Glossary

 

A B C D E F G H I J K L M N P R S T W Y

AIPP - The Association of International Property Professionals (AIPP) is a not-for-profit organisation set up to improve standards of professionalism within the international property market.

Agent - An individual or firm that places transactions on behalf of an employer and/or client.

Appreciation - Any increase in the value of an asset over a given time.

Asset class - A group of securities that demonstrate similar characteristics, are subject to similar laws and regulations and behave similarly in the market. Examples include equity (shares), fixed-income (bonds), commodities and real estate.

Assured - When a return is assured, it means the investor knows the exact figure and/or percentage on ROI they will receive before they make the investment.

B2B - Interaction in which a business provides a product, service or information to another business.

B2C - Interaction in which a business provides a product, service or information to a consumer.

B2G - Interaction in which a business provides a product, service or information to a government.

Bond - An investment in debt in which an investor loans money to an entity for a set period of time at a fixed interest rate. Bonds are used by companies, municipalities and governments.

Broker - A licensed real estate professional typically representing the seller of a property. Broker duties can include advertising property for sale, showing properties to potential buyers, determining market values and advising clients with regard to offers.

Bubble economy - An economic cycle of rapid growth followed by rapid decline. In property examples of this are Spain up to and following the 2008 crash and Japan in the late-1980s in which prices boomed before falling rapidly. The name comes from the idea of a bubble inflating and then bursting.

Buy to let - Buy to let refers to an investment in which the buyer purchases a property with the specific purpose of renting it out, rather than for any personal use. It is the most common type of UK property investment. 

Cap - A limit on how much the value of an asset or payment can change over a given period of time. Normally a cap represents an upper limit.

Capital gain/capital loss - A capital gain is profit made when you get rid of a capital asset, such as a stock, bond or real estate. A capital loss is a loss made when you get rid of of a capital asset.

Cash equivalent - Cash equivalents are liquid assets that can be instantly transformed into cash, such as short-term government bonds, bank accounts, marketable securities and commercial paper.

Collateral - In a financial agreement, collateral is the pledge, made by the recipient of funding to the investor, of specific property to secure return of funds.

Collective investment - A situation in which funds are pooled together by various investors to collectively purchase the investment. This is common within investments in unregulated financial products. 

Commission - A service charge paid to a broker or investment advisor in exchange for providing investment advice and/or handling the purchase or sale of an asset.

Currency - Money in its tangible form, ie notes and coins issued by a particular country.

Deed - A legal document which conveys ownership of a property.

Default - Failure to pay a debt over a given period of time. In real estate this would usually refer to a mortgage. If a payment is not made within 30 days of the due date, the mortgage loan is considered to be in default.

Deflation - A general decrease, given as a percentage, in the price of goods and services.

Depreciation - Any decrease in the value of an asset over a given time period.

Economic growth - An increase in the capacity of an economy to produce goods and services over a given time period. This can be measured in real terms, which are adjusted to take into account inflation, or nominal terms which are not.

Economic growth - An increase in the capacity of an economy to produce goods and services over a given time period. This can be measured in real terms, which are adjusted to take into account inflation, or nominal terms which are not.

Encroachment - Development of one property that illegally intrudes onto another.

Encumbered securities - Securities that are owned by one entity but subject to a legal claim by another. E.g. When somebody gets a mortgage on a house, it is still legally owned by another entity until the mortgage is paid off.

Escrow - An escrow is a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties.

Equity - The difference between the current market value of a property and the amount still to be repaid by the owner on a mortgage. When a property is sold, equity is the amount of money received by the owner after the mortgage has been paid off.

Fee structure - A chart or list showing the amount charged by a business for certain goods or services. This is released in advance of any payment in order to let a customer know what it will be like to work with a particular business.

Financial asset - An intangible asset which derives value because of a contractual claim, such as shares, bonds and bank deposits.

Fixed-rate mortgage - A mortgage in which the interest rate stays at a pre-agreed amount throughout the entire term of the loan.

GDP (Gross Domestic Product ) - The monetary value of all finished goods and services within an economy. There are three methods used for adding up GDP and in theory all should give the same number.

  • Output measure: Value of goods and services produce by all sectors in the economy
  • Expenditure measure: Value of goods and services produced by households + value of goods and services produced by government + investment in machinery and buildings + (exports - imports)
  • Income measure: Value of income generate by profits and wages

Gift tax/Inheritance tax -A national tax payable by the giver of a gift over a certain value to another party. The following types of gifts are exempt from the UK inheritance tax:

  1. Gifts to a spouse with a permanent home in the UK.
  2. Gifts to a political organisation with two or more seats in the House of Commons or one member and over 150,000 votes.
  3. Gifts valued less than the annual gift tax exclusion.
  4. Medical or educational expenses.
  5. Gifts to national institutions such as universities, museums or the National Trust.

Guarantee - i.e. only really means anything if there is a third party underwriting it – Where an official third party secures profit on an investment. 

GROSS profit - Gross profit is the revenue gained from a product/service minus the initial cost of setting up the product/providing the service.

Hedge fund - An investment fund administered by a professional management firm. Hedge funds are only open to sophisticated or accredited investors rather than the general public. Traditionally they were set up to ‘hedge’ or offset losses potentially incurred by an investor in another investment, but this is not always that case. Hedge funds make multiple investments and can focus on one sector or a range of sectors.

HMO - Under UK legislation, a House in Multiple Occupation (HMO) is a house which is shared by three or more tenants who are not part of the same family. Many UK regional authorities have recently introduced legislation restricting planning permission for HMO’s and increasing HMO license fees.

Income tax - A tax on personal financial income which government imposes on all entities within its jurisdiction. In most countries it is a progressive tax in which the lowest earners are exempt with higher earners paying a higher percentage of their wages.

Indemnity insurance - A type of insurance which compensates its holder for a financial loss or damages. The amount of indemnity insurance paid out is to the holder is limited to the amount of provable money lost, rather than an agreed some specified in the policy, as would be the case with, for example, life insurance.

Index - In a business sense, an index is a statistical measure of change in an economy or securities market. Indexes can take in a full market or a portion of it, and have their own points system to calculate performance. However investors tend to look at percentage changes in the index as the most accurate way of gauging whether a market is a sensible investment.

Inflation - A general increase, given as a percentage, in the price of goods and services.

Interest rate - The amount charged, given as a percentage, by a lender to a borrower for use of assets.

January effect - A phenomenon in which stocks and shares perform better than average in January. This is attributed to a drop in price occurring in December when investors tend to sell off shares in order to pay less taxes for the preceding year.

Joint venture - A business arrangement in which two or more entities pool resources in order to perform a specific task.

Key Performance Indicators (KPIs) - A set of quantifiable measures a company uses to gauge performance in terms of meeting operational and strategic goals. One example would be rating customer satisfaction.

Land Registry - The government body with which title deeds for land/property are registered.

Legal Charge - A legal charge on a property is a document that is held by Land Registry which outlines the person who holds the first charge on a property. It is a security to ensure payment of debt. A legal charge also prevents the property being sold without the financial interest of a property being repaid.

Loan Note (promissory note) - A binding contract in which money is loaned to an organisation, generally with a greater return. 

Lump sum - A one-off payment for the partial or total value of a product

Management company - A company which looks after the investment of another party. E.g. a rental company or a company managing stocks/shares.

Management fee - A charge paid to an investment manager for managing an investment fund.

Maturity date - The date in which the principal amount of a debt or investment instrument (e.g. note, draft, acceptance bond) becomes due.

Money - Any item that can be used to purchase goods and services

NET profit - Net profit is gross profit minus overhead, payroll, taxation and interest payments.

Nominal value - The stated value of an issued asset, also known as ‘face value’.

Per annum - yearly or annually

Power of attorney - A legal document which allows one person to act on another’s behalf. Power of attorney can give complete authority or authority to make decisions in limited areas over a limited time period.

Profit Margin - Profit as a percentage of revenue. This is calculated as:

  • Net income / revenues OR net profit / sales 
  • e.g. If a company makes £500,000 in sales and £150,000 in net profit £150,000 / £500,000 = 0.3
  • Profit margin = 30%

Purchase agreement - A written contract which is signed by both the buyer and seller explaining the conditions under which a property will be sold.

Rain check- The commitment of a seller to allow the buyer to purchase an out of stock item for the existing price at a later date.

Rebate - An amount of money returned to someone who has paid too much tax or rent.

Real estate - Real estate refers to land and anything that is permanently fixed to it, for example buildings, swimming pools etc. Real estate is normally divided into three categories; residential, commercial and industrial.

Return on investment - Return on investment (ROI) is the benefit obtained by an investor as a result of their investment. In financial terms ROI can be worked out using the following equation:

  • ROI = (Gain from investment - Cost of investment) / Cost of Investment.
  • e.g. If a house is purchased for £200,000 then sold a year later for £250,00:
  • £250,000 - £200,000 = £50,000
  • £50,000/£200,000 = 0.25
  • ROI = 25% per annum

Sales charge - A commission paid by an investor on his/her investment in a mutual fund. The sales charge is the difference between the purchase price an investor pays per share and the mutual fund’s net asset value per share. The maximum sales charge permitted is 8%.

Shared ownership - An arrangement in which more than one person owns a percentage of a property/piece of land. This can be done by way of placing several names on a deed or through a company.

Servicing - All activities related to the collection of mortgages from a borrower. Servicing is performed by a loan servicer, who will typically collect payments and then distribute them to all relevant parties such as government, investors holding mortgage-backed securities, trustees, mortgage guarantors and any other third parties providing services.

Stamp duty (UK)/Transfer tax (US) - A tax payable when title of a property passes from one owner to the other. In the US this tax is levied by local or state governments whereas in the UK it is levied by the national government (however Scotland will change its stamp duty charges in April 2015).

Taxation - A concept in which a financial charge is imposed by a government and in which failure to pay is punishable by law.

Tender - An unconditional offer to pay the exact amount to settle a debt, regardless of any prior payment plan.

Title deed - A legal document conferring ownership of a property.

Wealth management - A professional service which combines financial/investment advice, accounting/tax services, and legal/estate planning for one fee. The service is traditionally aimed at high-net wealth individuals, but can sometimes be available on investments as low as $100,000.

Yield - As Return on Investment (ROI) but usually expressed as a percentage.

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