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Glossary - Know The Lingo

The InvestorGroup property glossary is a comprehensive listing created to support property investors to educate themselves about common property investment and finance terms.

For newcomers to property investing or home buying, the jargon can get confusing. This glossary is intended as a guide only and investors must make their own enquiries to verify terms described in this section.

AAPR – Annualised Average Percentage Rate, sometimes referred to as the comparison rate. This figure takes into account all the costs associated with the loan and is used to compare loan products.

Amortisation period – the length of time a loan is calculated over and repaid.

Appraisals / Valuations – a written report of the estimated value of a property, usually prepared by a valuer appointed by the purchaser’s lender.

Appreciation – nothing similar to a FB ‘like’, but an important increase in capital value.

BA - Building approval, also called 'certification' is required for development that involves carrying out building work under the Sustainable Planning Act 2009 (SPA), as well as under specific building legislation

Basic variable – a variable home loan at a lower rate and with less features than a standard variable home loan.

Break costs – the fees incurred when a loan is paid off ahead of time.

Body Corporate – a collective administrative body made up of the owners within a group of units or apartments of a strata building. The owners elect a committee which handles administration and upkeep of the site. Also known as Owners Corporation.

Bridging Finance – a short-term loan used to ‘bridge the gap’ between buying a new property and selling an existing one.

Building approvals – the number of dwellings approved to be constructed in a given month, quarter or year.

Capital gain – the amount by which your property has increased relative to what you paid for it. Simplistically, if you bought a property for $200,000 and it's now worth $350,000, you've made a capital gain of $150,000.

Cash rate/bank rate – the cash rate is the rate at which the Reserve Bank of Australia sets interest rates. It's currently 7 per cent. The bank rate is the interest rate that banks offer and is above the cash rate to allow for a profit margin.

Cash flow positive – you have a cash flow positive investment if the incomings are more than your outgoings after tax-deductible items have been claimed. You receive more rent than your mortgage repayments, plus you are still ahead after taking into account items such as interest on the loan, maintenance, insurance, land tax, rates, etc.

Civil Works - ‘Civils’ is the term used to describe the improvements or additional works to the services of the title so it can be subdivided.

CGT (capital gains tax) – the tax you pay when you sell an investment property if you've made a profit.

Conveyancing – the process that legally transfers property ownership from one entity to another.

Cooling-off period – a period of time given to the purchaser to legally withdraw from buying a property. The length of time varies in each of the states and territories.

Cross-securitisation / cross-collateralisation - when the financial institution uses your property (whether owner-occupied or investment) as security for other property you purchase.

DA - Development Application (DA) is a request for permission to carry out proposed developments. Most developments require two things before construction can commence – development approval and a construction certificate

Default - Failure to pay a debt by the due date.

Density – the level of occupancy in a given area, or the number of people permitted to reside in an area. For example, inner-city areas are usually higher density than outer-suburban areas.

Depreciation – the decrease in value of an item (eg. a building) over time.

DSR - Demand to Supply Ratio (See supply and demand)

Equity – the difference between your mortgage and your property's value. If your home is worth $350,000 and you owe $150,000, then you have equity of $200,000.

FIRB - The Foreign Investment Review Board (the FIRB) examines proposals by foreign persons to invest in Australia and makes recommendations to the Treasurer on those subject to the Foreign Acquisitions and Takeovers Act 1975 and Australia's foreign investment policy

Fixed rates – where the home loan is locked in at a specific interest rate for a specified term, usually one to five years.

Headworks - ‘Direct infrastructure’ costs a developer incurs typically refers to water and sewerage as(defined as those components that purely service the specific development and dwellings) & “Indirect” infrastructure costs a developer incurs, which include all remaining infrastructure charged for but which is not ‘essential’ to the delivery of the particular home being levied, and which typically is for an infrastructure feature which is of benefit to a broader community than those in the immediate development being levied, such as Parklands and open space, Streetscape etc..

IO (Interest-only) – only repaying the interest charged on your mortgage, not paying anything off the principal or amount owing.

Joint tenants – each owner has equal shares and rights in the property.

Land Tax Threshold - Each of Australia’s states and territories has different rules for how tax is levied on the unimproved land value of investment properties. With all your investment properties in one state, you may exceed that state’s land tax threshold, and incur a sizable tax bill.

LMI (lenders mortgage insurance) – usually required by lenders when you're borrowing more than 80 per cent of the property's value. It provides insurance to the lender in case the borrower defaults on the loan.

LOC (line of credit) – a facility available from financial institutions that gives you a credit limit that you can draw down at any time. It's similar to a credit card, except you don't have to make set repayments of the principal.

Low-doc loans – relatively new, these are loans that don't require as much documentation to set up the loan. They are popular with self-employed people and those who have not yet established a credit rating.

Lower quartile – the price point below which 25 per cent of sales were recorded. If there were 100 sales in a suburb, the 25th lowest price would be the lower quartile price.

LVR (loan-to-value) ratio – to calculate it, divide the loan amount by the value of the property then multiply by 100 to get a percentage. Banks and financial institutions use this as a measure of whether you can afford the loan.

Median – the median house price is the middle price of all sales recorded in a particular suburb, postcode, city or state. If there were 100 sales in a particular suburb, in ascending order, the median would be number 50 on the list. It's commonly assumed that the median price is the same as the average price, but that's not the case. To calculate the average, you would add up the 100 sales and divide the total by 100 (the number of sales).

Negatively geared – this is where the incomings are less than your outgoings after all tax deductions have been claimed. For example, you receive rent on a property of $600 a month, but your mortgage repayments are $900 a month. Your shortfall is $300 a month, which you can claim as a loss when doing your tax return. Many people on high incomes use negative gearing to reduce their taxable income.

O&A (offer and acceptance) form – when you make an offer to purchase a property, you sign one of these forms. When the owner accepts the offer, it becomes a binding contract.

Off the plan – when you buy off the plan, you are buying a property before it is built, having only seen the plans. This is commonly used for apartments or units under construction or about to be built.

Owners Corporation - See Body Coorporation

Passed in – when the highest bid at an auction doesn't meet the reserve price set on the property. In effect the property doesn't sell at the auction. If you are trying to find out the final passed-in figure, (the highest bid) be sure to check by whom the last figure was bid. In some states a last bid can be made by the Vendor.

Portfolio (as in property portfolio) – the number and type of investment properties you own.

Positively Geared – In the simplest sense - Profitable. This is to say incomes from the asset exceed outgoings of the asset (and other possible deductions). Note that you may be subject to additional tax on any income derived from a positively geared investment.

PPOR or PPR – Principal place of residence.

POA – Price on application. You may see this in a real estate advertisement.

Principal and interest – the amount borrowed or still to be repaid, plus the interest on the mortgage. The principal is part of the repayment that reduces the balance of the mortgage.

Property Clock - The property clock is a simple but effective visual tool which outlines where certain locations & product types are positioned in the overall property cycle. Simplified following the hands of a clock, there are four phases of the property cycle including a recovery; upturn; downturn & stagnation. With 12 o’clock being ‘Peak’ and 6 o’clock being ‘Trough’

Property Cycle – property values usually follow a cycle of growth, a slowdown, a bust and an upturn. History shows this frequency typically re-occurs every seven to ten years. (See Property Clock)

Refinance – Often heard as ’Re-Fi’. Means to obtain new finance for something on different terms. Often involves the paying off of an existing loan by means of a new (and logically cheaper) loan. Common process to enable investors to release new capital for new investment.

Reverse mortgage – designed for seniors who are asset-rich (usually with their PPOR) but cash-poor. The facility allows them to access the equity in their homes without having to sell it.

Rental yields (and calculations) – the ROI or return on an investment as a percentage of the amount invested. Gross rental yield can be calculated by multiplying the weekly rent by 52 (weeks in a year), then dividing by the (proposed) purchase price of the property and multiplying this figure by 100 to get the percentage.

Reserve price – the minimum amount a Vendor will accept at an auction.

Sold under the hammer – this means a property that goes to auction, sells at the auction.

Serviceability – The ability to manage the mortgage payments, based on an individual’s income and the associated loan expenses.

Stamp duty – ‘Stamps’ - State government tax on the transfer of property calculated on the value of the property. Each State has different figures

Strata title – also known as unit title. This title grants ownership of a section or a 'unit' of a larger building. This 'unit' can be sold or transferred by the owner.

Subdivision – a parcel of land divided into individual lots.

Supply and Demand – the number of properties on the market in a location at any given time determines the supply-and-demand equation. If there are large numbers of properties in the area on the market, it would normally be seen as a buyers' market. Conversely, if there are few properties on the market or those that come on to the market sell quickly, then it's normally seen as a sellers' market.

Tenants in common – Title to property (usually real property, but it can apply to personal property) held by two or more persons, in which each has an "undivided interest" in the property and all have an equal right to use the property, even if the percentage of interests are not equal or the living spaces are different sizes.

Upper quartile – Top 25% of Sales - If there were 100 sales in a suburb, the 25th highest price would be the upper-quartile price.

Vacancy rates – a measure of how many dwellings are available for rent over a specified time period. A low vacancy rate means there are not very many dwellings available for rent, (typically good for investors) while a high vacancy rate means there is ample supply of rental properties. (Typically not so good for investors)

Vendor – the seller.

Vendor's terms – refers to instances when a property owner is prepared to offer a buyer finance or other assistance such as staged payments to assist with the purchase of the property.

Yield – the return to an investor on an investment, shown as a percentage of the amount invested.