Property Investment Glossary
Property investment is confusing enough without all the industry terms and jargon that it can seem everybody knows but you!
Below is a list of words and phrases commonly heard in New Zealand property investment and the standard abbreviations used to describe them.
|Term or Phrase||Abbreviation||Definition|
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 commision 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.
|Asbestos Containing Material||ACM||
Ministry of Health LINK
|Body Corporate||BC||An organisation to allow the owners of individual units in a multi-unit property to look after common aspects of the property such as common spaces, staircases, lifts and the building itself. It is common for the BC to insure the property. LINK|
|Code Compliance Certificate||CCC||A statement issued under section 95 of the Building Act 2004, that building work carried out under a building consent complies with that building consent. 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:
|Cashflow Negative||CF-||As above, however after subtracting all costs there is a resulting short-fall.|
|Certificate of Acceptance||COA||When a council retrospectively allows compliance of unconsented building works.|
|Certificate of Compliance (Electrical)||COC (Electrical)||LINK|
Certificate of Title
Prove the ownership of land and the rights and restrictions that apply to the land.
They have been recorded electronically since 2002. LINK
|Council Valuation||CV||(AKA Goverment Valuation or "GV")|
|Cross Lease||-||A cross lease is where a number of people own an undivided share in a piece of land and the homes that they build on the land are leased from the other land-owners. The houses are usually flats or townhouses and this type of title was popular from the 1960's to the 1990's. More info here - LINK|
|Debt to Income ratio||DTI||The ratio of your annual income to your overall debt.|
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
|Electronic Valuation||E-Val||Valuation generated from publicly available data about a property and property market.|
|Effective Annual Return||EAR|
|Equity||-||Your "net position" in any property, so the value of the property minus any mortgages against it.|
|Gearing||-||"Positive gearing" or "negative gearing" is another way to say if a property is net cashflow positive or negative after subtracting annual costs from rents.|
|Government Valuation||GV||Same as CV|
The ratio of your rent to the cost of the property. Usual formula is: (Weekly rent x 52 weeks) / (Total purchase + renovation cost).
Typically, expressed as a % and used as a high level cashflow comparison for residential properties.
|Inland Revenue Department||IRD||The public service department of New Zealand charged with advising the government on tax policy, collecting and disbursing payments for social support programmes, and collecting tax. LINK|
|Installation Control Point||ICP||Used for electrical Metering|
|Interest Only (mortgage)||IO||When you pay only interest on your debt and not principal.|
|Investment Property||IP||A property owned for the purpose of future financial gain. A family home that goes up in value is usually not considered an investment property.|
|Joint Venture||JV||A business venture between two or more parties to achieve a certain goal.|
|Licensed Building Practitioner||LBP||A builder qualification required to do certain structural building work in New Zealand. LINK|
|Land Information Memorandum||LIM||A LIM is a comprehensive report that has all relevant information the Council knows about a property or section. LINK|
|Land Information New Zealand||LINZ||Government organisation that among other things manages land titles. LINK|
|Landlord||LL||The owner of a rental property. Might be an individual or a legal entity such as a company or trust.|
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.
|Look Through Company||LTC||IRD page LINK|
|Loan to Value Ratio||LVR||
The ratio of your debt against a property to the value of the property. E.g. A $300,000 mortgage on a $600,000 property is a LVR of 50%.
LVR is a tool used by the reserve bank to control lending limits.
|Methamphetamine Test||"Meth" or "P" Test||A test for traces of methamphetamine manufacture or usage in a property. Often done during due diligence when buying or in between tenancies.|
"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.
|Owner Occupier/Occupied||OO||When the owner of the property lives in the property.|
|Principal & Interest||P&I||A home loan where you pay interest and principal off over time.|
|Price By Negotiation||PBN||A real estate marketing tactic where no set price is set. It invites buyers to enter into a negotiation with vendors.|
|Price on Application||POA||A real estate marketing tactic where the price is disclosed upon contacting the vendor or their agent.|
A third party specialist responsible for managing a rental property. PM services include:
|Primary Place of Residence||PPOR||AKA Princial Place of Residence, also PPR. Refers to owning your own home.|
|Pre-Contract Disclosure Statement||-||A document signed by a property vendor and the licensed agent that discloses all known defects, hazards, potential issues or the existence of inspection reports on the subject property. Usually given to prospective buyers of a property before they present an offer.|
|Pre-tax Cashflow||PTCF||Your resultant cashflow after deducting interest, rates, insurance, maintenance and other expenses such as property management (if any).|
|Real Estate||RE||Can also mean real estate agent.|
|Real Estate Authority||REA||
The regulating body of Real Estate Agencies in New Zealand. Agents are required to be licensed under the REA. LINK.
|Return on Equity||ROE||
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.
|Return on Investment||ROI||Similar to the return on equity, however considers cash/equity paid in and not capital gains. AKA Return on Capital Invested. Your capital might be your deposit and annual principal repayments.|
|Residential Tenancies Act||RTA||Link (to tenancy services)|
|Registered Valuation||RV||A valuation on a property's value that has been carrier out by a licensed and registered valuer. LINK|
|Real Estate Institute of New Zealand||REINZ||A membership organisation for real estate industry professionals in New Zealand. Collects and disseminates sales data and provides up to date contract templates among other services. LINK|
|Statement of Insulation||SOI||LINK|
|Sales & Purchase Agreement||S&P, SNP, SPA||
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.
|Tenancy Agreement||TA||A tenancy agreement is a contract between a landlord and a tenant. It records all the key things that a landlord and a tenant have agreed to about the tenancy. LINK|
|Tenancy Information New Zealand||TINZ||Tenants information database. Used for performing tenant application checks. LINK|
|Unit Title||-||Unit title owners own a defined part of a building, such as an apartment, and share ownership in common areas such as lifts, lobbies or driveways. LINK|
Many thanks to Matthew Gill for the idea to gather these phrases in one place.
To suggest any additions or edits, please email Nick.
We present this for educational purposes only and make no warranties at any time that the items on the list will be current or correct. Please conduct your own independent research when considering a property investment and please read our disclaimer.