So, you want to invest in real estate but the lingo has you puzzled. Don’t be bamboozled by the jargon – our A-Z guide will give you the lowdown.
The bank valuation is a bank or financial service provider’s estimate of the value of a property. When you apply for a mortgage the lender with usually send an independent property valuer to value the property. A bank valuation is usually more conservative than current market value.
A temporary short-term loan enabling someone to purchase a property before selling their existing property. (A bridging loan usually attracts a higher interest rate).
A report on the physical condition of a property. The property inspector or surveyor will look at all accessible parts of the property and give a written report on any defects or issues.
The legal document detailing the agreement of terms between the seller and buyer.
Depreciation is what occurs when the value of an asset declines over time. If you are purchasing a property for investment purposes, chances are there are items within the property you can claim have depreciated and thus set against your taxable income as a deduction.
A right that affects a property – such as the right of neighbours to use and access path or the rights of council or utility companies to have access to pipes or drains under a property.
Fixtures and fittings
Fixtures are items that are part of a building or land and are therefore included in the sale. Fittings are not attached to the building or land and so are not included in the sale unless otherwise agreed.
Lenders Mortgage Insurance
If you don’t have a minimum of 20 percent deposit for your property, it’s highly likely you will be required to take out lenders mortgage insurance. This is a fee charged by your lender to protect themselves from you defaulting on the loan.
Loan to Value Ratio
The loan to value ratio (LVR) is the amount of money borrowed versus the value of a property. The lower the LVR the lower the risk for the lender.
If your investment property costs you more to ‘run’ than what it earns then it is considered to be negatively geared. These expenses can then be used to offset against your taxable income.
A positively geared property is one in which the rent exceeds the mortgage and running costs – thus paying for itself.
A property’s rental yield gives a good indication of its rental potential. Rental yield is worked out by assessing the annual rental income as a percentage of the property value. This can help you work out potential income when considering a property for investment.
A suburb profile includes key data on characteristics of the property market within a suburb. This can include information such as median property values, property listings over the past twelve months, demographic information and details of local facilities.
If you are keen to understand the demand for property in any given area, examine the vacancy rate. The vacancy rate is the number of properties that are vacant in a suburb and can be a good indicator of a property’s rental potential
Local government determines how a property can be used by defining it within various zones. A property can be zoned for residential, industrial, business or other purposes. How a property is zoned obviously affects its potential use and can even impact renovation plans, so always check how the property is zoned.