Property Investment Glossary

This site is aimed at people beginning in property investment. I will add any terms that I use often that could use extra explanation to help your understanding. I have tried to word definitions as simply as possible.

Acquisition Cost – The combined costs of all the fees required to obtain a property

Adding value – Renovation, landscaping etc adds value to your property. Developers may by a property, with the intention to fix it up to add value, then to re sale the property on for a profit.

Capital Expenditure – the cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room.

Capital Gains Tax – Many countries charge tax on any profit you make from selling an investment property, this is referred to as Capital Gains Tax.

Capital Growth – Refers to the increasing value of property you own. In you sell a property for more than you paid for it, it is referred to as capital gain.

Contingency – a condition added to a purchase agreement by the purchaser, to must be met before a property goes unconditional. For example, passing a building inspection.

Depreciation – refers to a loss in property value as a result of any cause. This may include deterioration.

Due Diligence – The act of reviewing and verifying all facts and issues before proceeding with a purchase. Banks need to verify any facts that relate to the purchase of a property before they will lend you money.

Equity – The total value you own in a property, calculated by subtracting any outstanding money owed to the bank from the total value of the property.

Joint Venture – an agreement between two or more parties who invest in a single business or property together.

Lease Option – a lease where the party leasing the property is given an option to purchase the property under certain conditions.

Liquidity – when you convert your assets to cash.

Mortgage – Is a type of contract a bank has with a borrower that gives the bank first right to the property as security for a loan.

Negative Gearing – This is when you run property investment at a loss, to claim tax credit against other income you earn.

Prepayment Penalty – If you pay off a home loan before you are meant to, then you have to pay a penalty fee.

Rental Void – a term used to describe a property when it is untenanted

Short Sale – A sale of a house where the proceeds fall short of what the owner still owes on the mortgage.