If you’re a newcomer to property investing, you may be a little confused by the industry jargon. We’ve compiled a list of the most common terms used for your reference. Have we missed a word? Please let us know.
- Appraisals/valuations – The process of valuing your property. This consists of a written report detailing the estimated value of the property. An appraisal/valuation is prepared by a valuer.
- Building approvals – The number of dwellings approved to be constructed in a given month, quarter or year. You’ll often come across this term when reading property market updates.
- Capital growth – The profit made from the sale price of your investment property, minus the purchase price. For example, if you bought a property for $200,000 and it’s now worth $350,000, you’ve potentially made a capital growth of $150,000.
- Cash flow positive – If your monthly rent is more than monthly expenses (including things like taxes, mortgages, repairs and maintenance) you have a cash flow positive property.
- Capital gains tax – If you sell an investment property, and you’ve made a profit, you may need to pay capital gains tax.
- Depreciation – Over time your investment property decreases in value – this is called depreciation. It’s important to get a depreciation schedule prepared to cover wear and tear, particularly for things like blinds, carpets and air conditioners.
- Equity – The current market value of a home minus the outstanding mortgage balance. If your home is worth $500,000 and your outstanding mortgage balance is $350,000, you have equity of $350,000. Equity is built up through mortgage payments and appreciation.
- Median – The median house price is the middle price for all property sales in an area over a set period of time.
- Negative Gearing – Negative gearing occurs when you borrow money to purchase an investment property but the accrued interest and combined running costs add up to more than the income generated by the property. As long as these costs are more than the rental income, the Australian Taxation Office will let you offset the loss against your income.
- Off the Plan – The purchase of a property that hasn’t been built – you’ve seen plans only. There are often savings associated with purchasing property off the plan.
- Passed in – The highest bid fails to meet the reserve price of a property at an auction. Consequently the property does not sell.
- Portfolio – The number of investment properties owned by an individual, group or company.
- Positive Gearing – When the income generated by the investment exceeds borrowing costs (fees and interest), resulting in a positive cash flow.
- Property Cycle – A sequence of recurring events reflected in factors such as fluctuating prices, vacancies, rentals and demand in the property market.
- Rental Yield – How much cash a rental property generates each year as a percentage of the rental property’s value. For example, if the rental income for the investment property is $350 per week, and the purchase price is $400,000, then the yield is (350*52)/400000 = 4.55%.
- Stamp Duty – The tax placed on the transfer of assets or property. It is calculated on the value of the investment property.
- Supply and Demand – The number of properties on the market at any time versus the demand from buyers for it.
- Vacancy Rates – The vacancy rate is expressed as a percentage and lets us know how many properties in a particular area or region are untenanted. This figure helps property investors assess the strength of demand for rental properties in a particular area. It can also be used historically to gauge long-term performance in a particular area. A low vacancy rate signifies high rental demand, requiring new properties to fuel this demand. A high vacancy rate shows the market has more stock available than is required for the demanding renters.
If you’re considering a move into property investment, one of the most important things to do is research, and lots of it. The internet has a wealth of knowledge available but it can get a little overwhelming. We’ve put together our list of must-read pages.
Have we missed a link? If you have a suggestion please let us know.
Research and Government
Australian Bureau of Statistics – http://www.abs.gov.au
Australian Taxation Office – https://www.ato.gov.au
CoreLogic (previously known as RP Data) – http://www.corelogic.com.au
Residex – http://www.residex.com.au
Real Estate Institute of Australia – http://reia.asn.au
New South Wales – Fair Trading – http://www.fairtrading.nsw.gov.au
National Rental Affordability Scheme – https://www.dss.gov.au/our-responsibilities/housing-support/programmes-services/national-rental-affordability-scheme
BIS Shrapnel – http://www.bis.com.au/home.html
Due diligence checklist – for residential property buyers – http://www.consumer.vic.gov.au/duediligencechecklist
Real Estate Institutes state by state
Real Estate Institute of Australian Capital Territory – http://www.reiact.com.au
Real Estate Institute of New South Wales – http://www.reinsw.com.au
Real Estate Institute of Northern Territory – https://www.reint.com.au
Real Estate Institute of Queensland – http://www.reiq.com
Real Estate Institute of South Australia – http://www.reisa.com.au
Real Estate Institute of Tasmania – http://reit.com.au
Real Estate Institute of Victoria – http://www.reiv.com.au
Real Estate Institute of Western Australia – http://reiwa.com.au