Breaking down investment jargon
Looking at investing? Here's a list of jargon you might come across in the process.
What do you need to consider when taking out an investment loan? We’ve put together a list of the most common terms associated with investments and their meaning to help you out.
Asset depreciation
Depreciation is the reduction in value of an asset over time, due to wear and tear. Depreciation is tax deductible over a period of years. To benefit from depreciation, you may need to talk to your accountant who may draw up a depreciation schedule for you. See your accountant or visit the Australian Tax Office website for further information.
Using equity in your existing property to purchase an investment
Equity is the value of a property, minus what you owe on it. For example, if a house is worth $450,000 and you owe $200,000, you will have equity of $250,000. You may be able to use your equity to help renovate your house or to purchase an investment.
Negative Gearing
If your outgoings on an investment are more than the income you make on the property, it is considered “negatively geared”. You may be eligible for tax advantages if you own a negatively geared investment. Talk to your accountant to find out more information.
Positive Gearing
If your income from an investment property is greater than your outgoings the investment is considered “positively geared”. The profit you make on a positively geared investment is taxable.
Investment yield
A yield is a measurement of future income on an investment. There are two types of yield - gross and net.
Rental yield – gross
This is the amount you will make via rent paid before your expenses have been deducted. It generally takes into account how much rent you receive on your property as a proportion of the property’s current market value is.
Rental yield - net
Your rental yield will be the gross yield minus anything you have spent on the property – this can include rates, repairs and rental fees. To find out exactly what expenses are included you may like to talk to your accountant. Calculating your rental yield will give you a better picture of your return on investment.
Got another tricky investment word you’re having trouble understanding? Let us know in and we'll add it to the list!