Property Investment Terms: A – C
Asset Class: An asset class is category of assets, which could be a variety of things such as equities, cash, shares, and securities. Property is an example of a tangible asset.
Buy-to-Let (BTL): Buy-to-let is the act of purchasing a property specifically to then let it out.
Build-to-Rent: Build-to-rent is an emerging sub-market in private rented residential stock, designed specifically for renting rather than for sale, typically owned by institutional investors and managed by specialist operators.
Capital: Capital is an accumulation of a person’s financial assets that are at their disposal such as cash, as well as assets like cars or properties that, if sold, could be liquidated into disposable capital.
Capital Appreciation/Capital Growth: Capital appreciation (also known as capital growth) is the increase in the price/value of assets such as properties, which could take place gradually over the lifecycle of an investment. Essentially it is the difference between the purchase price and the sale price of your asset.
Capital Gains Tax: Capital gains tax is the tax you pay on the profit made through the disposal of an asset that has appreciated in value. You can dispose of an asset by selling it, giving it away as a gift, swapping it for something else or receiving compensation for it (e.g. through the insurance pay-out if it has been lost or destroyed).
Cash Flow: Cash flow is the NET amount of cash and cash equivalents being transferred in and out of a company or bank accounts.
Completion: Competition in property refers to the date in which the property is legally transferred to the buyer, as outlined in the exchange of contracts. This could also refer to off-plan properties when construction has been completed and the building is ready to accept tenants.
Conveyancing: Conveyancing is the process of reading through and signing documents that transfer the ownership of a property from its current owner (seller) to the buyer, usually conducted by a conveyancer or solicitor.
Property Investment Terms: E – H
Energy Performance Certificate (EPC): A energy performance certificate (EPC) is an energy efficiency rating for a property, ranging from A (most efficient) to G (least efficient). An EPC is valid for 10 years.
Equity: Equity is the value of the property without the cost of liabilities such as mortgage repayments.
Exchange of Contracts: During property investment, exchange of contracts refers to the point at which contracts are exchanged between solicitors and signed by both the property’s buyer and seller.
Freehold: Freehold is the permanent and absolute tenure of land and/or property, so the freeholder owns both the property and the land it is built on outright.
Gross Development Value (GDV): Gross development value (GDV) is the projected value of a property development once it is completed and is used by property developers to calculate the profit percentage of a site.
Gross Profit: Gross profit is the profit made from the sale of a product, before deducting other costs such as taxes and interest payments.
Ground Rent: Ground rent is the rent paid by the leaseholder to the owner of the land on which the property stands (i.e. the freeholder), usually paid on an annual basis.
Houses of Multiple-Occupation (HMO): A property is considered a House of Multiple Occupation if at least 3 tenants live in it, forming more than one household, and the tenants share communal areas like bathrooms or kitchens with other tenants.
Property Investment Terms: I – N
Income Tax: Income tax is the tax levied directly on personal income, both earned (wages, salaries and commission) and unearned (dividends, interests and rent). The rate of Income Tax payable is dependent on how much of your taxable income is above your Personal Allowance within the tax year. The three tax brackets in the UK are:
– Basic rate (20%)—taxable income above your Personal Allowance is between £0 to £31,865
– Higher rate (40%)—taxable income above your PA is between £31,866 to £150,000
– Additional rate (45%)—taxable income above your PA is over £150,000
Inflation: Inflation is the rate at which the general level of prices of goods and services is increasing within an economy over a set period of time. So when prices are growing, each unit of a currency buys fewer goods/services.
Landlord: A landlord is the legal owner of a buy-to-let property that is then let out for tenant occupation.
Lease: A lease is the length of time a tenant occupies their rental accommodation, after which time the lease reverts back to the owner. The length of a rental lease is usually agreed between the tenant and landlord in the form of a signed contract at the start of a tenancy.
Leasehold: Leasehold is the act of purchasing the lease on a property from the freeholder, whereby the leaseholder will pay a designated annual ground rent to retain ownership of said property.
Management Company: A management company is a third-party company hired by the landlord to let and manage the investment property on their behalf.
Management Fee: A management fee is a fee a management company charges for their services.
Net Profit: Net profit is the final profit after all other costs have been deducted, such as maintenance costs, management fees, taxes and interest payments.
Property Investment Terms: O – Z
Off-Plan Investment: Off-plan investment is the investment into a development in advance of the actual structure of the property being built.
Private Rented Sector (PRS): The private rented sector is a property sector made up of privately rented houses.
Purpose-Built Student Accommodation (PBSA): Purpose-built student accommodation (PBSA) is a popular style of accommodation purposefully built for housing students.
Service Charge: A service charge is a charge paid by the leaseholder to the landlord for services which the landlord is obliged to provide under the lease terms.
Stamp Duty Land Tax: Stamp duty land tax is the tax you pay when you buy a property. There are now two different types of stamp duty rates: one for homeowners and one for the purchase of a second home not used for owner-occupation (namely buy-to-let or second homes). For owner-occupiers, you pay nothing on the first £125,000 of the property price, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% above £1.5million. For non-owner-occupiers, you pay an additional 3% levy on top of this slab rate.
Tenancies: A tenancy is the length of time a tenant is in the rental accommodation.
Tenancy Agreement: A tenancy agreement is a legal document signed by the tenant governing their time in the property.
Tenant: A tenant is a person who occupies a rental property, as per the conditions of the Tenancy Agreement
Yield: A yield is the amount of cash that returns to you as the owner of a property in percentage terms.