Glossary & Abbreviations
Here are some of the key definitions and abbreviations that are used in relation to all things in property, investment, finance, accounting, legal and strategies.
This is only a guide and some definitions may require have further clarity depending on your circumstances. Please always check with your team to confirm your understanding.
Every Starting with A
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.
A written report of the estimated value of a property, usually prepared by a valuer.
An increase in value.
Every Starting with B
A variable home loan at a lower rate with fewer features than a standard variable home loan
A short-term loan is used to bridge the gap between buying a new property and selling an existing one.
The fees are incurred when a loan is paid off ahead of time
An administrative body is made up of all the owners within a group of units or apartments of a strata building. The owners elect a committee, which handles the administration and upkeep of the site, also known as Owners Corporation.
The number of dwellings approved to be constructed in a given month, quarter or year.
Every Starting with C
The amount by which your property has increased relative to what you had paid for it. Simplistically, if you bought a property for $200,000 and it is now worth $350,000, you’ve made a capital gain of $150,000.
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.
A period of time is given to the purchaser to legally withdraw from buying a property. The length of time varies in each of the states and territories.
Contract of Sale
The Contract of Sale is the term used to describe the document prepared by a solicitor and used to formalise the sale of real estate.
The document itself usually contains numerous conditions that set out the “rules” by which the deal will proceed and eventually settle.
Cash rate/bank rate
The cash is the rate at which the reserve bank of Australia sets interest rates. It’s currently 4.5 per cent. The bank rate is the interest rate that banks offer and is above the cash rate to allow for a profit margin.
The process that legally transfers property ownership from one entity to another.
A caveat is a Latin word loosely meaning “warning”. When used in the legal context, it is commonly used to describe a formal warning placed on the title to land. The caveat serves as a warning to any other party searching the title of the land that the person who lodged the caveat on the title (caveator) has an interest in the land. Subsequently, it prevents any further dealing with the land & the owner of the property cannot sell or re-finance the land to a third party until the caveator or a court has removed it. Examples of Caveators are a creditor, spouse, business leaseholder
A covenant is a written agreement between the seller and purchaser of a piece of land restricting what the land can be used for. For example, restricting the type of building material the purchaser can use.
CGT (capital gains tax)
The tax you pay when you sell an investment property if you’ve made a profit.
When the financial institution uses your property (whether owner-occupied or investment) as security for other property you purchase.
Certificate of Occupancy
The Certificate of Occupancy certifies that a home can be lived in. It is a requirement of most local government or shire councils that an occupancy certificate be issued prior to the purchaser of home taking occupation. It contains information so that review inspections of a completed build can be performed.
Crown land is known as all land that is “remaining” that is not freehold title and is still held by the Crown. Crown land is regulated by the relevant State government legislation and certain requirements must be met before Crown land can be dealt with by, for example, being leased or sold.
For further details see the law society detailed explanation, Law Society
Every Starting with D
Failure to pay a debt by the due date.
Discharge of mortgage
A discharge of mortgage is a type of dealing lodged by a bank or financial institution after a mortgage has been repaid. On registration, reference to the mortgage is removed from the title.
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.
The decrease in value of an item (e.g. a building) over time
Every Starting with E
The difference between your mortgage and your property’s value. If your home is worth $400,000 and you owe $150,000, then you have equity of $250,000.
An easement is a right held by someone to use land belonging to someone else for a specific purpose. Common examples of easements are drainage, sewerage and carriageway easements.
An encumbrance is an interest in a piece of land by someone other than the registered owner. Encumbrances place limitations on a property. Examples include mortgages, easements, leases and restrictive covenants.
Every Starting with F
Where a home loan is locked in at a specific interest rate for a specified term, usually one to five years.
Every Starting with I
You are only repaying the interest charged on your mortgage and not paying off any of the principal or amount owing
Every Starting with J
Each owner has equal shares and rights in the property.
Ownership of property in common by two or more persons where there is a right of survivorship. That is, upon the death of one joint owner, the property as a whole passes to the survivor(s). Your manner of holding will default to joint proprietorship if you do not specify your preference in the transfer of property land documents.
Every Starting with L
LMI (Lenders Mortgage Insurance)
It is usually required by lenders when you’re borrowing more than 80 per cent of the property’s value, that is when you have less than 20% deposit. It provides insurance to the lender in case the borrower defaults on the loan.
The price point below which 5 percent of sales were recorded. If there were 100 sales in a suburb, the 25th lowest price would be the lower quartile price.
LOC (Line of Credit)
A facility is available from financial institutions that give you a credit limit that you can draw down anytime. It’s similar to a credit card, except you don’t have to make set repayments of the principal.
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.
Relatively new, these are loans that don’t require as much documentation to set up. They are popular with self-employed people and those who have not yet established a credit rating.
A land title is an official record of who owns a piece of land. It can also include information about mortgages, covenants, caveats and easements affecting the land.
Every Starting with M
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).
Most people who buy a house need to borrow some part of the purchase money, usually from a bank. The bank will typically require a mortgage to be given by the borrower as security for the repayment of the loan. The mortgage is registered on the title to the property. A mortgage sets out the terms and conditions of the loan, including the rights of the bank in the event that the borrower fails to repay the loan.
Every Starting with N
This is where the incomings are less than your outgoings after all tax reductions 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 claim as a loss when doing your tax return.
Explained differently negative gearing is when the costs of owning a property for investment purposes is more than the amount of rental income you are gaining.
The benefit of negative gearing for an investor is their tax bill is reduced via property expense & depreciation claims.
Effectively means your tax dollars are going towards an asset rather than in the Government.
Over time, the property will increase in value and there will be equity that can be used for further investment. (also see Positive Gearing )
While making a loss on an investment property or shares might initially seem counterintuitive, some people are willing to do this in the expectation that the capital gain (sale price minus cost of asset) when they sell the asset will more than offset that loss.
This sale will incur a capital gains tax.
Every Starting with O
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.
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.
Every Starting with P
When the highest bid at an auction doesn’t meet the reserve price set on the property. In effect, the property does not sell at the auction.
PPOR or PPR
Principal place of residence.
Property values usually follow a cycle of growth, a slowdown, a bust and an upturn. History shows this occurs every 7 to 10 years.
Portfolio (as in property portfolio)
The number and type of investments you own.
Price on application. You may see this in a real estate advertisement.
Plan of subdivision (LP or PS)
A plan that depicts the break-up of a piece of land showing parcels of land, commonly called ‘lots’, that can be sold separately.
This occurs when the investment income exceeds your interest expense (and other possible deductions). For example, the rent you receive maybe $1000 a month, but the monthly repayments are only $750 a month. You can also receive additional tax benefits on any income derived from a positively geared investment.
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
Positive gearing is when the income you are making by renting out the property is more than what the investment property expenses are, such as your loan repayments, maintenance and repairs. This means you will have “extra” money but may need to pay additional tax on the net income as a result.
Every Starting with R
To obtain new finance for something on different terms, usually involving the paying off of an existing loan by means of a new (and often cheaper) loan.
The minimum amount a seller will accept at an auction.
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. Most often the loan is not paid, or until the borrower dies, moves into a nursing home or relocates
Rental yields (and calculations)
The return on investment is a percentage of the amount invested. Gross rental yield can be calculated by multiplying the weekly rent by 52 (weeks in a year) and then dividing by the value of this property and multiplying this figure by 100 to get the percentage.
Every Starting with S
Sold under the hammer
This means a property that goes to auction sells at the auction.
Also known as the 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.
Section 32 is a document provided by the seller of real estate (vendor) to an intending purchaser, requiring a vendor to provide certain information to a purchaser BEFORE a contract of sale is signed. It contains information on the property, such as the land title, plan of subdivision, covenants.
Whether or not you can manage your mortgage payments, based on your income and expenses.
A parcel of land.
A parcel of land owned by a single person.
Stamp duty or Land Transfer Duty
A state government tax on the transfer of a property is calculated on the value of a property.
Supply and Demand
The number of properties on the market at any given time determines the supply-and-demand equation. If there are lots of properties on the market, it’s a buyer’s market. If there are few properties on the market or those that come to the market sell quickly, then it’s a seller’s market.
Surveyors mark land boundaries – the lines that run between properties. They confirm existing boundaries, create new ones when land is subdivided or a development is being planned and provide advice on boundary issues.
Every Starting with T
Tenants in common
Two or more buyers own a property with unequal shares and rights.
Transfer of land
Changing ownership details on a title is known as a transfer of land.
Every Starting with U
The price point below which 75 percent of sales were recorded. If there were 100 sales in a suburb, the 25th highest price would be the upper quartile.
Every Starting with V
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, while a high vacancy rate means there is an ample supply of vacant properties.
Volume and folio
Volume and folios are unique identifiers used in the numbering system that identify individual land titles relating to freehold land, Crown grants and Crown leases.
Refers to instances when a property owner is prepared to offer buyer finance or other assistance, such as staged payments to assist with purchasing the property (also known as wrapping).
Every Starting with Y
The return by an investor on an investment, shown as a percentage of the amount invested.