Breaking into the property investment industry can be made harder by the legal and industry-standard jargon used in contracts and on property advertisements. To help out, we’ve compiled a list of some of the most commonly used terms and phrases from the property investment industry to explain what they all mean.
The annualised return is the average return from an investment per year over an extended period.
An asset is any resource owned or controlled by a company or individual. Assets fall into two types: tangible and intangible. Tangible assets are physical resources such as properties or vehicles, whereas intangible assets are nonphysical resources such as copyrights or stocks.
Asset-backed investments are bonds that are protected by financial assets and is used to refer to an asset that has additional means of accruing value.
An asset class is a group of assets which behave similarly. These similarities may manifest in the financial characteristics or the typical yield of an asset.
Below Market Value
Below market value (BMV) refers a property available for less than its valuation. Properties are sometimes available for less than market value when the seller wants the transaction to be completed quickly for personal reasons.
Diversification is a tactic of spreading investments across different sectors to mitigate risk.
Due diligence is the process of research taken by an individual or a company before making a purchase or decision. In some instances, due diligence is a legal requirement, whereas in others it can refer to open investigations.
An exit strategy is a plan used to dispose of a financial obligation or asset once certain conditions have been met.
Gross profit is the profit made after deducting the production and service costs.
Gross Return Gross return, which is sometimes referred to as Gross Yield, is a value demonstrating the annual development of an investment. Gross Return does not account for costs related to the investment (e.g. acquisition costs).
Independent Financial Advisor
Independent Financial Advisers (IFAs) are professionals who offer advice on financial decisions (e.g. portfolio diversification) and act independently of insurers or banks. IFAs must adhere to strict standards set out by the FCA to ensure their advice is not compromised.
Market value (or open market value) is the amount a product or service can be sold for in a specific market. Market value may fluctuate depending on location, timeframe and many other market conditions.
Net return, which is also called net profit or net yield, is a value showing the gross profit made from an asset or investment. Net return is calculated by taking the Gross Return minus the costs associated with the asset or investment.
A portfolio is a collection of assets such as properties or stocks held by a company, financial institution or an individual.
The real value is the nominal value of an asset adjusted for inflation.
Return On Investment
Return on investment (ROI) is a ratio used to assess the performance of investments. ROI is calculated by dividing net return by the total investment cost.
Royal Institution of Chartered Surveyors
The Royal Institution of Chartered Surveyors (RICS) is the institution which accredits surveyors.
A shareholder agreement is an agreement made by some or all shareholders in the same company. The agreement may describe relationships between shareholders, how the company is managed and how shares are protected.
Shares are units of equal value of an asset such as a property. By purchasing a share in a company, the person acquiring the share (the shareholder) becomes liable to be paid dividends should the company make a profit. By acquiring shares, a shareholder may also inherit certain rights within the company (e.g. the right to vote on company decisions).
Special Purpose Vehicle
A special purpose vehicle (SPV) is an organisation exempt from bankruptcy which is used to hold assets. SPVs exist as subsidiary companies and help companies to create joint ventures and secure corporate assets. This is useful if an investor wishes to invest in a property but does not want to take on additional financial responsibility for the company in which they have invested.
A surveyor’s valuation is the value given to a property by an RICS-accredited surveyor based on strict criteria. Contrary to popular belief, valuations rarely change by having a property “re-valued” by another surveyor. This is due to the structure of the RICS, as once a valuation has been given, an alternate value given shortly after the first valuation would undermine the work of the original surveyor, which in turn could effectively render all their recent valuations worthless. Therefore, once a property has been given a valuation, it is unlikely to change in a short timeframe.
An upfront payment is any payment made when purchasing shares or an asset in which the entire fee is paid in one transaction as the purchase is concluded.