Investing Glossary

  • Alternative Investment

    An alternative investment refers to any investment which does classify as “traditional”. Traditional investments are widely considered to be stocks, bonds and cash.
  • Active Income

    Active income is income earned as a direct result of a specific effort. In other words, input is correlated to output.
  • Appreciation

    An increase in value is referred to as “appreciation”.
  • Amortization

    As opposed to an interest-only loan in which each repayment installment consists only of interest payments with a single lump-sum principal repayment at the end of the loan period, each repayment installment of an amortizing loan consists of both principal and interest.
  • Accredited Investor

    An accredited investor is a term used by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D.
  • Basis Point

    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

    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.
  • Capital

    Capital is any financial asset or the value of an asset.
  • Crowdfunding

    Funding a product, idea, or venture using small amounts of money raised from the “crowd."
  • Capitalization (Cap) Rate

    The capitalization or cap rate measures a property’s yield in a one-year time frame, making it easy to compare one property’s cash flow to another on an equal basis – without taking into account any debt on the asset.
  • Common Equity

    Common Equity means that investors have one-to-one (or equal) participation in each dollar invested and any potential profits or losses.
  • Development

    Development is the process of building or adding to existing structures to increase the value of a property.
  • Distributions

    Payments made to investors periodically, typically over the course a calendar year, either from profits or interest payments.
  • Debt

    An amount of money (obligation) owed by one party (the debtor) to another party (the creditor).
  • Equity

    As it relates to real estate, equity can be measured as the amount of capital a sponsor (property owner/developer) puts into a property.
  • Free Cash Flow (FCF)

    Free cash flow is a measure of a property’s ability to generate cash after setting aside reserves for capital expenditures such as future development, tenant improvements, and leasing commissions.
  • Hard Asset

    A tangible object of worth that is owned by a business or individual.
  • Investment Property

    An investment property is a real estate asset purchased with the sole purpose of earning income. Income from an investment property can be generated through leasing space within an asset or an eventual sale of the asset.
  • Intrastate Crowdfunding

    While the Securities and Exchange Commission regulates public securities on a national level, each state also has its own regulatory entity serving a similar function. Since the passage of the JOBS Act, advocates of equity crowdfunding have moved to legalize intrastate – or in state – crowdfunding.
  • Internal Rate of Return (IRR)

    In real estate, the Internal Rate of Return (IRR) is a metric used to evaluate the profitability of an investment over its lifetime and is represented as the average annual return percentage. The IRR of an investment can be calculated forward-looking to estimate potential future returns or backward looking to measure the performance of a completed investment.
  • Jumpstart Our Business Startups (JOBS) Act

    The JOBS Act was a law passed in 2012 in the United States that eased regulations related to funding small businesses. Intended to increase American job creation and foster economic growth, the JOBS Act aims to provide easier access to public capital markets and small, growing companies.
  • Liquidity Premium

    The liquidity premium represents the incrementally higher price an investor is willing to pay for a more liquid asset or security, all other factors held equal.
  • Liquidity

    Liquidity refers to the ease with which an asset can be purchased or sold. Marketable securities that are traded in high volume tend to be the most liquid, or easy to trade without creating wild fluctuations in price.
  • Linear Income

    Linear income is earned in direct relation to the number of hours you work.
  • Loan-to-Value Ratio (LTV)

    A risk assessment ratio that lenders perform when considering a real estate loan.
  • Loan-to-Cost Ratio (LTC)

    The Loan-to-Cost Ratio is the ratio of a loan used to help finance a project compared to the total cost.
  • Mezzanine Debt vs. Preferred Equity

    Mezzanine Debt is generally a loan that is secured by a property and senior to any equity, but junior to the senior loan on the property. Preferred Equity, on the other hand, is an equity investment in the property-owning entity. It is not secured by the property but rather by an interest in the entity investing in (or owning) the property.
  • 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.
  • Passive Income

    Passive income (also known as residual or recurring income) is commonly used to refer to income that continues to be earned even after the work is done.
  • Private Equity Fund

    A private equity (PE) fund is a collective investment model where money from separate investors is pooled together into a single fund and then used to make investments, most often in various illiquid equity and debt assets.
  • Preferred Return

    A Preferred Return is paid to investors before a sponsor receives any share of the cash flow.
  • Pro-Forma

    A financial model often used in real estate to predict future cash flows and total investment returns.
  • Preferred Equity

    Typically in a Preferred Equity investment, all cash flow or profits are paid back to the preferred investors (after all debt has been repaid) until they receive the agreed upon “preferred return.”
  • Project Payment Dependent Notes

    A Project Payment Dependent Note is a special, limited obligation of Fundrise Investments, LLC sold to investors, the proceeds of which are used to fund corresponding project investments.
  • Real Estate Investment Trust (REIT)

    A REIT (which is pronounced “reet” and stands for Real Estate Investment Trust) is a company which makes investments in and owns incoming generating real estate properties.
  • Recurring Income

    Also known as residual or passive income, recurring income is earned by creating or acquiring an asset that continues to pay of profits regardless of if there is still active work being done to the asset.
  • Residual Income

    The term residual income (also known as passive or recurring income) is commonly used to refer to income that continues to be earned even after the work is done.
  • Regulation D

    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.
  • Regulation A+

    Regulation A+ is the SEC’s proposed revision of the current Regulation A, which was mandated by the JOBS Act in 2012.
  • Regulation A

    Regulation A allows unaccredited investors to purchase small offerings of securities that do not exceed $5 million in a 12-month period.
  • Redemption

    In the event of back taxes or unpaid liens, a borrower who pays off those debts may reclaim their property, preventing foreclosure or the auctioning of their property.
  • Real Estate

    Real estate includes a parcel of land and any of its permanent structures (buildings, parking lots, etc.).
  • Secured vs Unsecured Position

    A secured position in the Capital Stack retains 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.
  • Sponsor

    An individual or firm in charge of finding, acquiring, and managing a piece of real estate.
  • Senior Debt

    The "base" of the Capital Stack -- Senior Debt is generally secured debt that must be repaid first.
  • Title III Regulation Crowdfunding

    Outlined in the 2012 JOBS Act, Title III instructed the SEC to create an exemption from registration that, when implemented, will enable issuers to engage in crowdfunding equity offerings to the general investing public.
  • Term

    The lifespan of a given asset or liability.
  • The Capital Stack

    The Capital Stack orders the seniority of claims to the collateral and cash waterfall of an entity.
  • The Jumpstart Our Business Startups (JOBS) Act

    The Jumpstart Our Business Startups (JOBS) Act is a law intended to facilitate funding of small businesses by easing regulations.
  • Tenancy / Occupancy

    Occupancy is generally referred to as a percentage of the total square feet or units leased – it is a building’s revenue source.
  • Underwriting

    Underwriting is the process by which real estate investments are evaluated to determine their viability.
  • Unaccredited Investor

    An investor who does not meet the wealth requirements of an accredited investor set forth by the SEC.
  • Yield

    In the context of commercial real estate, yield refers to the annual cash return on the investment, expressed as a percentage of the investment’s initial cost, or less frequently, its estimated current value.