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ARV
After Repair Value - The value of a property after all needed repairs or renovations are completed. Generally the same as market value.
CMA
Comparable Market Analysis – The sellable price on the market for the region it’s in.
Equity
The difference between the amount someone owes on a property and its market value. The more equity, the more flexibility a seller may have. And the more equity to work with, the more flexibility you have, in selecting strategy options. Equity is where your real profits are.
The more equity, the more potential for immediate profit. The less equity you have, the less immediate profit potential. The key word here is immediate. Some strategies, like quick turn for cash, require you to buy low and sell while leaving your buyer enough equity to be profitable.
Hard Money
Loans that are _base_d on the After Repair Value, rather than the contract price. Usually funded by a private sources, they are brokered by lenders who specialize in this type of loan.
Hard Money Lenders
Provide special short term funding to allow for purchase and repairs of properties in poor condition. These lenders work a special niche, and are different from typical mortgage lenders. They loan _base_d on the appraised value, not the contract price.
Hard Money Lenders will loan the purchase price as well as the money for repairs. Usually for 90 days up to 1 year terms, at interest rates well above typical market rates. 5 points and 15% interest are common. These loans generally will not exceed 65 to 70% of the total ARV.
Ordinary mortgage lenders do not loan on properties in poor condition that require repairs. Hard money lenders serve a special purpose in the rehabbing business.
Judicial Foreclosure
Some states require a court appearance before a judge who renders a foreclosure decree, which allows the mortgage holder to proceed with the auction of the property.
In some states, the process is known as non-judicial foreclosure, because the buyer signs a security deed at closing, which gives the mortgage holder permission to foreclose if the buyer fails to make the payments as agreed. A judicial hearing is not required. Known as “No Pay No Stay”.
Lease with Option to Buy
Commonly used to by investors to “sell” a house to a tenant who is renting at present. It is simply a Lease for rental, and an Option to Buy, which spells out the terms of the deal, should the tenant decide to “exercise” their option and buy the property at a future date. The advantage is getting up front option consideration. (cash for the right to have an option.)
LTV
This number is expressed as a ratio. For example, a property has an ARV of $100,000. If you borrowed $50,000 to buy the property, that would be a 50% LTV ratio.
Note: Mainstream mortgage lenders define LTV as the loan amount relative to the contract purchase price.
Market Value:
This is the amount a willing seller will accept and the amount a willing buyer will pay for a given property. (This definition assumes no unusual motivation or influence on the part of either the buyer or the seller).
Judicial MAO (Maximum Allowable Offer)
This is the total amount you can offer a seller for a given prop¬erty. You should not exceed your MAO when bidding on a property. Your total MAO can be higher or lower, depending on the condition of the property and how long you intend to hold it.
MLS and FMLS
Multiple Listing Service and First Multiple Listing Service. Services owned or controlled by RE brokers and used by real estate sales agents to advertise their properties to other agents and the public. Prior to the World Wide Web, these listings were kept in books that were published weekly for brokers. The Internet has made this information much more accessible.
Motivated Seller
Someone who has an unusual circumstance that may require him/her to sell their property at a discounted price or special financing terms or both. Debt, foreclosure and major life changes, such as divorce or retirement, are among the most common events that can force sellers to sell quickly.
The bottom line is the more motivated the seller is, the better your chances of getting a wholesale price for the property. The best circumstance for you is when you are in the position of “solving someone’s problem”. And can create a deal that is a win-win for both you and seller.
PITI – Principal, Interest, Taxes, Insurance
The four primary parts that make up a monthly mortgage payment. Some types of loans will also add additional fees, but a PITI is fundamental to any deal in which a mortgage is obtained.
Points
One point is 1 percent of the loan amount.
REO
Real Estate Owned by banks. Houses that are foreclosed and an auction has been completed with no buyer, and the lender has taken it back. This is also known as "post-foreclosure".
Short Sale
Usually attempted in the "pre-foreclosure" stage, before the auction occurs. A short sale is when you get the lender to accept less for the property than is owed on the mortgage. Generally this will happen only when the lender is in the process of foreclosing on the property. The lender becomes motivated to discount the note rather than go through with a foreclosure.
Short sales must be completed before the auction date, or the lender has to agree to stop the foreclosure and extend a new closing date. Short sales are more likely to happen when the house is in a less desirable location, and / or the property is in very bad condition. A short sale negotiation process can last up to 6 months or more before an agreement is reached. Short sales are a logical choice when there is little or no equity in the property and foreclosure is pending.
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