If spending a day chatting with real estate agents leaves your head spinning, or you’re not sure of the difference between a LVR and LMI, then this handy cheat sheet of common property terms is for you.
Appraisal
This is typically an informal report that provides an estimate of the sale price of a property. Appraisals are compiled by sales agents usually for no charge and do NOT have the same rigour as a Valuation.
Broker
A Broker (or Mortgage Broker) works on behalf of a buyer to source the most appropriate mortgage from a panel of mortgage lenders. It is important that investors appoint an investment savy mortgage broker who will take into account their long term investing objectives.
Capital Growth
An increase in the value of the property over time.
Cooling-Off Period
The amount of time a buyer has from signing of the contract to change their mind about progressing with the purchase. The length of time in a cooling off period varies between the states and territories with different charges applicable if cooling off provisions are enacted. Its important to note that there is no cooling-off period when you buy at auction.
Depreciation Schedule
A list of items in an investment property that can be depreciated and claimed as a tax deduction. It includes items such as carpets, hot-water systems and air conditioning.
Equity
The difference between the value of what you owe and the value of what you own. In other words, it represents the portion of the property you own as compared to the portion that the lender owns.
Fixed Rate Loan
A loan where the interest rate is fixed for a period of time.
Gearing
The term used to describe borrowings to purchase an investment property.
Interest-Only Loan
A loan where only the interest is repaid and the principal remains unpaid at the expiry of the interest only period.
Line of Credit Loan
A loan that is similar to a credit card facility, where you are able to withdraw (borrow) funds to a pre-determined level as needed.
Lender’s Mortgage Insurance (LMI)
A premium paid by the purchaser if the loan is more than 80% of the value of the property. This insurance covers the lender (ie the bank) if the borrower defaults on the loan.
Loan-to-Value-Ratio (LVR)
The value of the loan as a percentage of the value of the property. For example, if a property is valued at $500,000 and the loan balance outstanding is $150,000, the LVR is 30%.
Median Price
A statistical measure often used to measure movements in property prices. The median price is derived by arranging property prices in ascending or descending order and then selecting the middle price.
Mortgage
A loan that is secured by property.
Negative Gearing
The interest payable on an investment loan is greater than the income received.
Off The Plan
Signing a contract for property which has yet to be built. This is often the practice of developers of blocks of high rise units and apartments.
Positive Cash Flow
Income from the property (including tax benefits) is greater than all the expenses (including interest, rates and taxes, repairs, etc.).
Positive Gearing
The income from a property is greater than the interest payable on the investment loan.
The difference between positive gearing and positive cash flow (and negative gearing and negative cash flow) is that cash flow includes all income and all expenses whereas gearing only refers to rental income vs interest.
Principal and Interest Loan
A loan where both interest and principal are repaid.
Rental Return
The annual rental income as a percentage of the value of the property (also called the rental yield or yield). For example, if you had a property valued at $400,000 and the annual rental income was $25,000, the rental return is 6.25%.
Risk
The potential chance that an investment or property will decline in value and result in money being lost.
Self-Managed Superannuation Fund (SMSF)
A type of trust that exists with the sole purpose of funding the beneficiaries’ retirement.
Stamp Duty
A state government charge incurred when buying property.
Strata Title
Most flats, units, apartments and townhouses that have some common areas are on strata title. All the dwellings are on a separate title, but there will be some common property that is shared by all owners, such as water and sewerage pipes, driveway, stairwell and garden.
Subdivision
The act of dividing land into smaller allotments.
Vacancy Rate
The total number of vacant investment properties as a percentage of the total number of investment properties in an area.
Valuation
Unlike an appraisal, this is the definitive value of a property as provided by a qualified valuer for a fee. Valuations are often required when you are borrowing money, sorting out a divorce settlement or finalising a deceased estate. Valuations can be used as evidence in a court of law to help resolve a dispute.
Variable Rate Loan
A loan in which the interest rate fluctuates.
Vendor
The seller and owner of property.
Yield
The income expressed as a percentage of the value of the property.