A plain English guide to property investment jargon

With phrases like negative gearing and capital gains, the world of property investment can be daunting to those who aren’t familiar with the terminology and jargon.

But it needn’t be that way!

We’re always keen to keep your property experience as straightforward and uncomplicated as possible, so here’s our plain English guide to some commonly used words and phrases.

Absentee Landlord: a landlord who does not live in the area in which they own an investment property.

Bank valuation: the value of a property estimated by the bank. This value is usually more conservative than the market value as the bank is keen to reduce its risk if the property has to be re-possessed.

Body Corporate (or BC): the name given to the body which manages and maintains multiple property titles on a single piece of land together with common ground, shared structures or shared areas on the property. The owners of the individual properties covered by a body corporate are the body corporate shareholders and usually have to pay a fee or levy to the body corporate.

Capital gain: profit on the sale of the property after all expenses have been deducted.

Capital Gains Tax (CGT): a Government tax on the capital gains (see definition below) on investment properties purchased on or after September 20, 1985. Generally, CGT will not apply to your principal place of residence.

Capital growth: the increase in value of a property that occurs over a period of time. Generally this happens over a number of years.

Current market value: the price at which a property will sell within a reasonable period of time, (usually one to three months) if it is put on the market now.

Depreciation: the decrease in value of items in the property over a period of time. Property investors may be able to claim depreciation on the property buildings and the items within it against taxable income, but you will need to employ a qualified Quantity Surveyor to prepare a depreciation schedule and speak to your accountant to see what tax deductions are applicable to you.

Equity: the current market value of a property minus any outstanding mortgage repayments.

Lenders Mortgage Insurance (LMI): the fee charged by lenders to ensure they will recoup their money if a borrower doesn’t make the repayments.

Loan-to-value ratio (LVR): a financial term used by lenders to express the ratio of a loan to the value of the property. Lenders use the LVR when assessing mortgage applications.

Negative gearing: when the property’s expenses are more than the rent earned. These expenses can be used to reduce taxable income.

Rental yield: the annual rental income expressed as a percentage of the property’s value. It helps when determining the potential income and cash flow involved in purchasing a property.

Positive gearing: when the rent is more than the costs of running the property and the investor receives an income. This income will be included in your tax return.

Vacancy rate: the number of rental properties vacant in an area and usually expressed as a percentage. Investors usually look to purchase a property in a suburb with a low vacancy rate, as they are more likely to find tenants quickly and easily.

 There are of course other phrases and words you may come across and we’d be happy to assist in explaining what they are and why you need to consider them.

From explaining jargon to managing your investment property, our talented and experienced team would love to share its knowledge with you and help you work towards your property investment goals.

We are one of Newcastle’s longest established real estate offices, so give us a call on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au  or pop into our Cardiff office for a chat.

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