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Intermediate terms

Essential Creative Financing Terms

This curated collection includes key terms that might be helpful when exploring creative financing and alternative lending strategies. It covers methods to acquire property without traditional bank mortgages, including seller-side financing, debt assumption, and non-traditional capital sources. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Hard Money Loan

A hard money loan is a short-term, asset-backed real estate loan from private lenders, primarily based on the property's value rather than the borrower's credit, used for quick acquisitions or rehab projects.

Intermediate13-14 min
2

Private Money Loan

A private money loan is a non-bank loan provided by individuals or private companies, secured by real estate, offering flexible terms and fast funding for real estate investors.

Intermediate12-13 min
3

Junior Lien

A junior lien is a claim on a property that is subordinate in priority to another existing claim, typically a first mortgage. In a foreclosure, junior lienholders are paid only after all senior lienholders have been fully satisfied, exposing them to higher risk.

Advanced12-15 min
4

Alternative Capital Sources

Alternative capital sources are non-traditional funding options for real estate investments, including private money, hard money, seller financing, and crowdfunding, offering flexibility and speed for deals that may not qualify for conventional bank loans.

Intermediate13-16 min
5

Due-on-Sale Clause

A due-on-sale clause is a mortgage provision allowing the lender to demand immediate repayment of the entire loan balance if the property is sold or transferred without their consent, protecting against unauthorized loan assumptions.

Intermediate13-14 min
6

Joint Venture

A real estate Joint Venture (JV) is a collaborative business arrangement where two or more parties combine resources, expertise, and capital for a specific real estate project, sharing both the risks and rewards.

Intermediate14-15 min
7

Real Estate Exit Strategy

A real estate exit strategy is a predefined plan for how an investor will liquidate or conclude their involvement with a property, aiming to realize profits, recover capital, or mitigate losses.

Intermediate13-14 min
8

Seller Financing

Seller financing is an arrangement where the seller of a property provides a loan to the buyer, who then makes payments directly to the seller instead of obtaining a traditional mortgage.

Intermediate13-14 min
9

Interest-Only Loan

An interest-only loan is a debt where the borrower pays only the interest on the principal balance for a set period, with no principal reduction during that time. This results in lower initial monthly payments.

Intermediate10-11 min
10

Loan Assumption

Loan assumption allows a buyer to take over an existing mortgage from a seller, often retaining the original interest rate and terms, which can be advantageous in rising interest rate environments.

Intermediate18-20 min
11

Balloon Payment

A balloon payment is a large, lump-sum payment of the remaining principal balance that becomes due at the end of a loan term, typically after a period of smaller, partially amortized or interest-only payments.

Intermediate15-18 min
12

Alternative Lending

Alternative lending encompasses non-traditional financing sources like hard money, private lenders, crowdfunding, and seller financing, offering speed and flexibility for real estate investments, often prioritizing asset value over borrower credit.

Intermediate14-15 min
13

Equity Crowdfunding

Equity crowdfunding allows multiple investors to collectively fund real estate projects through online platforms, receiving an equity stake and sharing in potential profits and appreciation. It democratizes access to real estate investments by lowering entry barriers.

Intermediate13-16 min
14

Senior Lien

A senior lien is a legal claim on a property that holds the highest priority for repayment in the event of a foreclosure or liquidation, ensuring its holder is paid before any other creditors.

Advanced12-15 min
15

Subordination Agreement

A legally binding contract that alters the priority of liens on a property, allowing a senior lienholder to voluntarily place their claim in a junior position to another, typically to facilitate new financing or complex transactions.

Advanced12-15 min
16

Refinancing

Refinancing is the process of replacing an existing mortgage or loan with a new one, often to secure better terms, lower interest rates, or access built-up property equity.

Intermediate15-18 min
17

Underlying Mortgage

An underlying mortgage is an existing mortgage loan that remains on a property when additional financing is layered on top or when the property is sold using creative financing methods like "subject-to" deals.

Intermediate14 min
18

Subject-To Investing

Subject-To investing is an advanced real estate strategy where an investor acquires a property by taking over payments on the seller's existing mortgage, without formally assuming the loan or notifying the lender.

Advanced12-15 min
19

Due Diligence

Due diligence is the critical process of investigating and verifying all material facts about a property and its financials before a real estate acquisition, aiming to identify risks and ensure an informed investment decision.

Intermediate14-15 min
20

Traditional Bank Mortgage

A traditional bank mortgage is a conventional loan provided by a financial institution to purchase real estate, following guidelines from Fannie Mae and Freddie Mac, commonly used by investors to finance properties.

Beginner15-18 min
21

Self-Directed IRA

A Self-Directed IRA (SDIRA) is a specialized retirement account allowing investors to hold alternative assets like real estate, private equity, and precious metals, offering enhanced control but requiring strict adherence to complex IRS regulations to avoid prohibited transactions and Unrelated Business Income Tax (UBIT).

Advanced11-12 min
22

Real Estate Syndication

Real estate syndication is a private equity strategy where multiple investors pool capital to acquire and manage large-scale real estate assets, typically led by a sponsor (General Partner) for passive Limited Partners.

Advanced14-15 min
23

Private Lender

A private lender is an individual or entity that provides capital for real estate investments outside of traditional financial institutions, offering flexible terms and faster funding for unique or time-sensitive deals.

Intermediate13-15 min
24

Promissory Note

A promissory note is a legally binding written promise by one party to pay a specific sum of money to another party on a specified date or on demand, outlining all loan terms.

Beginner15-18 min
25

Accredited Investor

An Accredited Investor is an individual or entity meeting specific SEC-defined financial thresholds or professional qualifications, enabling them to invest in private, unregistered securities and exclusive opportunities.

Intermediate14-15 min