Glossary Of Terms

Financial Terms:

LOAN TO VALUE RATIO (LVR) – The ratio of the amount borrowed from the bank compared to the appraised value of the property.

BASIS POINT – One percent (1%) is the equivalent of 100 basis points.

CAPITAL GAIN – The amount by which the net proceeds from resale of a capital item exceed the book value of the asset

EQUITY – The interest or value that an owner has in an asset over and above the debt against it. For example, a home-owner has equity in that part of the value of his or her house above the amount borrowed from a lender.

FIXED INTEREST RATE – An interest rate that remains unchanged for a set period, for example, for the whole term of the loan, or the first year of a loan.

GEARING (LEVERAGE) – A measure of indebtedness i.e. the extent of borrowings as against the equity held by a person or company in an asset. Usually expressed as a ratio. Positive gearing refers to the magnification of financial gain resulting from borrowing when the cost of capital (borrowed) is less than the return on capital and leads to magnification of returns to equity. Negative gearing refers to the same relationships but where the cost of capital exceeds the return on capital. Persons would normally only negative gear in the expectation of positive returns in the future.

INTEREST – The payment made by a borrower to a lender in return for the loan of money, in addition to the principal repayments.

INTEREST ONLY LOAN – Only the interest on the principal is repaid during the term of the loan. At the end of that time the principal is repaid as a lump sum.

MARKET VALUE – Market value is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

MARKET PRICE – The price actually paid, or agreed in a contract to be paid, for an asset. It differs from market value in that it relates to an accomplished fact, whereas market value is and remains an estimate until proved. Market price may involve circumstances not normally included in market value.

YIELD – The derived percentage return of a property assessed from the net income and the market value or price. It is calculated by dividing the net income by the opening market value or price. 

Leasing Terms:

 

DEED – A document executed under seal. ie Deed of Lease

LEASE – An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time

LEASE TERM – The period of the lease.

LESSEE (TENANT) – A person / legal entity who receives the right to occupy and use a property under the terms of a lease.

LESSOR (LANDLORD) – The owner of a property who transfers the right to occupy and use property to another by way of a lease agreement

RENT – A payment made periodically by a lessee to a lessor for the use of premises.

RIGHT OF RENEWAL (ROR) – Where the tenant has the right to renewal their lease for a further term specified on signing of the initial lease.

FIRST RIGHT OF REFUSAL – The right granted to a person to have the first privilege to buy or lease real estate, or the right to meet any offer made by another.

RENT REVIEW – A periodic review of rental under a lease using a predetermined method. For example, an increase in line with Consumer Price Index (CPI) or in accordance with a market valuation

EXTENSION OF LEASE – An agreement extending or renewing the terms of a lease for a period beyond the expiration date.

GRADUATED LEASE – A lease which provides for a certain rent for an initial period, followed by an increase or decrease in rent over a stated period.

GUARANTOR – A person who undertakes to fulfil a contract if the main party defaults.

Property Terms:

 

FREEHOLD – Absolute ownership subject to limitations imposed by the state; also known as a fee simple estate. An estate held for perpetuity.

DEPRECIATION – An effect caused by physical deterioration, or obsolescence, or both; or In valuation terms, the writing down of the current cost of an asset to calculate its current value. The accumulated effect on the value of an asset due to physical, functional, technological and economic obsolescence.

FIXTURES and FITTINGS – Those parts of a property affixed to structures or land, usually in such a manner that they cannot be independently moved without damage to themselves or the property housing supporting or pertinent to them. Fixtures are usually included in a sale and commonly include items such as carpets and awnings.

GOING CONCERN – An operating business that will remain in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. Properties sold as a going concern may be treated differently for taxation purposes.