Top 10 Property Investment Terms Explained

November 7, 2018 5:24 pm

Property Investment is a great way to invest in the future and make money out of your money. Property experts RW Invest have put together the top 10 specific terms that property investors should understand and be aware of.

  • Appreciation

Appreciation is the amount that a property goes up in value over time. The opposite is Depreciation – when the value of a property goes down.

  • Capital Gains

Capital gains is the amount that a property has increased in value compared to how much it was bought for. For example, if you bought a house for £100,000 and sold it for £150,000 your capital gains are £50,000.

  • Conveyancing

Conveyancing is the legal process involved with transferring the ownership of a property. This regards all the legal documents and contracts that are part of the purchase of property.

  • Gross Development Value (GDV)

GDV is the estimated value of a property if it was sold on the open market under current conditions. This could be relevant to off plan developments or developments before renovation to find out the property’s worth after completion. It will show whether a development will be profitable and help with financial projections.

  • Gross Rental Yield

Gross Rental yield tells investors how much income is generated by a property before deducting operating costs. To figure out gross rental yield you times the monthly rent by 12 and divide by the purchase price. So, if your property cost £100,000 and earned £7,000 rent a year the gross yield would be 7%.

  • House in Multiple Occupation (HMO)

A HMO is a house which has more than one household, tenant or family in it. The government defines a HMO as somewhere where at least 3 tenants live, forming more than 1 household, where a resident shares toilet, bathroom or kitchen facilities with other tenants.

  • Loan to Value (LTV)

LTV is a term used to show how much of a mortgage is borrowed compared to the value of the property. For example, if you borrow £90,000 to buy a house worth £100,000 your LTV is 90%. A higher loan to value will be riskier for the lender.

  • Net Rental Yield

Net Yield is the profit a property makes every year minus costs divided by the price. For example, if you bought a property for £100,000, it had annual rent of £5000 and annual costs of £1000, you Net yield would be 4% as £5000 – £1000 is £4000 divided by £100,000 which equals 4%. Net rental yields are important for working out how much you will actually make from a property.

  • Return on Investment (ROI)

Return on Investment is the amount of profit generated from a property minus costs divided by the amount of money invested. This will only change if you have a mortgage, if you pay fully in cash it will be the same as net yield.

  • Stamp Duty

In the UK, stamp duty is a government tax that applies when a property is purchased. All second property purchases or more are subject to stamp duty and the rate varies based on how much the property is worth.

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