Property professionals can often get caught up in their own ‘lingo’. Make sure you’re in the know by getting to grips with the basics. There are some commonly used, and often misunderstood, terms that you should know if you are buying, selling or leasing property.
Appraisal – A report that includes an estimation of the sale price of a property. Appraisals are compiled by real estate agents, generally at no charge.
Bond – A bond is paid as an assurance that the tenant will not breach the conditions of tenancy and upon vacating will leave the premises in a state of good repair and order.
Buyers Advocate – A property consultant who acts solely for the buyer by sourcing suitable properties and representing the buyer throughout the buying process.
Capital Growth – An increase in the value of the property over time.
Capital Gains Tax (CGT) – The tax payable when a property is sold. This is based on the difference between the original purchase price and the sale price, including purchase and sale costs.
Conveyancer – A conveyancer is a licensed and qualified professional whose job it is to provide advice and information about the sale of a property, prepare the documentation and conduct the settlement process.
Cooling-Off Period – The length of time given to a prospective buyer to consider their impending property purchase. The length of time varies between the states and territories. There is no cooling-off period when you buy at auction.
Depreciation Schedule – A list of items in an investment property that can be depreciated and claimed as a tax benefit. It includes such items as carpets, hot-water systems and air conditioning.
Equity – The difference between the value of what you owe and the value of what you own. In other words, it represents the portion of the property you own as compared to the portion that the lender owns.
Executors’ Auction – The sale of a property owned by a recently deceased person. The executor is the person responsible, per the terms of the deceased’s will, for executing the conditions specified by the will.
Fixed Rate Loan – A loan where the interest rate is fixed for a period of time, which can vary from one to 15 years.
Gearing – The term used to describe borrowings to purchase an investment property.
Interest-Only Loan – A loan where only the interest is paid and the principal remains unpaid at the end of the loan.
Landlord – Owner of an investment property.
Lender’s Mortgage Insurance (LMI) – A premium paid by the purchaser if the loan is more than 80% of the value of the property. This insurance covers the lender if the borrower defaults on the loan.
Loan-to-Value-Ratio (LVR) – The value of the loan as a percentage of the value of the property.
Median Price – A statistical measure often used to measure movements in property prices. The median price is derived by arranging property prices in ascending or descending order and then selecting the middle price. It is not the average.
Mortgage – A loan that is secured by property.
Negative Gearing – The interest payable on an investment loan is greater than the income received.
Off-The-Plan – Signing a contract for property which has yet to be built. This is often the practice of developers of blocks of high-rise units and apartments.
Owners Corporation – Owners of flats, apartments or units are usually members of an owners corporation, formerly known as body corporate. The owners corporation manages the common property of a development including gardens, driveways, stairwells, lifts, etc.
Positive Gearing – The income from a property is greater than the interest payable on the investment loan. The difference between positive gearing and positive cash flow (and negative gearing and negative cash flow) is that cash flow includes all income and all expenses whereas gearing only refers to rental income vs interest.
Principal and Interest Loan – A loan where both interest and principal are repaid.
Rental Return – The annual rental income as a percentage of the value of the property (also called the rental yield or yield).
Self-Managed Superannuation Fund (SMSF) – A type of trust that exists with the sole purpose of funding the beneficiaries’ retirement.
Settlement – The process of legally transferring ownership of a property from one person or entity to another.
Stamp Duty – A state government charge incurred when buying property.
Strata Title – Most flats, units, apartments and townhouses that have some common areas are on strata title. All the dwellings are on a separate title, but there will be some common property that is shared by all owners, such as water and sewerage pipes, driveway, stairwell and garden.
Subdivision – The act of dividing land into smaller allotments.
Title – The ownership of property, or the documents constituting the evidence of such ownership.
Trust account – A bank account relating to monies received or held by an agent for or on behalf of another person, e.g. deposits, rental etc.
Vacancy Rate – The total number of vacant investment properties as a percentage of the total number of investment properties in an area.
Valuation – The definitive value of a property. It is based on recent comparable sales in the area. It is conducted by a qualified valuer for a fee. Valuations are often required when you are borrowing money, sorting out a divorce settlement or finalising a deceased estate. Valuations can be used as evidence in a court of law to help resolve a dispute.
Variable Rate Loan – A loan in which the interest rate fluctuates.
Vendor – Owner of property.
Yield – The income as a percentage of the value of the property.