Glossary - Upside Avenue

Investing Glossary

AJAX progress indicator
  • accredited investor
    An investor identified under the U.S. Securities and Exchange Commission under Rule 501 of Regulation D. The most common accreditation criteria for an individual includes an individual with income exceeding $200,000 in each of the two most recent years (or joint income with his/her spouse exceeding $300,000 in each of those years) and a reasonable expectation of reaching the same income level in the current year, OR an individual with a net worth (or joint net worth with his/her spouse) exceeding $1 million, excluding the person's primary residence.
  • advisory fees
    Fees paid to a financial advisor who suggests an investment that best fits the needs of the investor.
  • alternative investment
    An investment other than traditional investments such as stocks, bonds, and cash.
  • amortization
    When an amortizing loan requires a repayment of both the principal and interest.
  • asset management
    A service provided by a (financial) company that manages an investment for an owner.
  • blind pool
    Any investment vehicle in which the sponsor has not yet located the properties to be purchased.
  • capital
    Wealth in the form of currency or assets used for investments.
  • capital call
    A call to current equity holders to invest additional funds needed for items such as construction or operational deficits.
  • capital gain
    Gain on the sale of a capital asset like real property over the amount originally invested. Capital gain on assets held long-term (generally at least one year) are normally taxed at lower rates than traditional ordinary income.
  • capitalization (cap) rate
    A rate calculated by dividing a property's 12-month income (before debt service and capital expenses) by the price paid for the property to establish the property's yield over a one-year timeframe.
  • cash flow
    Income available to investors after all operating, capital and financing expenses are deducted.
  • cash-on-cash return
    A ratio that is determined by dividing the annual cash flow (before taxes) by the initial investment.
  • cash waterfall
    When cash flow from a property is distributed to investors on a priority basis, higher-tiered investors will be paid before lower-tiered investors.
  • collateral
    Any asset that a borrower uses as a way to assure a loan. If the borrower defaults, the lender may seize the collateral in order to recoup his/her losses.
  • common equity
    When an investor has equal or one-to-one participation in every dollar gained or lost in an investment/entity.
  • compound interest
    Interest paid on principal and any accrued and unpaid interest.
  • core
    Refers to a property category and investment strategy which focuses on stable properties with high occupancy, high rents, and quality tenants. Normally these are newer properties in top locations with little or no deferred maintenance. Core investments are typically more expensive to acquire, but provide cash flow that is lower-risk and therefore are considered a more conservative strategy.
  • core plus
    Refers to a property category and investment strategy which focuses on relatively stable properties in good locations that could benefit from moderate improvements to compete more effectively with newer core assets and achieve higher rents. Normally these are properties are slightly older than core assets and may have some deferred maintenance. Core plus investments are riskier than core investments but less risky than a value-add strategy.
  • crowdfunding
    A term used when multiple people invest smaller amounts toward a venture.
  • debt
    Money owed by one individual or entity to another individual or entity.
  • debt service
    Periodic payments required to cover interest and pay down the principle of a loan.
  • default
    Nonfulfillment of a commitment to perform acts under a contract or for the repayment of debt.
  • demographic
    The structure of a particular population (i.e. age, sex, race, household size, population growth).
  • depreciation
    A reduction in taxable income from a physical asset such as real estate due to physical deterioration or functional obsolescence.
  • discounted cash flow
    The analytical method of determining the value of estimated future income based on the time value of money. The rate of return can be calculated as an internal rate of return (IRR) or other return with an estimated cost of funds. Net present value is also calculated to determine today's value of the income stream selected future cash flows determined using the time value of money and formed into a rate of return to analyze an investment.
  • distributions
    Recurring returns paid to investors from investment cash flow or sale of an asset.
  • diversification
    Varying the type of investments in different financial instruments to reduce the risk of one's overall investment portfolio..
  • due diligence
    Investigating the physical, financial, and legal aspects of a possible investment to determine the value and risk of asset acquisition.
  • equity
    Ownership, value, and rights that an individual or entity holds in an asset net of any mortgage or liens against the asset.
  • escrow
    A contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties. Also, a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums.
  • fair market value
    The price that a property or other asset would achieve in a competitive environment of multiple knowledgeable participants.
  • First Lien (Mortgage or deed of trust)
    When a lien takes precedence over all other liens. Normally the first lien is held by the primary mortgage holder (lender).
  • foreclose
    When a lender takes ownership of mortgaged property after a borrower defaults.
  • general partner
    An individual or entity that is responsible for the performance and operation of a partnership and also assumes the primary liabilities of the partnership as opposed to Limited Partners whose control of, and liability for the partnership is limited.
  • hold period
    The length of time an asset is held in ownership.
  • illiquid asset
    An asset that cannot be immediately transformed into cash. Real estate is generally considered illiquid due to the extended period for which to accomplish a sale.
  • income property
    Real estate that generates rental income.
  • inflation
    A reduction in value of currency causing prices to increase. Inflation is measured by the U.S. Bureau of Labor Statistics through the Consumer Price Index (CPI).
  • institutional lender
    Financial intermediaries that invest capital on behalf of their depositors or customers. These would include commercial banks, savings and loan associations, and insurance companies, among others.
  • interest
    The cost for the use of money. Also refers to the type and extent of an ownership position.
  • internal rate of return (IRR)
    An iterative discounted cash flow return calculation in which cash flows from a property through sale of the asset are discounted by the calculated rate. If one discounts the cash flow stream by the IRR, the net present value would be zero. IRR provides a comparative tool for analyzing alternative investment properties.
  • investment property
    Real estate that is acquired primarily to generate income to investors.
  • joint venture
    An agreement between two or more parties that invest in a single property or venture.
  • Jumpstart Our Business Startups (JOBS) Act
    The JOBS Act was a law passed in 2012. Intended to increase job creation and foster economic growth, the JOBS Act provides easier access to public capital markets through crowdfunding (Regulation A+)and other techniques.
  • leverage
    The investment strategy of using borrowed money to increase the potential return of an investment.
  • lien
    A security measure in the form of a charge against a property to ensure the payment of an obligation.
  • limited liability company (LLC)
    A method of organizing of an entity that provides protection in the form of limited liability for owner(s).
  • liquidity
    The ease with which assets can be transformed into cash.
  • load
    Charges that an investor pays when purchasing or retrieving shares in a mutual fund or other investment vehicle.
  • loan-to-cost ratio (LTC)
    A ratio that helps lenders determine the risk associated with an investment. Calculated by dividing the loan amount by the purchase price plus other capital associated with property improvements.
  • loan-to-value ratio (LTV)
    A ratio that helps lenders determine the risk associated with an investment. Calculated by dividing the loan amount by the purchase price.
  • market area
    The geographic location that is considered the primary area that drives demand for a specific property.
  • maturity
    The date at which a loan becomes due.
  • metropolitan statistical area (MSA)
    A highly populated area with close economic ties. MSAs are defined and measured by the Office of Management and Budget (OMB) and used by federal agencies and private entities for statistical purposes.
  • mezzanine financing
    A loan that is of lesser priority than a first mortgage or deed of trust. It may also have loans or equity subordinate to it (hence "mezzanine"). Generally has the same priority as if it was called a second mortgage.
  • mortgage
    A legal document that applies a lien as a form of security for payment of a specific real esate loan.
  • multihousing
    A property that houses more than one residential unit. Typically refers to an apartment community, but also includes multi-unit student housing and properties designated for senior adults.
  • net asset value (NAV)
    An estimation of the value of an investment fund. NAV per share represents the pro rata value of a single share in the investment fund.
  • net operating income (NOI)
    The income from an investment property after deducting all operating expenses but before deducting debt service, capital expenses, and income taxes.
  • net worth
    An individual's wealth using the sum of all assets minus all obligations.
  • nonrecourse
    When a borrower has no personal liability to a lender if they default on a loan.
  • operating expenses
    All expenses that are paid to sustain the entity, not including capitalized expenses, income taxes, depreciation, or debt service.
  • opportunistic
    An investment, considered higher risk, in a real estate property that requires upfront funds for significant rehabilitation to reposition the property or bring the rental rates up to market rates.
  • ordinary income
    Income which does not qualify as capital gains that can be taxed at the regular tax rate. Generally, ordinary income tax rates are higher than capital gain tax rates.
  • origination fees
    Fees that are charged to the borrowers to cover lender expenses related to issuing the loan.
  • partnership
    When two or more individuals/entities agree to invest or perform business jointly.
  • passive income
    Income earned on a regular basis by a passive investor.
  • passive investor
    An investor that is not directly involved in the management of a business or property.
  • portfolio
    A collection of investment assets.
  • preferred equity
    Equity invested that has a priority position over common equity.
  • preferred return
    A chosen rate of return that is first paid to any preferred equity investors before other stake holders.
  • prepayment penalty
    A penalty paid by the borrower to the lender for repayment of a loan prior to the maturity date.
  • principal
    The sum of money borrowed. Principle may be reduced over time through amortization.
  • private equity fund
    A pool of money that is raised through separate investors and used to collectively invest in real estate or other assets.
  • private placement
    An investment that is presented to a private group of investors that follows requirements set forth by state securities registration and the U.S. Securities and Exchange Commission.
  • pro forma
    A financial statement that provides an estimate of future cash flows.
  • promote
    The remaining cash flow that the sponsor is entitled to after all required distributions have been given to investors.
  • public offering
    A general solicitation of the public for the sale of securities or other investment units. A public offering must be approved by the U.S. Securities and Exchange Commission and/or state agencies. A public offering is usually traded through national exchanges such as the New York Stock Exchange and is considered a liquid asset.
  • real estate
    Property that consists of land and/or any permanent structures such as buildings.
  • real estate investment trust (REIT)
    An entity that raises capital through the sale of shares in the trust to investors in order to aquire investment real estate.
  • recourse
    When a lender is legally permitted to collect money and any assets the borrower put up as collateral, from a borrower who has defaulted on a loan.
  • refinance
    To secure a new loan replacing an existing loan. Generally, this occurs as an existing loan nears maturity or when market conditions can provide better terms than those of the existing loan.
  • registered investment advisor
    An advisor that is registered with the Securities and Exchange Commission and the state in which they work, who purchases and manages investments made for their clients.
  • Regulation A+
    Mandated by the JOBS Act, Regulation A+ allows both accredited and non-accredited investors access to participate in SEC-qualified offerings in order to invest in private companies.
  • returns
    Distributions of the profits that are paid to the investors.
  • risk
    A probability of loss or unmet expectations of cash flow returns.
  • second mortgage
    A loan obtained that is subordinate to the first mortgage position.
  • secured position
    Position holder which has a right to foreclose on a real estate asset if there is an event of default.
  • Securities and Exchange Commission (SEC)
    The federal agency that seeks to protect the investing public by preventing misrepresentation, fraud, market manipulation, and other abuses in the securities markets.
  • senior debt
    The loan securing a property that must be repaid first and before all other stake holders.
  • senior housing
    Housing specifically for senior adults. Properties include age-restricted properties (ex. peoples age 65+), Independent Living (age restricted with additional services such as meal plans and organized activities), and Assisted Living (nursing care provided), among others.
  • sponsor
    The operator that manages all aspects of a real estate investment project including day-to-day operations, capital projects, and loan administration. The sponsor typically makes some investment in the property, but will also raise equity from other investors.
  • student housing
    Housing that specifically targets students as residents. Typically student housing properties will lease "by the bed" in a similar fashion as traditional dormitories as opposed to conventional apartments which lease each housing unit separately.
  • submarket area
    Similar to market area, a submarket area is a more focused region within the market. Any partcular submarket will generally have a more homogenous character than the market as a whole.
  • syndication
    To aggregate capital from different investors in order acquire and operate an income property.
  • The Capital Stack
    The structure that outlines the sequence of priority to collect income from an investment property.
  • Title III Regulation Crowdfunding
    Outlined in the 2012 JOBS Act, Title III instructed the SEC to create an exemption from registration that enables issuers to engage in crowdfunding equity offerings to the general investing public.
  • title insurance
    Insurance that assures a clear title for the sale or financing of real estate if the title is later disputed, or if there is a claim against the owner.
  • transaction costs
    Costs related to the acquiring or disposing of real estate.
  • trust
    An agreement made under legal terms that transfers property to a trustee by and for the benefit of a grantor of the trust.
  • trustee
    A neutral party that holds property in trust for another.
  • unaccredited investor
    Someone who does not meet the accredited investor (see Accredited Investor) requirements listed by the Securities Exchange Commission.
  • underwriting
    An evaluation of an investment to determine risk and viability of a transaction.
  • undivided interest
    When an ownership group cedes all rights and decisions to the collective group. No member may sell, mortgage, or otherwise affect the property without the consent of the entire group.
  • unsecured position
    A position that does not allow a creditor to foreclose on an asset if there is an event of default.
  • value-add
    When a property requires improvements or renovations to increase the income and value of the asset.
  • yield
    A term that refers to the return on an investment.