercial Lending Glossary
A glossary of definitions for common terms used in commercial real estate hard money lending & CRE investing.
Also known as an interest rate cap, this is a type of interest rate derivative in which a buyer receives payments should the interest rate exceed the agreed strike price. For example, should a specific rate exceed 2.5% during a month, the rate cap would be an agreement to receive a payment that month.
REIT (Real Estate Investment Trust)
A security that invests in real estate directly, either through properties or mortgages. REITs sell like stocks on the major exchanges, receive special tax considerations, and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
A type of loan utilized to purchase REO, or "real estate-owned", properties. REO is a class of property owned by lenders. If a borrower has failed to make payments and defaulted, the institution will attempt to sell the property at a foreclosure auction. In the case that no bidders are interested in the property, the institution will legally repossess the property and it will be listed in their books as REO.
Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of several different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. This calculation can be visualized as (Return of Investment / Cost of Investment).