Category Archives: Definitions

Capital Gains Tax in Real Estate Investing

capital_gains_tax

If you’ve heard of Capital Gains Tax (CGT) but are not entirely sure what it is, I’ll give a quick explanation.

Capital Gains Tax is imposed by governments on individuals who sell an asset (such as a property, shares or business) for a higher price than what they purchased it for.

What are Vacancy Rates?

property_vacancy_rates

What are vacancy rates and why are they an important indicator in property investing?  The vacancy rate is a measure to show how many rental properties in a given area are without tenants (vacant) over a defined time period.

Flipping Real Estate

stylish_two_level

In general, flipping is buying something and reselling it for a higher value.  When it comes to real estate, this is also true and normally requires a renovation to get the higher resale price.

If you don’t quite follow, let me break it down:

 

  1. You purchase a dumpy or run-down property
  2. You fix it up, renovate and improve it
  3. You put it back on the market after fixing up for a higher value (the flip).

The idea is to make a good profit in a relatively short period of time.

What is Rental Yield?

house_money

Before I start, I should mention my easy Rental Yield Calculator here so you can verify any investment property yield quickly.

Whenever you are researching an investment property to buy, it is important to determine the rental yield (sometimes known as rental return) of the property.  The rental yield will be a big factor in how much cash-flow you receive (or lose) whilst owning the property.

So what is rental yield and how to calculate rental yield?  Rental yield is simply a ratio that shows the amount of rental income received in a year relative to the purchase price of the property.  For example, if your property would rent for $1000 per month, you would times that by 12 to get the annual income figure of $12,000.

What is Loan to Value Ratio?

mortgages_word_cloud

Loan to Value Ratio, often abbreviated to LVR is quite self-explanatory but might take you a little while to get your head around if you haven’t thought about it before.

Put simply, if you are buying a property worth $1,000,000 and the bank will lend you a maximum of 90% Loan to Value Ratio, then this means they will lend you $900,000 and you will have to put in the remaining $100,000.

What is a Property Cycle?

property_cycle_down

A Property Cycle is simply a term given to the different phases that a property market experiences over time.  Ultimately, any one property market will be subject to a multitude of factors that will determine whether prices are going up, down or sideways but the property cycle can give an indication of what is going to happen next.

And of course, if we can predict the future in a property market, there is money to be made.

But take it with a grain of salt as we don’t want to accept the future of the property cycle to be our only indicator of buying a good investment.

What is Home Equity?

Grow wealth with equity and compounding

Equity is the key to building wealth through property investment.

Simply put, home equity is the portion of your property that you fully own. Most people require a mortgage to buy a property which means a bank or finance institution will lend most of the amount required to buy the property and you would fund the remainder with a deposit.

So if the bank loans you 90% for a property you want to purchase for $100,000 they will fund $90,000 and you will fund the other $10,000…