Creative finance has a vocabulary problem. The same structure gets three names depending on which podcast you heard it on, and half the terms investors throw around in a seller call have precise legal meanings that nobody bothers to check. That's fine until you're on the phone with an attorney, a title officer, or a seller's adult child who works in banking.
This is the working vocabulary — 40 terms defined the way they're actually used in deals, grouped by where you'll run into them. Where a term has a common misuse, it's noted.
Definitions here describe how these terms are used in practice. Legal effect varies by state, and several of these structures are regulated differently depending on where the property sits. Nothing here is legal or tax advice.
Ownership and title
Subject-to
Taking title to a property while the seller's existing mortgage stays in place, unchanged and still in the seller's name. You own the house; they own the debt. The loan isn't assumed or renegotiated — it just keeps running. Commonly written "sub-to" or "sub2." See how to analyze a subject-to deal.
Loan assumption
Formally taking over a seller's mortgage with the lender's approval, so the debt moves into your name. Different from subject-to in the one way that matters: the lender agrees, and the seller is released. FHA, VA, and USDA loans are frequently assumable; most conventional loans are not.
Due-on-sale clause
A mortgage provision letting the lender demand the full balance if the property transfers without their consent. It's the central risk in subject-to. Lenders rarely accelerate a loan that's paying on time, but "rarely" is not "never," and you should underwrite as if it could happen.
Mortgage
A two-party security instrument: you and the lender. If you default, the lender typically has to foreclose through the courts, which takes longer and costs more. Used as the standard instrument in roughly half of US states.
Deed of trust
A three-party security instrument: you, the lender, and a neutral trustee who holds title until the loan is paid. Most deed-of-trust states allow non-judicial foreclosure, which is materially faster than the judicial route. Which instrument your state uses changes your timelines, your costs, and how quickly a distressed situation moves.
Quitclaim deed
A deed transferring whatever interest the grantor has — with no promise that they have any. Fast and cheap, and appropriate between parties who already trust each other's title position. It is not a substitute for a warranty deed plus title work on an arm's-length purchase.
Warranty deed
A deed where the seller affirmatively guarantees clear title and defends against claims. The standard for a real purchase.
Cloud on title
Any unresolved claim, lien, or defect that makes ownership uncertain — an old judgment, a missing heir's signature, an unreleased mortgage. Clouds don't stop you from making an offer; they stop you from closing on time.
Land trust
A trust holding title to real estate, with the beneficial interest held separately. Investors use them for privacy and to make beneficial-interest transfers simpler. A land trust does not by itself neutralize a due-on-sale clause, whatever you've been told.
Creative structures
Seller finance
The seller acts as the bank: you get the deed, they hold a note secured against the property, and you pay them directly. Also called owner financing or seller carryback. Works best when the seller owns free and clear. See structuring a seller finance deal.
Wraparound mortgage
A new seller-financed note that "wraps" around an existing loan that stays in place. You pay the seller on the wrap; the seller keeps paying the underlying loan. The spread between the two payments is their profit. Wraps carry the same due-on-sale exposure as subject-to, plus a servicing dependency: if the seller stops paying the underlying note, you have a problem you didn't create.
Lease option
A lease plus a separate option to purchase at a set price within a set window. You control the property and can buy it; you're never obligated to. See analyzing a lease option.
Lease purchase
Often confused with a lease option, and materially different: a lease purchase obligates you to buy. An option is a right. A purchase agreement is a duty. Read which one you actually signed.
Option premium (option consideration)
What you pay up front for the right to buy later. It's the price of the option itself, usually non-refundable, and sometimes credited against the purchase price if you exercise.
Novation
Replacing one party to a contract with another, with everyone's consent, so the original party is released. In investing, a novation agreement typically lets you improve and market a seller's property and close with an end buyer at a higher price — the contract is replaced rather than assigned. See how novation deals work.
Assignment
Transferring your rights under a purchase contract to another buyer for a fee. The core wholesale mechanism. Unlike a novation, you're not replaced — you're stepping aside while the original contract survives. Several states now regulate this activity directly.
Double close
Two back-to-back transactions: you buy from the seller, then immediately sell to your end buyer. Used when an assignment isn't practical or when you don't want your spread disclosed. Costs two sets of closing fees.
Equitable interest
The interest a buyer holds in a property once a purchase contract is signed but before closing. It's what a wholesaler actually sells when assigning a contract — not the property itself.
Equitable mortgage
A court's reclassification of a transaction that looks like a lease or option but functions like a financed sale — often triggered by long terms, large option premiums, or substantial rent credits. The consequence is that foreclosure rights attach. State-dependent and worth an attorney's read on any long-dated option.
The numbers
ARV (After Repair Value)
What the property is worth once renovations are complete, based on comparable sales of finished properties. Every other number in a flip or BRRRR depends on this one being right. See how to calculate ARV.
MAO (Maximum Allowable Offer)
The most you can pay and still hit your target profit. Different exits produce different MAOs on the same property — which is the entire reason to model more than one. See the MAO formula.
Comps (comparable sales)
Recently sold properties similar enough to the subject to indicate its value. Quality beats quantity: three genuinely similar sales within a half mile beat twelve loose matches across town.
Spread
The gap between what you're into a deal for and what it's worth or sells for. Used loosely across contexts — assignment spread, wrap spread, rent spread — and always means the same thing: your margin.
Cap rate
Net operating income divided by purchase price. A property-level return measure that ignores financing entirely, which makes it useful for comparing assets and useless for measuring your actual return. See cap rate vs cash on cash.
Cash-on-cash return
Annual pre-tax cash flow divided by the cash you actually put in. This is the number that answers "what is my money earning."
NOI (Net Operating Income)
Income minus operating expenses, before debt service and before capital expenditures. If someone's NOI looks great, ask what they left out.
DSCR (Debt Service Coverage Ratio)
NOI divided by annual debt service. Lenders use it to size loans on rentals; 1.25 is a common minimum. DSCR loans qualify the property rather than your personal income, which is why investors use them.
LTV and ARLTV
Loan-to-value: loan amount against current value. ARLTV (or ARV-LTV) measures the loan against the after-repair value instead — the standard on rehab lending.
Points
Origination fees charged as a percentage of the loan. Two points on a $200,000 loan is $4,000, paid at closing. On a six-month flip, points are a much larger share of your true borrowing cost than the rate is. See hard money loan terms.
Holding costs
Everything you pay while you own the property and it isn't producing — interest, taxes, insurance, utilities, HOA. The line item investors most consistently underestimate, because it scales with the timeline they were optimistic about.
Seasoning
How long you must own a property, or a loan must exist, before a lender will act — typically before a cash-out refinance. Six to twelve months is common, and it's the constraint that most often breaks a BRRRR timeline.
Deal flow and parties
Motivated seller
A seller whose situation, not their price, is driving the sale — foreclosure, probate, divorce, relocation, a property they can't manage. Motivation is about urgency and constraints, not about being willing to take less.
Distressed property
A property in poor physical or financial condition — deferred maintenance, code issues, tax delinquency, or an owner in default. See where to find them.
Off-market
Not listed on the MLS. Sourced through direct mail, driving for dollars, probate records, or wholesaler networks. Less competition, but you're doing the work the listing agent would have done.
Pocket listing
A property an agent is quietly shopping without putting it on the MLS. Increasingly restricted by MLS rules, but the term persists.
End buyer
The party who actually closes and keeps the property — the person a wholesaler assigns to or a novation seller ultimately sells to.
Earnest money (EMD)
Deposit showing you're serious, held in escrow and applied at closing. Whether it's refundable depends entirely on your contingencies, which is why the contingency language matters more than the amount.
Inspection period (due diligence period)
The window to inspect, verify numbers, and walk away with your deposit intact. In creative deals it's also when you confirm the loan balance, payment status, and title condition you've been taking on faith.
Proof of funds (POF)
Documentation that you can actually close — bank statement, lender letter, or hard money pre-approval. Requested early on off-market deals and by most listing agents.
Title company vs. closing attorney
Who conducts your closing depends on the state. Some states are attorney-closing states; others use title companies. Either way, find one that has actually closed creative deals before — a closer who's never seen a wrap or a novation will slow you down at the worst moment.
Using the vocabulary
The terms matter because precision is what separates an investor a seller trusts from one they don't. Saying "I'd take title subject to your existing loan, which stays in your name and keeps paying on time" lands very differently than "we do creative stuff."
They also matter because the structure you name determines the math you run. A lease option and a subject-to on the same house produce completely different numbers, and the only way to know which one pays is to run both. Appraize models all eight exit strategies on a property at once — the four traditional ones and the four creative structures in this glossary — so the choice comes down to arithmetic instead of whichever term you happen to be most comfortable with.
Start with the seller's situation. The vocabulary follows from that, not the other way around.
