Have you ever heard someone try to talk about something that they obviously don’t understand? It’s like when car guys are chatting about forged internals and someone mentions that their brother’s Grand Caravan runs Nos. Not only is their credibility shot so is your desire to continue talking about the subject. That’s how you will come off to investors if you don’t speak their language. If you have suggestions for tweaks to definitions, other terms, or disagree with something let me know!

Which sounds better…

“Hey I found a property for sale that I think you should flip because you can make a bunch of money.”

“I have a property under contract that has a great ROI. When rented the NOI is over 10k a year. If you’re not looking for cash flow that’s fine as well. The asking price is only 65% of the ARV so you have multiple exit strategies!”

Roi: Return on investment is calculated by (gain from investment-cost of investment) divided by cost of investment.

Coc: cash on cash return is calculated by dividing the annual income by the total dollars you have invested.

Noi: Net operating income is calculated by taking your total income and subtracting out all your expenses not including mortgage or depreciation. Noi is pre-tax. If the property is at a negative it is called a Net Operating Loss. Nol.

Cash flow: is the money you get to keep of a rentals profits after covering your expenses and setting aside money for vacancies, taxes, insurance, and repairs.

Cap rate is: The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.

Debt service: Your mortgage payment including principle and interest.

Dm: Direct mail

Wholesale: Find a property and negotiate a price. Place it under contract and sell it for a profit in the middle to an end cash buyer.

YL: Yellow letters are a form of DM that appear to be handwritten and are mailed in a small envelope designed to look like a letter from a family member or friend.

Assignment: The act of selling your contract for a fee to another investor typically used to wholesale when less than 5k is your profit.

Double close: You buy the property and immediately sell it to the end buyer. You are using the end buyers funds to complete the transactions. You will pay closing costs but neither party knows what you make. Use this if your profit is over 5k.

HML: Hard money lender: typically asset based loans that are short term. Under 11 months. Points up front and high interest rates. Typically you are paying a large monthly payment that is only interest.

OPM: Other people’s money. Friends family and other investors who loan you money or partner on deals. Typically cheaper and easier than HML and conventional funding.

JV: A partnership in which you work with another investor to complete a deal. Typically one partner provides the property and contractors while the other provides the money.

Debt Partner: OPM that is money lenders at an interest rate. Payments may or may not be required.

Equity partner: OPM where they get a piece of the pie. Typically a profit split agreement.

Purchase and sale agreement: A document used to complete the purchase of Real Estate with typical clauses for inspections and financing.

Special Sale: A contract that is as is with no contingencies.

***I like to start with a P&S and make my end buyer use a Special Sale on wholesale deals.***

Earnest money: Money you put up front with the title company to show you are going to close. If you fail to close this money can be kept by seller.

ARV: After Repair Value is how much a property is worth in mint condition.

HELOC: Home equity line of credit