Whether you’re stepping into the property market for the first time or you're an experienced investor, the real estate market can feel overwhelming with ever-changing trends and a maze of industry jargon. To help you make informed decisions, it's essential to understand these key terms.
READ: Exploring property transactions: an A-Z guide
Geoff Perkins of Collins Residential breaks down some of the most important property terminology, helping you navigate your real estate journey with confidence.
Return on Investment (ROI)
ROI is a fundamental metric for any investor, measuring the profitability of your investment. It is calculated by dividing the net profit by the initial cost of the investment. A higher ROI indicates a more profitable investment, making it a critical factor in evaluating property deals.
Loan to Value (LTV)
LTV ratio compares the amount of your mortgage to the property's value. It is a key indicator for lenders to assess risk. A lower LTV typically results in better loan terms and lower interest rates, as it signifies lower risk for the lender.
Equity
Equity represents the portion of the property that you truly own, calculated as the difference between the property’s market value and the remaining mortgage balance. Building equity is essential for increasing your net worth and financial stability.
Yield
Yield, often used in the context of rental properties, measures the income return on an investment. It is expressed as a percentage of the investment cost. Knowing your yield helps assess the profitability and sustainability of your rental property investments.
Appreciation
Appreciation refers to the increase in a property's value over time, influenced by factors such as market conditions, location, and property improvements. Understanding appreciation helps in predicting future value and potential returns.
While understanding some key terms is helpful, there are also some nuances to be aware of, such as the importance of location. It is imperative that when choosing a location to buy property, you consider the growth potential of the area or region. Here on the North Coast, we are fortunate to be part of a bustling economic node whose future looks bright and promises economic growth and prosperity
Mike Greeff, CEO of Greeff Christie’s International Real Estate previously shared some real estate terms.
Greeff explains the real estate terms:
1. Term: OTP - Offer to purchase
This very important document is submitted once a prospective buyer is ready to make an offer on a property. This document will include the buyer’s intention to purchase, the price offered for the property as well as further information on the seller, including his or her ID number among other things. The offer to purchase is a legally-binding document once all parties have signed and initialled.
2. Term: CMA - Comparative Market Analysis
A Comparative Market Analysis is performed by a real estate agent, where he or she conducts a study and produces a report based on the selling price of similarly-priced homes within the seller’s area. This report then assists the agent in aiding the seller with choosing a realistic price at which to list their property. The report is not purely factual, and it takes into consideration the expertise of the real estate professional.
3. Term: Transfer fees/duties
Fees that are payable in order for the property to be transferred from the seller to the name of the new owner. Transfer fees often also include conveyancing fees and registration fees payable to attorneys and conveyancers involved.
4. Term: CGT - Capital Gains Tax
The calculation of this tax is based upon the income (from all sources) that is received during the financial year.
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