Common Creative Finance Abbreviations and Terminology

EMD (Earnest Money Deposit): A deposit made by the buyer to show commitment to purchasing a property, held in escrow until closing.

ARV (After Repair Value): The estimated value of a property after renovations or repairs are completed, often used to determine the profitability of a fix-and-flip deal.

BRRRR (Buy, Rehab, Rent, Refinance, Repeat): A strategy where an investor buys a property, renovates it, rents it out, refinances to pull out capital, and repeats the process.

CF (Cash Flow): The net income generated from a property after expenses, a key metric for rental property investors.

Cap Rate (Capitalization Rate): A measure of a property’s annual net operating income divided by its purchase price, used to evaluate investment returns.

CFR (Cash Flow Revolver): A line of credit used to fund cash flow needs, sometimes applied in creative deals to cover short-term gaps.

CIM (Confidential Information Memorandum): A document outlining the details of a real estate investment opportunity, often used in larger deals to attract investors.

DSCR (Debt Service Coverage Ratio): The ratio of a property’s net operating income to its debt payments, used to assess loan affordability.

DPO (Discounted Payoff): A strategy where a buyer negotiates to pay off a seller’s mortgage at a discount, often used in distressed property deals.

DTI (Debt-to-Income Ratio): A metric used by lenders to evaluate a borrower’s ability to manage monthly payments relative to their income.

FMV (Fair Market Value): The estimated price a property would sell for in the current market, often used as a baseline in creative finance deals.

FSBO (For Sale By Owner): A property sold directly by the owner without a real estate agent, often targeted in creative finance deals.

HELOC (Home Equity Line of Credit): A loan based on the equity in a property, often used by investors to fund purchases or renovations.

LTV (Loan-to-Value Ratio): The ratio of a loan amount to the property’s value, used to assess financing risk.

NOI (Net Operating Income): A property’s total income minus operating expenses, excluding mortgage payments, used in evaluating investment performance.

OBO (Or Best Offer): A term indicating the seller is open to negotiating the price, common in FSBO or creative deals.

OCC (Owner-Occupied): A property where the owner resides, which may affect financing terms or deal structures.

PITI (Principal, Interest, Taxes, Insurance): The components of a typical mortgage payment, critical for calculating affordability in creative financing.

REO (Real Estate Owned): A property owned by a lender after foreclosure, often available for creative financing deals.

ROI (Return on Investment): A measure of the profitability of an investment, calculated as net profit divided by the investment cost.

Sub2 (Subject-To): A creative financing strategy where the buyer takes over the seller’s existing mortgage payments without formally assuming the loan.

TVM (Time Value of Money): The concept that money available today is worth more than the same amount in the future due to its earning potential, critical in structuring creative deals.

WACC (Weighted Average Cost of Capital): The average rate of return a company must pay to finance its assets, sometimes used in larger real estate investment analysis.