INVESTMENT TERMS - GLOSSARY

Accountant – a professionally qualified person providing service and advice in relation to financial and taxation matters

Agent Letting Fees – fees charged by real estate agents for arranging the letting (rental) of a property

Agent Management Fees – fees charged by real estate agents for managing the ongoing rental of a property

Appraisal – the term commonly used which means an opinion or summation of the saleability of a property without resorting to a full scale valuation

Appreciation – the increase in value of assets

Asset – something you own

Australian Securities and Investment Commission (ASIC) – the organisation responsible for overseeing the operations of companies and financial markets in Australia

Bridging Finance – if settlement of a real estate transaction comes prior to the date that finance becomes available then it will be necessary to obtain a temporary loan to provide the gap (bridge) in order to comply with the terms of the contract

Budget – a written forecast of the future in numerical terms

Building Inspector – a professionally qualified personal who inspects and reports on the quality of buildings on behalf of people seeking to purchase property

Bull Market – a market (eg the property or share market) where prices are rising

Buyer’s Agent – a licensed real estate agent employed specifically by the buyer of real estate

Buyer’s Market – the condition exists when, under competitive conditions, the pressures of supply and demand are such that market prices are at a relatively low level, giving the buyer an advantage. An over-supply causing prices to decline.

Compounding – in terms of interest, this is the earning of interest on interest 

Capital Gain – an increase in the value of an asset (eg where the value of a house increases over time)

Capital Gains Tax – tax charged by the Australian Tax Office on the increased value of investment assets (such as investment property)

Caveat – beware. In real estate, it warns people (prospective purchasers, mortgagees, etc) who propose to deal in the land that a third person (normally the person lodging the caveat at the Registrar of Titles Office) has a right or interest in the land

Client – one who engages the services of an agent and to whom the agent should look for payment of his/her commission or fees, in return for services rendered

Contract Date – the date that the contract is exchanged i.e. the date the actual contract comes into force

Cooling-off Period – a period of time after the contract date that the purchaser can actually rescind the contract without incurring a major penalty (some penalty might apply). Currently is 5 working days in NSW and QLD

Council Rates – fees charged by local councils to land owners for services provided to local households (eg garbage collection services)

Credit Card – a plastic card usually issued by a financial institution (such as a bank) that allows you to purchase goods and services using the financial institution’s money. The financial institution charges interest if you do not repay the amount owing by the due date

Credit Report – a report issued by a credit bureau that maintains a record of an individual’s applications for credit (loans)

Creditor – a person to whom you owe money (eg the bank is your creditor when you borrow money)

Debt – money owed to a creditor (ie when you borrow money or purchase goods and services on credit, you have a debt)

Default – failure to meet an obligation when due; thus a mortgagor is in default when he/she fails to pay interest or principal on his mortgage when due

Depreciation – the decrease in value of assets

Duplex – a building located on one block of land where two adjoining dwellings exist

Due Diligence – another word for due diligence is ‘research’ which involves investigating various aspects of an investment prior to purchase

Easement – a right a person has to use land belonging to another in a particular manner or a right to prevent the owner from using that land in a particular way

Economics – the study of the economy which involves issues such as the value of the dollar, inflation, unemployment, etc

Financier – a person or organisation that provides finance (ie lends money)

Financial Independence – being self-supportive in financial terms (ie not having to rely on other people to survive financially)

Financial Institutions – organisations that provide financial services such as lending money, investment advice, etc (eg banks)

Fixed Interest Rate – interest is the cost of borrowing money. A fixed interest rate is where the percentage cost of borrowing is determined at commencement or at some point of the loan and remains at that percentage for an agreed period of time

Gearing – the use of borrowed money to fund investment. The more money you borrow, the more highly ‘geared’ you are

Goods and Services Tax (GST) – a tax charged on the purchase/sale of many goods and services – currently set at the rate of 10%

Gross Salary – salary (or wages) prior to deduction tax

Inflation – the (general) rise in prices of goods and services as measured by the Consumer Price Index (CPI)

Infrastructure – things such as roads, parks, shops, transport, etc within a specific area

Insurance – protection against the possibility of something going wrong (eg a fire destroying a house)

Insurance Broker – a person or organisation responsible for arranging insurance on behalf of clients

Interest – the cost of borrowing money

Interest – Standard Variable Rate – the standard variable rate of interest is the (un-discounted) rate of interest charged by a financial institution when it lends money. 

Interest Bearing Deposit – a deposit of money held by a financial institution (such as a bank) where the financial institution pays you a pre-determined rate of interest. You are effectively lending the financial institution money

Interest Only Loan – a loan where you repay interest only. This is the opposite to a principal and interest loan where you repay both interest and the capital originally borrowed

Investment – where you pay money (either yours or borrowed) into some form of (hopefully) money making enterprise

Joint Tenant – ownership in equal undivided shares.  When one of the joint tenants dies, the share is passed immediately to the surviving joint tenants

Lease – similar to renting an item (instead of purchasing) where you make regular payments for the right to use a particular item such as a car, house, etc

Lessee – one who possess the right to use or occupy a property under a lease agreement

Lessor – one who holds title to and conveys the rights to use and occupy a property under a lease agreement

Leverage – using borrowed money to fund the purchase of an item (such as a house)

Liability – something you owe (eg a loan on a car)

Median – when data is ordered according to size then the middle number is the median

Medicare Levy – a tax charged by the Federal Government to cover the cost of providing medical services. This tax is deducted from general wages and salaries

Mentor – a person who works with you to assist in the achievement of your goals. This person should be experienced in the areas required

Millionaire – a person who has a net worth of at least one million dollars (ie total assets minus total liabilities must equal at least one million dollars)

Mortgagee – the person who lends money on mortgage against some security,
normally real property or goods

Mortgagor – the owner of property who borrows money and mortgages the
property as security for the loan

Negative Gearing – a term usually associated with property investing where total expenses exceed total income (resulting in a loss)

Net Worth – the net value of total assets minus total liabilities

Non-Cash Item – a term usually associated with expenses that do not involve the payment of cash (eg depreciation)

Paradigm – the way we think about specific issues

Personal Loan – money borrowed from a financial institution (such as a bank) for a specific purpose such as the purchase of a car. The interest rate charged on a personal loan is usually higher than that charged on a mortgage because there is higher risk to the financial institution

Pest Inspector – a professionally qualified person responsible for detecting pest infestations on property (such as termites)

Positive Cash Flow – the cash coming in from an investment exceeds the cash going out

Positive Gearing – a term usually associated with property investing where total income exceeds total expenses (resulting in a profit)

Principal and Interest Loan – repayment of a loan (generally associated with property investing) where both the interest and the amount borrowed are repaid together

Private treaty sales – a sale through negotiation via an agent as opposed to a sale
by auction

Property Management – a division of a real estate office composed of leasing of
space, collection of rents, selection of tenants and generally the overall maintaining
and managing of real estate properties for clients

Property Portfolio – the total of all property investments by an individual (ie a group or portfolio of properties)

Quantity Surveyor – a person who undertakes the preparation of a statement of the quantities of material involved in the carrying out of construction work. Also prepares tax depreciation schedules for investment properties

Real Estate – property (technically described as land). There are various categories of real estate including commercial, retail and residential

Real Estate Agent – a person who is employed to act on behalf of another (the
principal) to do certain specified acts to property which affect the principal’s rights
and duties in relation to a third party

Return – this is the reward you receive for investing in a certain product (eg interest received on an interest bearing deposit)

Risk – involves the probability that something will not go according to plan (eg losing money on the share market)

Risk Tolerance – the level of risk an individual is willing to take. Generally the higher the return, the higher the risk

Settlement – the transfer of title (ownership) of property

Sinking fund – a fund to which periodic deposits are made for the purpose of
paying a debt, or replacing an asset.  A sinking fund is usually established
when more than one property exists on a single block of land, eg high-rise
apartments

Stamp Duty – a state based government tax charged on various things such as the purchase of a property (usually when there is a change of ownership)

Strata Title - a system of land title based on one or more cubic spaces designated as lots.  These lots can be applied to unit blocks, high rise apartments, townhouses, duplexes, factories, retail shops, etc

Subdivision – a division into parts e.g. dividing land into building lots

Superannuation – providing for retirement by placing money in an investment during your working life. Generally most people can not access this money until they retire

Target Market – specific people to whom you intend to sell a product or service

Tax – a charge levied by Federal and State governments

Tennant – a person who leases a property (and pays a regular fee called rent)

Tenants in Common – ownership of land whereby each owner has an undivided
share which is distinct and separate. These shares do not have to be equal and upon
death, the share can be disposed of via a will. Can also dispose of the share at any
time

Title Search – an investigation of public records to uncover the nature of the
ownership of a specific piece of real estate

Trailing Commission – an ongoing fee paid (usually by a financial institution) to a person who arranges (for example) a loan or investment with that financial institution

Unemployment – the number of people actively looking for jobs but unable to find them

Unencumbered Property – a property free and clear of mortgages, restrictive
covenants, leases and assignments of any kind

Valuer – a professionally qualified person responsible for establishing the value of specific properties/houses. Financial institutions usually have a panel of valuers that they use to value properties for the purpose of lending

Valuation – the result of a valuer establishing the value of a property. The valuer prepares a report clearly identifying the estimated value of a property.  Only Registered Valuers can provide valuations

Vendor – the seller of an asset such as a property

Wealth – (in financial terms), the amount of money an individual possesses OR the difference between the value of an individual’s assets compared to the value of an individual’s liabilities

Yield – the profit or income (usually annual) that an investment property provides.
Normally expressed as a percentage of the purchase price

Zoning – various geographical areas are ‘zoned’ by local councils. This is simply a way of establishing what land can be used for (eg zoning may be ‘residential’ which means only property designed for living in can be built in that area)