The Hard Money Glossary.

70% Rule

A quick gut-check formula used by experienced flippers: never pay more than 70% of ARV minus rehab costs. Formula: Max Offer = (ARV × 0.70) − Rehab Costs. It builds in enough margin to cover closing costs, holding costs, financing costs, and profit.

Example: On a $510K ARV with $55K rehab: ($510K × 0.70) − $55K = $302K maximum offer.

After-Repair Value (ARV)

The estimated value of a property AFTER renovation is complete. ARV is the single most important number in a flip — it determines your ARV-based loan amount, your projected profit, and your exit price.

Example: On a Phoenix house you're buying for $310K and renovating for $55K, if comparable renovated homes nearby sold recently for $510K, your ARV is $510K.

Asset-Based Lending

A loan underwritten primarily on the value of the collateral (the property) rather than the borrower's income, credit, or tax returns. Hard money is asset-based lending — that's why it closes faster than a bank loan.

Balloon Payment

A large lump-sum payment due at the end of a short-term loan. Most hard money loans are interest-only with a balloon payment of the full principal at maturity (typically 6–12 months from origination).

Beneficiary

The party who receives the proceeds of a loan in a deed of trust structure — i.e., the lender. In Arizona deeds of trust, the lender is the beneficiary.

Bridge Loan

Short-term financing used to 'bridge' the gap between purchasing one property and securing permanent financing or selling another. Hard money loans are often used as bridge loans during a fix-and-flip.

BRRRR

Buy, Rehab, Rent, Refinance, Repeat — a real estate investing strategy where you buy a distressed property with short-term capital (often hard money), renovate it, rent it out, refinance into a long-term loan, then repeat with the cash you pulled out.

Cap Rate (Capitalization Rate)

A property's annual net operating income divided by its purchase price, expressed as a percentage. Used mainly on rental properties to compare investment returns. Not typically used on flips.

Cash-on-Cash Return

Annual cash flow from a property divided by the actual cash invested. Different from ROI — cash-on-cash measures yield on the dollars you personally put in, not the total project cost.

Example: If you put $50K of your own cash into a deal and earn $7,500/year, your cash-on-cash return is 15%.

Comps (Comparable Sales)

Recently sold properties similar to yours in size, condition, age, and location — used to estimate a property's market value or ARV. The best comps are within a half-mile radius and have sold within the last 90 days.

Construction Loan

Financing specifically for building a new property from the ground up. Funds are disbursed in stages (draws) as construction milestones are completed.

Conventional Loan

A traditional bank or credit union mortgage — typically 30-year fixed-rate, underwritten on borrower income and credit, requiring 20%+ down on investment property. Slow to close compared to hard money. Not suitable for flips or distressed properties.

Deed of Trust (DOT)

A document that secures a loan against real estate in Arizona and most western states (instead of a mortgage). Three parties: the borrower (trustor), the lender (beneficiary), and the trustee (a neutral party who can foreclose if needed).

Draw Schedule

A pre-agreed plan that releases rehab funds in stages as renovation work is completed. A typical draw schedule might release 25% at framing, 25% at drywall, 25% at finishes, and 25% at completion — protecting the lender from over-disbursing.

Example: On a $60K rehab budget, you'd get $15K released at each of four milestones, after an inspector confirms the work was completed.

DSCR (Debt Service Coverage Ratio)

A property's annual rental income divided by its annual debt payments. Used to underwrite rental property loans. A DSCR above 1.0 means the rent covers the mortgage; above 1.25 is generally considered healthy.

Equity

The portion of a property's value you actually own — purchase price (or current market value) minus what you still owe on it. On a flip, your equity grows as you renovate and as the market appreciates.

Escrow

A neutral third party (the escrow company or title company) that holds documents and funds during a real estate transaction, releasing them only when all conditions are met. Escrow protects both buyer and seller until closing.

Extension Fee

A fee some hard money lenders charge to extend the loan term beyond its original maturity date — often 1–2 points (1–2% of the loan amount) per extension. Kayak Capital charges no extension fees.

First Position Lien

The first claim on a property in the event of foreclosure — paid before any other liens. Hard money loans are almost always in first position on the property they're securing.

Fix-and-Flip Loan

A short-term loan (typically 6–12 months) used to purchase, renovate, and resell a distressed property for profit. The most common type of hard money loan.

Hard Cost

Direct construction costs — materials, labor, fixtures, appliances. Anything you can physically point to in the finished property. Contrast with soft costs.

Hard Money Loan

A short-term, asset-based real estate loan from a private lender, secured by the property itself. Faster to close and more flexible than a bank loan, but at a higher interest rate. Designed for investors, not owner-occupants.

Holding Costs (Carrying Costs)

All the recurring expenses of owning a property while you renovate it — property taxes, insurance, utilities, HOA dues, lawn maintenance, etc. On a typical Phoenix flip these run $700–$1,500 per month.

Interest-Only Loan

A loan where the borrower pays only the interest each month, with the full principal due at the end of the loan term (the balloon payment). Most hard money loans are interest-only — keeps monthly carrying costs low during the rehab.

Junk Fees

Industry slang for fees that don't correspond to any meaningful service — processing fees, underwriting fees, document prep fees, application fees, etc. Junk fees can add $1,500–$3,000 to a hard money loan beyond the headline rate. Kayak Capital charges zero junk fees.

Lien

A legal claim against a property used as collateral for a debt. The lender's lien is recorded with the county and prevents the borrower from selling the property without paying off the loan first.

Loan-to-Cost (LTC)

The percentage of the total project cost (purchase price plus rehab budget) that a lender will finance. An 85% LTC loan means the lender funds 85% of (purchase + rehab) and the investor brings 15% cash.

Example: On a $310K purchase + $55K rehab = $365K project, 85% LTC means a $310,250 loan and $54,750 from the borrower.

Loan-to-Value (LTV)

The percentage of a property's current (as-is) value that a lender will finance. A 70% LTV loan on a $400K property means a $280K loan amount. Note the difference between LTV (based on as-is value) and LTC (based on total project cost).

Maximum Allowable Offer (MAO)

The highest price an investor should offer on a flip to leave enough margin for profit. The 70% Rule MAO formula: (ARV × 0.70) − Rehab Costs.

New Construction Loan

A construction loan for building a brand-new home from the ground up on a vacant lot. Typically structured with a draw schedule tied to construction milestones.

Origination Point (Point)

A fee paid to the lender at closing, expressed as a percentage of the loan amount. One point equals 1%. A loan with '2 points' on $300K means $6,000 paid at closing. Kayak Capital's AZ program charges zero points.

Prepayment Penalty

A fee some lenders charge if a borrower pays off the loan before its maturity date — often equivalent to 1–6 months of interest. Punishes you for being efficient. Kayak Capital has no prepayment penalty.

Private Money Lender

An individual or company that lends their own capital directly to real estate investors, outside of banks and institutional lenders. Most hard money lenders are private money lenders. The terms 'hard money' and 'private money' are often used interchangeably.

Promissory Note

A written legal document in which the borrower promises to repay the lender a specific amount under specific terms. The promissory note is the contract that, together with the deed of trust, creates a hard money loan.

Rehab Budget

The total estimated cost of renovating a property — labor, materials, permits, and contractor overhead. The rehab budget is one of the biggest variables in flip profitability; experienced flippers add a 10–15% contingency to handle surprises.

REO (Real Estate Owned)

A property owned by a lender (typically a bank) after an unsuccessful foreclosure auction. REOs are sometimes purchased at a discount by investors.

Refinance

Replacing an existing loan with a new one — typically to get a lower rate, change loan terms, or pull cash out of accumulated equity. In a BRRRR strategy, you refinance from a short-term hard money loan into a long-term conventional loan after the renovation.

Scope of Work (SOW)

A detailed document listing every renovation task on a flip — demolition, electrical, plumbing, framing, drywall, finishes, etc. — with associated costs and timelines. A solid SOW is what separates pros from amateurs and is required by most hard money lenders.

Seasoning

The amount of time you've owned a property before refinancing or selling. Many conventional refinances require 6–12 months of seasoning. Hard money loans have no seasoning requirements.

Soft Cost

Indirect project costs — permits, architectural plans, inspections, surveys, insurance during construction, legal fees. Contrast with hard costs.

Subject-To

A creative real estate strategy where a buyer takes title to a property while the seller's existing mortgage stays in place. The buyer makes payments on the existing loan. Higher-risk than traditional purchases — not typically how hard money loans are structured.

Title Insurance

A one-time insurance policy that protects the buyer (and lender) against defects in the property's title — undisclosed liens, ownership disputes, recording errors. Required on virtually every real estate transaction.

Trustee

The neutral third party named in a deed of trust who holds the legal title to a property until the loan is paid off. In Arizona, the trustee is typically a title company or attorney. If the borrower defaults, the trustee handles the foreclosure process.

Underwriting

The lender's process of evaluating a loan application — checking the property's value, the deal's economics, and (less so for hard money) the borrower's creditworthiness. Hard money underwriting focuses on the asset; conventional underwriting focuses on the borrower.

Wholesaler / Wholesale Deal

A real estate strategy where an investor contracts to buy a property at a discount, then assigns that contract to another investor for a fee — without ever taking title. Wholesalers are a primary source of off-market deals for flippers.