Definitions of commonly used terms ...
After tax cashflow per year
The cashflow generated from the property once all expenses are taken into consideration, and after the tax rebate/payment has been made for depreciation.
Agreement
The written contract for the Sale and Purchase of the property between the Vendor (seller) and Purchaser (home buyer).
Agents Commission
A flat fee or percentage of the sale price paid by the Vendor to the real estate agent responsible for the sale.
Annual Expenses
The sum of all cash expenses for the property including expenses such as insurance, maintenance, and council rates. This figure does exclude any depreciation (non-cash) items
Appreciation
An increase in the value of a property due to changes in market conditions or other causes.
Asking Price
The price the Vendor initially asks for the property.
Assignment of contract
The transfer of a Sale & Purchase agreement from one person to another.
Auction
A public sale where the property is sold to the highest bidder – on the proviso the reserve price for the property has been met or exceeded.
Average Interest Rate
The average interest rate based on the average of the current floating and fixed term rates for 1,2,3,4 and 5 years. (Refer to our Interest Rate Averaging concept for more details)
Body Corporate
A legal entity created under the Unit Titles Act 1972 consisting of all the unit owners within a unit-titled property and controlled, where there are more than three, by an elected committee. The Body Corporate essentially has an overall management and administrative function.
Building Type
Various depreciation rates are used for different building types
i.e.= Less than 2 years old
Capital Growth
An increase (or decrease) in the value of a prperty due to changes in the property market.
Capital Value (CV)
A Government Valuation of the property enables local authorities to establish the rates that property owners will be charged. Government valuations are intended to approximate the price you could reasonably expect to receive for your property on the day the valuation took place. They are estimations based on property sales that occur in your locality around the date of valuation.
Cash on Cash return
A percentage calculation that is worked out by dividing the gross/net cashflow from the property by the amount of money invested in the property.
Chattels
Movable and removable items, commonly including stove, television aerial, fixed floor coverings, blinds, curtains, drapes and light fittings, as well as furniture and personal effects. Unless chattels are specified in the Agreement they do not go with the property.
Conditional Agreement
A Conditional Agreement is a legally binding contract, but the property is not bought or sold until a certain condition or conditions detailed in the Agreement have been satisfied, usually by the Purchaser (e.g. selling your existing home by a set date or arranging mortgage finance by a certain date). Conditions can also be included by the Purchaser requiring the Vendor to do something by a specified date, e.g. that Settlement is to take place only on the condition that the house is painted, the windows repaired or that all the rubbish around the section is removed. (Note - conditions of the second type usually do not prevent the sale taking place but may allow the purchaser to delay settlement without penalty or claim damages if the conditions are not met in time).
Credit Cards
A card that allows you to buy goods, services and obtain cash advances on credit. For the purposes of assessing your borrowing capacity most lenders will assess a monthly payment amount equal to 5% of your credit card limits will apply irrespective of the balance currently owing on the credit cards.
Credit Lines
An arrangement by which a bank agrees to lend to the credit line holder during some specified period any amount up to the full amount of the credit line. For the purposes of assessing your borrowing capacity most lenders will assess a monthly payment amount equal to the amount of interest that would be due if the credit lines were fully drawn to their limits irrespective of the balance currently owing on the credit lines.
Cross Lease
A form of multi-unit tenure in which each owner has an undivided share of the underlying freehold as tenants in common, as well as a long term (usually 999 years) registered leasehold estate of the particular unit occupied.
Deposit
An amount or a percentage of the purchase price paid by the property purchaser when the agreement is signed. (Note - if paid to the real estate agent, the deposit will be held in trust by the agent and released to the Vendor only when the contract becomes unconditional).
Depreciation
A decline in the value of property and chattels (the opposite of appreciation).
Depreciation Building
A decline in the value of the building over time at an allowable rate by the IRD
Depreciation Chattels Fitout
A decline in the value of the chattels over time at an allowable rate by the IRD
Due Diligence
The process by which careful consideration of every aspect of a proposed asset purchase or lease is reviewed including in-depth financial, legal and physical investigation. Because the purchase or lease of an investment property can be complex, sale and purchase agreements and lease agreements are often conditional upon the completion of due diligence within a specified period to the satisfaction of the purchaser or prospective lessee.
Estimated Total Building Value
The estimated value of the building alone, excluding the land and location.
Equity
The amount of cash (including the deposit) the Purchaser puts into the property, i.e, the purchase price less the amount borrowed.
Finder's fee
A fee or commission paid for finding a property for a prospective investor.
Floating Interest Rate
Floating or variable interest rate is an interest rate that can move up or down according to the movement of wholesale interest rates including movements of the Overnight Cash Rate (OCR)
Freehold
Absolute ownership of land (sometimes known as a "Fee Simple Estate"). Buildings and fixtures on the land generally belong to the owner of the land.
Government Valuation (GV)
See Capital Value
Hybrid’s Margin
Hybrid low fee for sourcing the property.
Hybrid is not a real estate agent but a property dealer so we buy and sell properties for a profit.
However unlike most property dealers we disclose our very reasonable margin to you!
Instalments
The amount of the principal and/or interest that you pay regularly.
Interest
The amount the bank charges for the loan over the term of the loan.
Interest Rate
The current annual rate the bank charges in interest for the loan.
Land Information Memorandum (LIM)
A report provided by a Local Territorial Authority on request. It provides details on any matters affecting the land including:
- Compliance with resource management issues such as use, zoning, designations and building consents.
- Details on utilities such as water, sewerage, stormwater and any possible hazards on the site.
- Any outstanding charges and arrears
- Compliance with the Building Act
Leasehold
Occupation of the land under a lease whereby the land owner charges a rental on the land and the occupant (or lessee) obtains the right to occupy the land for a specified term at a specified rent. Any improvements on the land, i.e. building of a house or additions, legally belong to the occupant but the ownership is subject to the
terms of the lease.
Lenders Mortgage Insurance (LMI)
A form of insurance taken out by the lender to cover the lender in the event of a default by the borrower. The LMI premium is usually only payable by the borrower when the amount of the loan is over 80% of the property value.
Loan
The funds the buyer has to borrow (usually from a bank or other financial institution) to purchase the property, generally secured by a registered mortgage to the bank over the property being purchased.
Max Lend
The maximum percentage of the purchase price the bank is to lend.
Minimum Living Expense Allowance
The minimum annual expenditure the bank allocates to your spending habits.
Mortgage
A legal document containing the terms and conditions applied to the funds (money) lent to a person (or legal entity) for the purchase of property (real estate).
Mortgage broker
An intermediary between a borrower and a lender. A brokers expertise is used to help borrowers structure and find financing that they might not otherwise find themselves.
No Money Down
Buying a property with 100% finance.
Other fixed Commitments
All other fixed monthly financial obligations, such as hire purchases, family loans, unsecured loans etc
Passed in
A property will be passed in at Auction if it does not meet the set Reserve price.
Passive Cashflow
Annual rent less all annual expenses plus any tax rebate
Pre-Approved Home Loan Certificate
A certificate that confirms a home buyer is eligible to borrow a specified amount of home finance from a bank. These are usually issued by a bank before prospective buyers start looking for a home.
Pre tax cashflow per year
The cashflow generated from the property once all expenses are taken into consideration before the tax rebate/payment has been made for any depreciation allowance.
Principal
The total amount of funds you are borrowing.
Property Finder/Sourcer
Finds a property and negotiates a contract on it, the contract is then assigned over to the new purchaser. A real estate agent acts on behalf of the vendor whereas a property finder/sourcer acts on behalf of the purchaser.
Registered Valuation
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Often required by the Bank when evaluating a property’s suitability for a Mortgage
Rental Yield
The annual rental income derived from a property expressed as a percentage of the purchase price.
i.e.
If Purchase Price is $125,000
And Rent is $200 per week (x 52) = $10,400 p.a.
So yield is $10,400 divided by $125,000 = an 8.32% Rental Yield
Reserve Price
The reserve price is the amount, which is set by the owner of the property prior to the Auction. After the property meets the reserve price it will be sold to the highest bidder.
Sale & Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Settlement
A date is set for settlement of the sale and at this point the balance of the contract price is paid and ownership of the property transfers from the vendor (seller) to the buyer.
Subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Surplus Cashflow
Annual rent less all annual expenses but not accounting for any tax rebate
Surplus Cashflow per $100,000 Invested.
Surplus Cashflow figure divided by each $100,000 invested in the purchase.
This is useful when comparing the actual cash return on each property you consider buying as it means that irrespective of the purchase price of any property you are always comparing “apples with apples”.
i.e.
If Surplus Cashflow is $2,000 per annum
And Purchase Price is $125,000 ($125,000 divided by $100,000 = 1.25)
Then Surplus Cashflow per $100,000 = $2,000 divided by 1.25 = $1,600 per $100,000 invested
Tax Rate
The percentage at which your income is taxed.
Tax Rebate
The amount you receive from the tax department as a refund due to building and chattel depreciation or a loss on a property.
Term
The period of time over which the loan is to be repaid.
Title
The Certificate of Title (CT) is the document conferring legal right of ownership to the property. One copy is usually held by the lender until the loan is repaid, and the duplicate is held at the Land Registry Office in the appropriate area.
Title Search
A search of land transfer office records revealing details of property ownership and any financially interested parties in the property.
Trust
An arrangement established by declaration, will, or by order of a court, under which one party holds legal title to property belonging to another party, with a specific benefit in mind.
Trustee
One who manages assets held "in trust" for the benefit of another.
Unconditional Agreement
The legal contract that binds both the Purchaser and the Vendor to settle on the agreed date at the agreed price. It is either not subject to any conditions being satisfied or those conditions have already been satisfied. You should only consider entering into an Unconditional Agreement if and when you are absolutely sure you want to buy a particular property and you already have the full purchase price or "pre-approved" loan finance from a bank, i.e. Pre-Approved Home Loan Certificate. An Unconditional Agreement commits you in all respects to purchasing the property. The point at which all conditional clauses within a sale and purchase or lease agreement have been satisfied or dispensed and the transaction is contractually binding on both parties.
Unit Title
Form of ownership of apartments, flats and home units whereby each owner obtains full freehold ownership of his/her particular dwelling and any ancillary units attached to it (such as garage, parking space) as defined by the unit plan, referred to as a stratum estate. Each unit owner usually becomes a member of a body corporate in respect to administration of all units shown on a particular unit plan.
Vendor
The person legally authorised to sell a property, generally the legal owner or registered proprietor.
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