Common Property Terminology you need to know when selling, buying or investing in real estate.
For newcomers to property investing or home buying, the jargon can get slightly confusing. I have compiled some commonly used words and terms to help you on your property journey.
Cash flow positive:
This is when you have a cash-flow positive investment where the incoming 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.
C.G.T:
Capital Gains Tax is the tax you pay when you sell an investment property and you have made a profit.
Cooling Off Period:
This is the period of time given to purchasers to legally withdraw from buying a property. The length of time varies in each of the states and territories.
Equity:
This is the difference between your mortgage and property’s value. If your home is worth $400,000 and you owe $150,000, then you have equity of $250,000.
Joint Tenants:
Each owner has equal shares and rights in the property.
L.V.R:
This is your Loan to Value Ratio. To calculate it you have to divide the loan amount by the value of the property and then multiply by 100 to get a percentage. Banks and financial institutions use this as a measure of whether you can afford the loan.
P.P.R:
This is your Principal Place of Residence
Cross Collateralisation:
This when the financial institution uses your property (whether owner occupied or an investment) as security for other property that you purchase.
Negative Gearing:
Negative gearing occurs when the income received from your property investment is less than the costs of holding the investment, so you are losing money and need to supplement it from other sources.
Positive Gearing:
Your income from your property investment is greater than the costs of holding the investment.
Neutral Gearing:
Your income from your property investment equals the costs of holding the investment.
Mortgage Insurance:
Mortgage Insurance is an additional cost imposed on borrowers by the banks where you the borrower are required to insure the bank against loss should you default, it is like you insuring a third party for their errors or loss, not fair is it?
Valuation:
A valuation is a requirement by the lender to determine the value of the property and their risk, simply stated a valuation is an opinion from a third party holding a qualification to do a valuation as to the properties worth at a given time on a given day, ask to see the valuation the bank conducts as you are paying for it, it does not represent market value.
Market value:
Market value and how it occurs has been set by precedent in Australia by the Spencer case, simply stated “A willing and able seller and a willing and able buyer,prepared to pay a price with out coercion or any other mitigating factors establishes market value” so if you and a seller agree to a price and that becomes the contract price that then is the market value not what some valuers opinion of the value on behalf of a lender. This creates some distress when a lenders valuer values the property substantially less than the agreed contract price, in these instances the buyer will have to put in the difference between what the bank is prepared to advance and the contract price or withdraw from the sale on finance grounds.
UCV:
Unimproved capital value this the value used by government to tax property owners for local government rates including when to determine land tax liability.
Tenants in common:
This is when you purchase property and stipulate the amount of shares each person has in the property this can then be bequeathed to a third party or that portion can be sold to some one else, unlike joint tenants where the property is automatically passed on to a surviving partner and can only be sold as one parcel.
