LMI, Negative gearing, Vacancy rate, CTG…….

Every wonder exactly what all these terms mean?

Sometimes the jargon used amongst property investors can be a little daunting, so we thought we would give you a very quick overview of the most popular terminology used.

Remember, the team at RPA are always here to help, so please feel free to contact us if you have any further questions.

Lenders Mortgage Insurance (LMI) – is a one off payment paid to the lender (ie finance company or bank) by the borrower. The payment is usually made at the time of settlement. Its purpose is to protect the lender in the event that the borrower cannot make their repayments. This is usually required when the lender has less than a 20% deposit.

Negative gearing – is a term used for all the associated costs, including that of interest paid on the loan for the investment, when it is greater than the earnings you are receiving from the investment. These costs can be claimed during tax time.

Positive gearing – also known as a “cash flow property” is when the investment is in surplus when considering the costs associated with the property.

Offset account – is a everyday transaction account that can be linked to your home loan or investment property loan.

Stamp duty – is a one off tax payment paid by the buyer of the property. The cost can vary depending on which state you purchase the property. It can also be referred to as transfer duty or general duty.

Gross Rental yield – is the annual rental income of the investment property articulated in a percentage format. It is usually what is communicated to the investor as their return before any associated expenses with the property.

Valuation (VAL) – is when a qualified valuer inspects and assesses the property to determine the value of the property and in turn what it may sell for. Property valuations can cost anywhere between $100 to $600 but this cost is normally covered by your bank when applying for a loan.

Landlord protection insurance – is a type of insurance that landlords should take out to help protect themselves against any financial risk (such as loss of rent or malicious damage) associated with their investment property.

Fixed interest rate – a fixed rate of interest in an unchanged rate of interest on a loan for a set period of time. The set period of time does not have to be for the entire loan, however, it is an agreed set time. This allows for the borrower to accurately calculate their future payments.

Capital gains tax (CGT) – is a tax that occurs when you have made a profit on an investment, after the property has been sold which is referred to as capital gains. It is not a separate tax, it actually forms part of your income tax. This tax is only payable in the financial year that the investment property has been sold.

Depreciation – is considered to be the diminished value of an asset. In regards to an investment property, the depreciation can be claimed during tax time.

Equity (EQ) – is the difference between the market value of your property and the balance of your mortgage.

Vacancy rate – this is a statistic that is usually expressed as a percentage format. Its purpose is to indicate the number of vacant rental properties based on a particular area.

Principal & Interest (P&I) – is the amount of money that has been borrowed from the bank which also factors in interest payments on the loan.

Interest Only Loan (IO) – are loans that you only pay the interest on the amount borrowed, not the principal of the loan. This is only for an agreed amount of time usually between 3 to 5 years.

The team at RPA strongly believe that education and support are the key to building wealth. We offer you guidance and support and are always easily accessible when you need that helping hand.

You don’t know what you don’t know!!

One of the biggest mistakes people make when embarking on a new challenge is trying to take their journey alone. You will go much farther, faster, when you have the right people by your side.

If advice and experience in property is something that you’re looking for, the team at RPA have been helping families for over 20 years achieve their financial goals through property investment, and we would love to point you in the right direction.

Our free 30-minute strategy session with RPA is your first simple step to starting your property investment journey.

More than a consultation, your first meeting with an RPA property expert is about discovering how we can meet your real estate investment goals that suit your individual needs.

During the discovery session, we can illustrate several general examples of how property investment works and the benefits of working alongside RPA.

When you are ready to take the first step, RPA will facilitate meetings with fully qualified financial brokers, planners and accountants to make the entire process seamless.

*The above information should not be taken as constituting professional advice from Residential Projects Australia. Any information that is presented is for educational purposes. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.
Residential Projects Australia is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.