Key definitions of properlytics items
PROPERTY VALUE (PURCHASE PRICE AND MARKET VALUE)
The property or market value refers to how much the property is worth. (i.e how much you could potentially sell it for)
ACQUISITION COSTS
These include your solicitor’s conveyancing fees and, where applicable, State Government stamp duty charges. In Australia, stamp duty varies
from State to State and is a function of purchase price whereas, in New Zealand it has been abolished on all property transfers since May
1999. Conveyancing costs may also be dependant on purchase price and may be negotiable. I some States of Australia (e.g A.C.T.), purchase
costs are tax deductible in the first year of the investment, though normally they will only be taken into account in Capital Gains Tax
calculations in the year of sale.
FUNDING STRUCTURE (INVESTMENT AND LOAN/S)
Your initial investment is usually just the total of all monies outlayed at the time of purchase. These may include contributions toward
any, or all, of the costs listed below. The remainder will largely determine the size of the loan. If you have sufficient equity in other
property or in a portfolio of property, it is technically possible to outlay nothing, and actually borrow the the entire amount required.
(e.g. the purchase price, acquisition costs, loan costs and even things like additional amounts to cover fittings and or furniture packages
as an example).
ECONOMIC ASSUMPTIONS (CAPITAL GROWTH AND INFLATION RATES)
Rate of capital growth is your anticipated annual compound rate of increase of the property value. It will undoubtedly vary substantially
over the short term, but over the long term (7-10 years or more), it has generally been approximately 2-3% above the rate of inflation.
EQUITY
The equity is the difference between the property value and the loan. The equity increases in line with the increasing property value in the
case of an interest-only loan. For a principal and interest (P&I) loan, it also increases with the reduction in debt.
INTEREST COSTS AND TYPE OF LOAN
The type of loan can be either interest only (IO) and/or principal and interest (P&I). Repayments for interest only loans, as the name
suggests, consist of paying or covering the interest component only. Repayments for principal and interest loans include a component of the
principal loan amounts as well.
INVESTMENT OUTCOME (RENT)
The potential annual rent is simply the rent per week times 52 weeks. The actual annualised rent must account for periods of vacancy
throughout the year. Annual rents are assumed to increase in line with inflation.
ANNUAL RENTAL EXPENSES
These are all the real operating costs associated with the investment property.
DEDUCTIONS (CASH AND NON-CASH DEDUCTIONS)
Deductions (Cash and non-cash deductions): Cash deductions include interest and rental expenses and further deductible acquisition costs.
Non- cash deductions refers to the depreciation of the building and fittings represents the capital allowance on the construction costs.