Glossary of Property Investment Terms

There are a lot of terms unique to the investment world that will be new to those just embarking on building a property portfolio. That’s why we thought it would be very useful for you to have a thorough Glossary of Property Investment Terms to help you to thoroughly understand some of the finer points of investing. We hope you find it useful!

Glossary of Property Investment Terms | The House Crowd

A Shares 

A class of shares which have specific rights attached to them, as set out in a company’s articles of association.

Angel Investors

Investors who provide investment and other support to early-stage businesses. Traditionally angels are wealthy individuals who have a significant amount of entrepreneurial, industry or investment experience.

Angel Network (or Angel Syndicate)

A group of angel investors that pool together money and other resources to invest in, and provide support to, early-stage businesses.

Annualised Return

Average return each year over the minimum term, based on the total of rental income and estimated capital growth.

Find out more about Annualised Returns here.

Articles of Association

A company document that sets out its management and administrative structure.

The articles dictate the internal affairs of the company such as director and shareholder rights, the issue and transfer of shares, and the organisation of meetings.

Asset Class

A class of economic property that has similar characteristics. Listed shares, government bonds and real estate are all asset classes.

Glossary of Property Investment Terms | The House Crowd

B Shares

A class of shares which have specific rights attached to them, as set out in the company’s articles of association.

Below Market Value (BMV)

Properties are sometimes sold at below the market value, meaning they are offered at lower prices than comparable properties.

Beneficial Shareholder / Owner

An investor who owns the economic value and other shareholder benefits attached to shares, such as dividends and tax reliefs, but the registered title to their shares is held with another person or entity often for administrative convenience.

Bridging Finance

Bridging loans are a short-term funding option. They are used to ‘bridge’ a gap between a debt coming due – primarily for property transactions – and the main line of credit becoming available. Alternatively, they can act as a short-term loan in pressing circumstances.

Glossary of Property Investment Terms | The House Crowd

Capital Employed  

The sum of shareholders’ equity and debt liabilities; can be simplified as Total Assets – Current Liabilities.

Capital Growth

The increase in value of an asset or investment over time, measured on the basis of the current value of the asset or investment, in relation to the amount originally invested in it.

Convertible Equity

An equity investment where money is invested in a company in exchange for shares to be issued at a later date. The share issue is generally triggered by the company raising finance from other investors. In return for investing early, the convertible equity investors receive a discount on the price of the shares issued to the other investors.

Convertible Note

A debt investment where money is invested in a company with the expectation that the debt will “convert” into shares issued at a later date. The share issue is generally triggered by the company raising finance from other investors. Before the conversion, the investor is paid interest.

Crowdfunding

The funding of projects or ventures by raising money from a large number of people, usually online. The three main types of crowdfunding are equity, debt and rewards/donations.

Glossary of Property Investment Terms | The House Crowd

Damp Proof Course (DPC)

A barrier through the structure by capillary action such as through a phenomenon known as rising damp.

Debt

Money owed by one person/company to another. The borrower has to repay the money at a later date and generally also has to pay interest.

Dilution

A reduction in the ownership percentage of a share in a company caused by the issue of new shares.

Diversification

An investment strategy that involves mixing the amount, values and kinds of investments within a portfolio to spread risk and minimise losses.

Dividend

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

Dividend Distribution

The distribution of a portion of a company’s profits to investors.

Drag-Along Right

A contractual obligation that allows majority shareholders to force minority shareholders to join in the sale of a company on the same terms, valuation and conditions of the majority shareholders.

Glossary of Property Investment Terms | The House Crowd

Enterprise Investment Scheme (EIS)

A UK tax scheme offering income tax and capital gains tax reliefs to qualifying private investors who invest in eligible businesses.

Equity

Shares or other securities that represent an ownership interest in a company.

Equity Crowdfunding

A type of crowdfunding that enables multiple investors to a buy shares, or other equity interests, in a company, usually through an online process.

Exit

An event when investors may be able to cash in and sell their shares, such as an initial public offering (IPO) or trade sale.

Glossary of Property Investment Terms | The House Crowd

FENSA Certificate

Documentary evidence that the installation work has been self-certified to comply with the Building Regulations

Financial Conduct Authority (FCA)

The financial services regulatory body in the UK, formerly called the Financial Services Authority (FSA).

Fully Diluted

All the shares of a company in issue, plus all shares which are the subject of options or other contractual rights to be issued in the future (regardless of whether the right has vested).

Fund  

An investment opportunity that seeks to raise money to be invested across multiple businesses. Fund campaigns are commonly used to invest in businesses participating in accelerator programmes and competition winners.

Glossary of Property Investment Terms | The House Crowd

Gas Safety Certificate

By law, landlords must have all gas appliances serviced regularly, normally once a year, by a Gas Safe registered engineer.

Gross Development Value (GDV)

The estimated value that a property, or new development, would fetch on the open market if it were to be sold in the current economic climate.

Gross Rate of Return

The total rate of return on an investment before deduction of any fees or expenses. The gross rate of return is quoted over a specific period of time, such as a month, quarter or year. It is often quoted as the rate of return on an investment in marketing materials.

Growth-Stage

The stage that a business is at when it has passed its ‘seed’ or initial stage and has established proof of concept and looking to grow.

Gross Yield

The yield on an investment before the deduction of taxes and expenses (such as management fees and maintenance costs). Gross yield is expressed in percentage terms. It is calculated as the annual return on an investment prior to taxes and expenses divided by the current price of the investment.

Glossary of Property Investment Terms | The House Crowd

High Net Worth Investor (HNWI)

A classification used by the financial services industry to denote an individual, or a family, with high net worth. If you earn more than £100,000 a year or have net assets of more than £250,000, you may qualify as a High Net Worth Investor.

HMO (House in Multiple Occupation)

A house occupied by more than two qualifying persons, being persons who are not all members of the same family. A “qualifying person” is a person whose only or principal place of residence is the HMO.

Glossary of Property Investment Terms | The House Crowd

Initial Public Offering (IPO)

The first time that a company’s shares are available for public purchase by means of a listing on a stock exchange. This process is also known as ’going public’ or ‘floating’.

Glossary of Property Investment Terms | The House Crowd

Know Your Client (KYC)

The regulatory process that financial services firms and certain other businesses must perform to verify the identity of their customers to help prevent against money laundering and other financial crimes.

Glossary of Property Investment Terms | The House Crowd

Loan to Value (LTV)

A term commonly used by banks and building societies to represent the ratio of the first mortgage lien as a percentage of the total appraised value of real property. For instance, if someone borrows £130,000 to purchase a house worth £150,000, the LTV ratio is £130,000 to £150,000 or £130,000/£150,000, or 87%. The remaining 13% represent the lender’s ‘haircut’, adding up to 100% and being covered from the borrower’s equity. The higher the LTV ratio then the riskier the loan is for a lender.

More on Loan to Value here

Local Housing Authority (LHA)

The main provider of social housing (or housing authorities) for people who cannot afford to buy their own homes. Local authority housing is allocated according to eligibility and need. Rents are based on the household’s ability to pay.

Glossary of Property Investment Terms | The House Crowd

Net Profit

The actual profit after deducting expenses, such as management fees, letting fees, maintenance costs which are were not included in the calculation of gross profit, have been paid.

Net Yield

Net yield is everything after expenses. It takes into account all fees and expenses associated with owning a property. It is a far more accurate way of calculating actual yield. It is also much harder to calculate as most costs are variable.

Nominee

A person or firm that holds assets, such as shares on behalf of another, enabling the nominee to handle complicated administrative matters.

Glossary of Property Investment Terms | The House Crowd

Open Market Value (OMV)

The realistic price that could be achieved for a property if marketed for sale.

Option

A right granted which gives the receiver an option, but not an obligation, to buy (or sell) shares in a company, or other securities, at an agreed price within a certain time frame.

Ordinary Shares  

Shares which represent normal equity ownership in a company. Ordinary shares generally entitle the owner to vote at shareholder meetings, receive dividends, and receive distributions on the winding up of a company, but do not carry preferential treatment.

Glossary of Property Investment Terms | The House Crowd

Pre-Emption (Also called Anti-Dilution)

A contractual provision which requires the company to offer its shareholders the chance to purchase additional shares to maintain their percentage of equity in advance of further shares being issued.

Portfolio

A group of financial assets such as shares, property or bonds, held by one person or entity.

Portable Appliance Testing (PAT)

The name of a process by which electrical appliances are routinely checked for safety.

Post-Investment

The period of time after an investment has been made in a company.

Preference Shares

A class of shares which have specific preferential rights attached to them, as set out in the company’s articles of association. Typically the preference will be a dividend paid in priority to other shareholders, or priority to distributions on the winding up of the company.

Professional Investor

A classification used by the financial services industry to denote an individual or family.

Property Yield  

A calculation to give an indication of annual returns based on the rental income against how much the property cost: Property Yield (%) = Rental Income/(Property purchase price + Refurbishment Budget).

Glossary of Property Investment Terms | The House Crowd

Registered Social Landlord (RSL)

Registered providers that own and manage social housing.

Return on Capital Employed (ROCE)

The return on capital employed is, considered by some, a better measurement than return on equity, because ROCE shows how well a company is using both its equity and debt to generate a return.

RICS Surveyor

Building surveyors, like all surveyors, inspect property or land. RICS (Royal Institute of Chartered Surveyors) is a professional body for chartered surveyors, which includes chartered building surveyors. RICS sets standards and guidance for surveyors and provides training and professional development opportunities for surveyors to comply with changing standards and legislation.

Risk

The potential for losing something of value. With equity investment the main risk to the investor is losing the money invested.

Glossary of Property Investment Terms | The House Crowd

Secondary Market

A market where investors purchase shares from other investors rather than from the company that has issued the shares directly.

Shareholder Agreement

An agreement between a company’s shareholders detailing certain rights and obligations of the shareholders.

Shares

An ownership interest in a company which entitles the shareholder to certain rights, for example a share of profits or dividend payments from the company. Shares are also referred to as “stock”.

Sharia Compliant

Investments that comply with Islamic law and principles, eg. ethical investments with no borrowing where investors share in the profits and losses.

Solicitors Regulatory Authority (SRA)

The regulatory body for solicitors in England and Wales.

Sophisticated Investor

A type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. This category is for people who have invested in shares in more than one unlisted company (including via The House Crowd) in the last two years or have been a member of a business angel syndicate or network for at least six months including The House Crowd’s Investor group.

Special Purpose Vehicle (SPV)

A Company set up for a particular purpose. In the case of The House Crowd, SPV’s are set up for the purpose of purchasing/owning a property on behalf of the investors.

Subscription Agreement  

An agreement between a company and investors purchasing shares in the company. It sets out the terms of the share purchase and details certain rights and obligations of the company and the investors as shareholders.

Glossary of Property Investment Terms | The House Crowd

Tag-Along Rights

A contractual obligation which gives minority shareholders the right, but not the obligation, to join a transaction where shares are sold by majority shareholders, on the same terms, valuation and conditions of the majority shareholders.

Term Sheet  

A non-binding agreement addressing the basic terms and conditions under which an investment will be made in a business. A term sheet often serves as a template to develop more detailed legal investment documentation.

Glossary of Property Investment Terms | The House Crowd

Unencumbered

An asset or property that is free and clear of any encumbrances such as creditor claims or liens. An unencumbered asset is much easier to sell or transfer than one with an encumbrance. Examples of typical unencumbered assets are a house without any mortgage or other lien on it, a car where the automobile loan has been paid off or stocks purchased in a cash account, rather than a margin account.

Glossary of Property Investment Terms | The House Crowd

Valuation

The monetary worth of a business or property as determined by considering both qualitative and quantitative factors.


We hope you found this useful. If you have any questions, then please don’t hesitate to get in touch with us. We’re always here to help you with anything you might want to talk about, so do drop us a line!

 

UK Property Market Growth Slows

… but prices continue to rise!

The latest Hometrack UK Cities Index has shown that the annual rate of house price growth in twenty of the UK’s largest cities slowed to 8.2% in August 2016. In July, growth had been at 9.5%. The average house price in the UK, as a result, was £239,400. Prices are still rising, but just not as fast at the moment.

Why Is the UK Housing Market Slowing?

People are finding it increasingly difficult to buy a home whilst the UK housing market continues to inflate quicker than earnings, particularly in the south, where many potential buyers are finding themselves completely priced out of the market. This fact is what is probably most of the reason for the slowdown in house price growth over the last couple of months.

There’s also the factor of the shock outcome of the EU Referendum, which gave lots of potential buyers reason to pause for thought. And, of course, is also in part due to the recent interest rate cut by the Bank of England.

So What’s the Good News?

Nonetheless, these disruptions to the UK housing market don’t seem to have had a lasting effect, and we’re seeing the market begin to settle down again now. This is good news that suggests an underlying strength within the residential UK housing market, which will hopefully see us optimistically into the long term.

What Does this Mean for Investors in the UK Property Market?

There is still a massive imbalance between supply and demand of properties on the market. This goes some way to explaining the continuing growth of the rental sector, and why property investors are increasingly leaning towards buy-to-let investment, including HMOs, as their investment of choice.

If residential property as an investment is still on your radar, however, then it’s still a good time to buy. There are signs that house prices are going to continue to rise, and getting in whilst there’s a chance you can afford to could pay in the longer term.

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For investors in the property market wishing to take the sensible route of diversifying their portfolio, record low interest rates make the potentially higher returns of equity crowdfunding and P2P lending for Real Estate an appetising option.

So choose your weapon… all signs point to a continually promising future for the UK property market.

View our Property Investments

HMOs: Targeting Young Professionals in Shared Accommodation

Specialist commercial lender, Shawbrook Bank, has released a report highlighting HMO Investment Growth as a result of the increasing popularity of shared accommodation.

Young professionals, as you may already be aware, are focusing more on the rental sector. Of course, this is partially down to high house prices. However, the report notes that this demographic are sticking to the rental sector, and shared accommodation in particular, due to the capacity for higher levels of disposable income.

A further survey undertaken by Spareroom.co.uk, which studied 10,000 tenants living in shared accommodation, found over 70% of participants to be under the age of 30, with over 50% identifying as ‘single’.

The combined factors of high house prices and desirability of higher disposable income is compounded by the importance of social life to this group. The Millennial generation is one where friends and fun are key to life satisfaction. It’s no wonder then that living with a group of friends is the accommodation choice for young professionals and recent graduates.

HMO Investment Growth Fuels Landlord Interest

From the property investor’s point of view, HMOs, therefore, are becoming an increasingly popular choice of investment. Compared to other buy-to-let investments, HMOs yield an average of 10% per annum. This compares favourably compared with the 6-7% rental yield to be expected from standard buy-to-lets and blocks of flats on a single freehold title.

With HMO Investment Growth fast coming under the radar of landlords, competition is stiff. As such, investors seeking to cash in on these high rental yields are increasingly finding ways to set their property apart from the rest.

Higher spec HMO properties are springing up, particularly in the popular urban centres favoured by shared accommodation-loving young professionals. Included wifi, flat screen TVs in communal areas of the property, high quality fixtures and fittings, and other features perceived as appealing to their desired tenants, are outlays investors are prepared to make in order to reel in those 10% yields.

Shawbrook’s report concludes with these words:

“Demand for this asset class is on a consistent upward trend… with the supply/demand challenges across the UK housing landscape, and the resulting importance of the Private Rented Sector, HMO property is and will remain an essential and affordable source”.

That being said, local authorities are quickly catching on. Licensing schemes for HMOs are being considered and implemented in some areas, which will limit the number of such properties available in particular districts. As such, anyone considering HMO investment will need to look into this before deciding on their purchase.

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Property News Round-up 8/6/16

Property News All The Latest Updates

 

Hi guys and welcome to another property news round-up this week we start off by focusing on the EU referendum and look at whether house prices will go down if we have a Brexit vote. We end our round-up in France for the Euros and take a look at the winners and losers of the tournament if it was based on property. Missed our last property news round-up? If so, catch up here.

 

Will Property Prices Go Down If There’s Brexit?

Property News Brexit

With less than three weeks to go until we cast our votes at our local polling stations on whether we should leave or stay in the European Union, one question that stands out in the property industry is whether property prices will go down if we leave.

So will it? Well, not exactly. Recent stats from National Statistics indicate that house prices are still rising fast. They increased at a rate of 9 per cent a year in the year to March 2016.Prices are predicted to increase by roughly a further 10 per cent by the end of 2018.

In addition the treasury have mentioned that the Brexit would bring about an increase in the general cost of borrowing across the economy. This, in turn, would crush demand for housing and lead to fewer transactions. (The Independent, June 2016). This would therefore have a negative effect on price growth. Some analysts have even said that leaving the EU would also have a negative effect on foreign investment – this causes problems for the top end of property investments in London and the ramifications would lead to reduced investments.

But we all want cheaper homes right? Some have argued that we should welcome lower prices because that will help make homes more affordable, especially for first time buyers. Pro-Brexit Tory Lead of the House of Commons Chris Grayling, has tried to expand on this topic, and mentioned that staying in Europe will make it even harder for young people to buy a house due to immigration from the Continent which, he claims, is driving up domestic demand for housing (as mentioned in a recent article by The Independent).

 

London Property : Prices Rise 432% In Two Decades

Property News London Property

Property prices per square metre have risen by 432 per cent in Greater London over the past two decades. This compares to a national average increase of 251 per cent, or £2,216 per square mile according to data that was conducted by Halifax.

In addition, Land Registry data indicates Greater London has gone past the £600,000 milestone for the first time.

Moreover, property investment firm London Central Portfolio [LCP] have said that this new London average price (£600,076 to be precise) is 14 per cent higher than a year ago. This has been linked to low mortgage rates and the falling cost of stamp duty on properties costing less than £937,000.

 

Survey Claims Student BTL Investment Due For Major Expansion

Property News - HMO

Research from Mistoria Group found that one in 10 student property landlords say their HMOs enable them to offset the new tax rules and remain profitable, while a further 50 per cent do not believe any other asset class offers the same yields and return on investment as student property. (Letting Agent Today, June 2016)

The Mistoria Group’s report which was based on a survey of 500 landlords last month – reveals that 35 per cent of student landlords purchased HMO properties in the first quarter of this year to beat the new stamp duty rise, moreover, a further 43 per cent of landlords plan to acquire between two and three new student properties in the next 18 months.

Student accommodation has been the strongest growing investment property market in the UK and the north west has attracted many investors. For example, a HMO that houses four students, can be purchased for just £160,000.

Want know more about HMOs? Check out our handy infographic.

 

The North-West Has UK’s Highest Property Yields

Property News North West

According to research from LendInvest, the north-west of England produces the best average rental yields over the past five years. In addition, it is estimated that investors could achieve yields some 200% higher with property outside of the capital.

Manchester and Liverpool were top with regards to yields, Manchester producing yields of 6.02% whilst Liverpool saw yields of 5.15% respectively.

Manchester has Europe’s largest student population and a graduation retention rate of 58%, demand for rental accommodation within the northern city continues to outpace supply and continues to attract a wealth of investors.

Interested in the Northern Powerhouse city? Check out our Manchester guides for more info, (North and Central).

 

Euro 16 : Winners & Losers Of The Property Championship

Property News - Euro 16

Property prices have changed a lot since the last the Euros in Poland and Ukraine.

Just like the property market in England, in Europe there is also a north-south divide.

Turkey, Iceland, Sweden, and Ireland had the biggest rises, though not all for the same reasons.

The Turks win the property championship with a 65.6% increase, Istanbul has helped The Crescent Stars in the tournament as there is burgeoning young population who are new to housing investment and eager to buy in the city that stretches across two continents.

Other successful nations such as the Republic of Ireland, benefited from a booming economy, with GDP expanding 7.8% in 2015 thanks to huge capital investments from abroad. Moving further north, Iceland has enjoyed a nice recovery since the 2008 financial crisis, with demand for high-end properties since 2013.

The Swede’s property boom was down to negative interest rates, many in the Scandinavian country are concerned that high household debt and low-interest rates could lead to a crash.

The home nations also saw property prices increase. As mentioned previously about London property, The average house price in the capital passed £600,000 mark.

Host nation France and one of the favourites to win the tournament, has experienced negative property price growth between 2012 and 2016. This could be inferred to a decrease in household income and stricter mortgage conditions.

See how other European countries did at the Euro 16 property championship below.

Property News Euro 16 Property

Image Source : Yahoo

 

What Are Your Thoughts?

Which of our chosen property stories has interested you the most? We would love to hear from you, feel free to leave us a comment on our Facebook and Google Plus pages. If you prefer to tweet us, tweet @TheHouseCrowd.

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