Property Investment Glossary

A contract between you and a licensed real estate agent for that agency to market and sell your property.

The agreement will contain important information such as the commission payable on the sale, a description of the property, any marketing costs to be incurred by the vendor and more.

It is important to read this guide and seek legal advice when entering into any agreement.

Ministry of Health LINK

Worksafe LINK

When taking the annual rent and subtracting operating costs, loan interest and vacancies results in a net positive amount left over.

Common assumptions when assessing a property are:

• Take the mid-range of a rent appraisal
• 100% lending
• Interest only loan at current rates
• Include typical vacancy rate
• Include rates
• Include standard home insurance
• Include property management (note many investors self-manage).

Prove the ownership of land and the rights and restrictions that apply to the land.

They have been recorded electronically since 2002.

A comprehensive appraisal of a property undertaken by a prospective buyer to confirm (among other things) physical state, legal standing, rental potential and actual market value. Many buyers get final lending approval from their bank during their DD phase.

Here is an article about how to do good DD on a property - LINK

Leverage in investment is when you achieve an outcome using a resource that is not your own, usually paying a fee to do so. To buy a property you leverage the bank's money and pay interest, you also leverage various expert's time and experience and pay them a fee.

A deep-dive on leverage and the benefits and risks can be found here - LINK.

"Negative gearing" is another way to say if a property is net negative after subtracting annual costs from rents. Negative gearing is often promoted as a tax strategy to hold properties that might make cashflow losses annually but are projected to grow in value, because of the ability to offset your loss against other income. [June 2018: The government has tabled legislation to ring-fence tax benefits to the property itself LINK.

This can be a risky strategy if the market does not appreciate as projected or annual costs (in particular interest, vacancy or repairs) increase.

The ratio of your rent income after fixed expenses, to the cost of the property. Usual formula is: (Weekly rent x 52 weeks - Rates - Insurance - Maintenance) / (Total purchase + renovation cost).

Usually expressed as a percentage.

• Periodic documented inspections and maintenance recommendations
• Advertising for tenants
• Vetting prospective tenant applications
• First point of contact for tenants when there are issues at a property
• Managing the disputes process with a tenant

The regulating body of Real Estate Agencies in New Zealand. Agents are required to be licensed under the REA. LINK.

A year-on-year indication of how efficiently you are using your equity.

The net income from a property as a ratio to the equity or "net worth" in the property. Calculated annually and expressed as a percentage. Annual gains in equity can be included.

A legally binding contract between you and the other party involved in buying or selling a property.

It is important to read this guide and seek legal advice before signing any contract.

The act of legally dividing a parcel of land into smaller lots. Subdividing a multi-step process that can take several months and is usually completed with the assistance of a surveyor. New titles need to be issued before council will consider building consent applications on the created lots.

Subdividing is considered a "taxable event" by the IRD, seek expert advice from a property accountant before you subdivide.