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.
Depreciation is the reduction in value of an asset over time, due to wear and tear. Depreciation is tax deductable 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.
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.
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.
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.
A yield is a measurement of future income on an investment. There are two types of yield - gross and net.
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.
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? Drop us a line below!
* Based on a $150,000 loan over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.