Definitions, Abbreviations and Acronyms

Property investment comes with its own vernacular. Throw in abbreviations and acronyms that creep in from the areas of taxation, financing, legal, construction, etc and you can see the need for this page.

A

ATO: Australian Tax Office

B

Benefit (insurance): Typically a payout resulting from a claim made against an insurance policy, with the payout amount defined by the policy.

C

Capital Gains Tax (CG): [THIS ENTRY REQUIRES REVIEW] Payable when you see a property and the property is worth more than what you paid (in simple terms... other factors may affect the adjusted purchase price). CGT is linked to the MTR: if you sell a property, your portion of the proceeds of that sale are considered taxable income and will be taxed at whatever tax bracket (MTR) you fall into. CGT is applied at 50% if you sell in the first twelve months but is discounted to 25% if you've held the asset for longer than 12 months. 

CGT: See Capital Gains Tax

E

Equity: The amount by which your property has increased in value since purchase plus the amount by which you've reduced the debt on that property.

F

FHOG: See First Home Owner's Grant

First Home Owner's Grant: Financial incentive provided nation-wide by the state and territory governments to stimulate the housing market by encouraging individuals and couples who have never owned their own home to buy. The grant amount varies depending on the economic landscape: when our brother and sister-in-law built their first home they received $7k each whereas when we built in 2006/7 we were entitled to $7k per couple. During the GFC additional money was made available to first home owners. See http://en.wikipedia.org/wiki/First-time_home_buyer_grant#Australia for more detail.

G

Gearing: In real estate, an investment property will be qualified as negatively geared, neutrally geared, or positively geared. In simplistic terms, a negatively geared property will cost you money after tax while a positively geared property will generate income. See also Leverage and Negative Gearing.

I

IP: Investment Property

L

Lender's Mortgage Insurance (LMI): A charge levied by the lender and payable by you if your borrowings exceed (typically) 80% of the value of the security offered. LMI insures the lender against a default on the loan--it does nothing for you other than ensure the lender will actually lend you the amount you need to borrow.

Leverage: Debt--typically secured by your home or an investment property.

Line of Credit (LOC): Typically an equity loan or a loan secured against the equity in a property. The amount of a LOC can vary from thousands to hundreds of thousands of dollars and up. The interest rate on a LOC is typically higher than that of a standard home loan but it enables you to access equity without selling (and paying capital gains tax).

LMI: See Lender's Mortgage Insurance

Loan-to-Value Ratio (LVR): Expressed as a percentage, LVR indicates how much debt you have in relation to the value of the relevant securities (i.e. your property portfolio). LVR is typically used to determine whether you'll be required to pay lender's mortgage insurance.

LOC: See Line of Credit

LVR: See Loan-to-Value Ratio

M

Marginal Tax Rate (MTR): The rate at which the ATO taxes your income. 

MTR: See Marginal Tax Rate

N

Negative Gearing: When the costs to hold a property exceed the rental income plus tax benefit. 

O

Offset Account: A transaction account linked to mortgage so any funds held in the offset account reduce the principal against which you are charged interest on the mortgage. The interest savings are not taxable.

P

PAYG: [This entry requires additional information] Pay as you Go

PPOR: See Principal Place of Residence

Principal Place of Residence (PPOR): The dwelling in which you live, receive mail, and for which you pay utilities. Subject to special tax treatment by the ATO if you sell (i.e. you won't be subject to capital gains tax). You may be referred to as the "owner occupier".

Premium (insurance): The dollar cost for insurance coverage.

S

Salary Continuance Insurance: [TODO]

SCI: See Salary Continuance Insurance

Self-Managed Super Fund (SMSF): A superannuation fund controlled and managed by you rather than a super company. While your SMSF can hold property and even borrow to acquire property it can't improve that property (i.e. build a house on a block of land). Super is taxed differently to your regular income.

SMSF: See Self Managed Super Fund

Superannuation: [TODO]

T

Total and Partial Disability Insurance (TPD): [TODO]

TPD: See Total and Partial Disability Insurance

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