Glossary Of
Property Investment

Asset: Something an investor purchases or owns in the hopes of it producing future returns (asset types include shares, bonds, cash or property).

Boarding house: A property with several individual rooms or studios with shared common facilities (kitchen, lounge, and dining) rented to individuals on separate tenancy agreements.

Capital growth: The increase in value of a property over time in line with market increases.

Cashflow: The remaining cash balance of a rental property after deducting expenses (mortgage, rates, and maintenance) from the gross rental income. Cashflow on an investment property can either be positive or negative.

Central Bank: The governing body that regulates the financial sector and sets monetary policy. See also: Reserve Bank of New Zealand.

Code Compliance Certificate: A statement issued by your local council confirming the building work on a property has been completed in line with the Building Consent and meets Building Code requirements. This does not indicate the property is ‘finished’ in terms of being ready to move in.

Commercial bank: A financial institution (such as BNZ, Westpac, ANZ, and ASB) that offers money management services, facilitates money transactions, and offers lending by way of home loans or short-term loans (e.g. credit cards and revolving credit).

Debt consolidation loan: A loan that combines multiple existing debts into one. It can be used for to debts such as credit cards, personal loans, hire purchase or store cards.

Debt-free asset: An asset which has no debt secured against it.

Debt-to-income ratio (DTI): A calculation that describes your income (rent income, salary or wages) in ratio to your debt repayments. Often used by lenders to determine how much someone might afford to borrow.

Depreciation: Describes the loss of value on an asset over time. Depreciation can be used as an allowance you can claim to cover the costs of wear and tear on your property’s chattels, but not on the land or buildings. This can be claimed as an expense against rental income.

Dual-key property: A property with two separate adjoining units purchased (each with their own entrance) under a single legal title.

Dwelling: A self-contained building or structure used as a place of residence.

Equity: The difference between what your property is worth and the mortgage that you owe on that property. Property value – mortgage = equity

Financial adviser: A person who is legally qualified to provide advice about investing, insurance, financial planning, and other financial services. They must be registered on the Financial Services Providers Register to legally provide financial advice in New Zealand.

Fixed rate/Fixed interest rate: An agreed rate that you will pay a lender or bank for a set period of time.

Floating rate/Floating interest rate: An agreed rate that moves up and down in line with wider market changes.

Gross yield: The total rental income an investment property generates before expenses are factored in. This is calculated by dividing the current value of the property by the annual rent generated.

Growth property: A property that may quickly increase in value over time but may not generate as much rental income as a yield property would.

Healthy Homes Standards: The minimum standards a rental property needs to meet in New Zealand to ensure healthy habitation for tenants.

Home and income/dual income property: A property which includes more than one dwelling under a single title.

Interest deductibility: The ability to deduct the interest costs associate with the property’s mortgage to reduce how much tax you have to pay on that property.

Insurance premium: The amount you pay for an insurance policy, usually split by monthly or annual payments.

Interest-only loan/Interest-only mortgage: A mortgage structure where you only pay the interest portion of the loan, rather than paying off any of the principal from the initial the loan. Banks tend to provide interest-only for a fixed period of time (usually 5 years). Any extension to a mortgage being interest-only must be renegotiated when the initial period expires.

Leasehold: An agreement to purchase exclusive use of land for a specific period of time, typically through a lease agreement. A person who buys a leasehold may own property on the land, but not the land itself.

Leverage: Leverage is an investment strategy of using borrowed money to buy an asset in order to generate higher returns. In the case of property, you might have a 20% deposit and borrow 80% of a property’s value, but you keep 100% of the gains on that asset (less any applicable taxes)

Loan-to-value ratio (LVR): The proportion of a property’s value that a bank will lend against. The most common initial LVR tends to be 80% – where the bank has lent you 80% of the property’s value in order for you to purchase the property.

Loan-to-value ratio restriction (LVR restriction): A restriction set by the Reserve Bank that limits the amount a bank can lend in relation to the property value.

Look-through company (LTC): Owners of a look-through company pay tax on the company’s profits at the personal tax rate of the shareholders but can also use the company’s losses to offset other income. If an investor uses an LTC to purchase an investment property, is effectively reduces the amount of tax they need to pay.

Losses carried forward: When your rental property makes a loss for the year (expenses higher than income) that loss can be used to offset against future taxable income.

Minor dwelling: An additional residential unit built on the same property. Typically used as a ‘home and income’ investment.

Mortgage: A type of loan used to purchase property.

Mortgage adviser: A financial adviser who helps you through the process of financing a property. They may recommend the right bank and mortgage structure for you and will deal directly with the bank on your behalf at no cost to you.

Multi-income property: A property with two or more households on separate tenancy agreements living on the same site.

Negative gearing: A negatively geared property is one where the costs associated with owning and maintaining that property are higher than the income that property generates.

Net assets: The total sum of your assets minus what you owe. In the case of an investment property, this is the total value of your property portfolio, minus what you owe on the mortgages associated with those properties.

Net yield: The total rental income your investment property generates minus expenses.

Non-bank lender: A business that offers lending but is not registered as a traditional bank.

NZ Property Investors’ Federation: The overarching body that represents New Zealand property investors.

Offset facility/Offset loan: A loan that’s linked to your savings account to offset the amount of interest you pay. Similar to a revolving credit, except there are two bank accounts involved – your savings account (used to offset the interest) and your mortgage on a floating rate.

Owner-occupier: A person who resides in the home they own.

Passive income: Income derived from your rental property that doesn’t require you to work in order to generate that income.

Principal and interest loan/Principal and interest mortgage (P+I): A loan structure where you pay both the interest on your loan as well as pay some of the principal loan amount with every mortgage payment.

Property accountant: An accountant that handles the accounting tasks of a property. They record cash inflows and outflows to estimate total profits or losses on your investment property and can recommend the best ownership structure to reduce the amount of tax you have to pay.

Property investor: A person who purchases property with the intent that it will generate a return or passive income.

Property Investors’ Association: An organisation that aims to educate and inspire members on property investment.

Property manager: A person or business that is hired to manage the day-to-day affairs of a rental property. They act on behalf of the owner to find and liaise with tenants, coordinate building maintenance, and other duties involved with running a rental property.

Real Estate Institute of New Zealand (REINZ): A membership-based organisation that acts on behalf of real estate agents and provide data insights on property in New Zealand.

Refinance: The process of switching your home loan to another lender.

Reserve Bank / Reserve Bank of New Zealand (RBNZ): New Zealand’s central bank which regulates the New Zealand financial sector and sets monetary policy.

Residential Tenancies Act: The set of rules and regulations that defines the rights and obligations for landlords and tenants in New Zealand.

Revolving credit: An all-in-one bank account secured against a property that operates like an overdraft up to an agreed limit. Interest is calculated daily and is generally the same as a floating or variable rate.

Sale and purchase agreement: A legally-binding contract between you and the vendor when purchasing a property.

Student accommodation: A multi room property rented to students. Often also referred to as ‘halls of residence’.

Sunset clause: A condition in a sales and purchase agreement that allows the contract to be cancelled if work isn’t completed within a certain timeframe.

Sale and purchase agreement: A legally-binding contract between you and the vendor when purchasing a property.

Student accommodation: A multi room property rented to students. Often also referred to as ‘halls of residence’.

Sunset clause: A condition in a sales and purchase agreement that allows the contract to be cancelled if work isn’t completed within a certain timeframe.

Uncommitted monthly income (UMI): A calculation of the amount of income you should have left over once your fixed costs (mortgaged and bills) have been paid. Often used by banks to determine how much they’re willing to lend you.

Useable equity: The amount of money within a property that could be used to access additional funds for purchasing an investment property.

Vacancy: The period your investment property is unoccupied by a tenant and therefore not earning income.

Variable rate/Variable interest rate: The agreed rate that moves up and down in line with wider market changes. Also referred as a ‘floating rate’.

Vendor: The legal seller of a property.

Yield: This is the annual return you get on your investment, as a percentage of what the property cost. There is a different between gross yield and net yield. Gross yield: A $700,000 property generates $500/week (500×52) / 700,000 x 100 = 3.71% yield Net yield: (Annual rental income – property expenses (excluding interest costs / what property cost = net yield. As a rough guide deduct 1 – 1.5% from the gross yield.

Yield property: An investment property configured to produce high rental income but may not grow in value as fast as a growth property.