An alternative investment refers to any investment which does not qualify as “traditional”. Traditional investments are widely considered to be stocks, bonds and cash.
An accredited investor is a term used by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D.
After Repair Value (ARV)
The projected value of a property after improvements are made. Typically this ARV projection is used by lenders and investors to forecast investments and profits.
A basis point (bps) is a unit that is equal to 1/100th of 1%, in other words one basis point is equal to 0.01%, similarly a 1% change is equal to a 100 basis point change.
Cash-on-cash return is one of the most widely used metrics in commercial real estate. As the name implies, this metric is calculated by dividing annual before tax cash-flow by the total cash invested in a project.
An amount of money (obligation) owed by one party (the debtor) to another party (the creditor).
Development is the process of building or adding to existing structures to increase the value of a property.
Payments made to investors periodically, typically over the course a calendar year, either from profits or interest payments.
As it relates to real estate, equity can be measured as the amount of capital a sponsor (property owner/developer) puts into a property.
An investment property is a real estate asset purchased with the sole purpose of generating a return. A return can come in the form of resale profits or rental income.
The use of borrowed money — debt — to complete an investment. Leverage can increase the size of the property a purchaser is able to afford, or reduce the investment required for a similar sized property.
Loan to Value (LTV)
A risk assessment ratio that lenders perform when considering a real estate loan.
Net Operating Income (NOI)
In real estate, the net operating income, or NOI, represents the annual revenue (or income) generated by an investment property after annual operating expenses.
Regulation D permits raises of unlimited amounts from accredited investors without registering a public sale through the SEC, as it’s assumed that accredited investors are financially able to bear the burden of investment decisions without a review by the SEC.
Secured vs. Unsecured
A secured position affords the right to foreclose on a property in the event of a default, or non-performance. Unsecured creditors do not have the right to foreclose on the property, and therefore have less collateral backing their investment claim.
An investor who does not meet the wealth or income requirements of an accredited investor set forth by the SEC.