ADF Housing Property Investment Glossary

A comprehensive list of common terms related to property investment created to educate you about all things ADF housing & property investment.

Property Investment Glossary

Acquisition costs: The total cost of acquiring an asset. This may include stamp duty, legal fees, building reports, valuation fees, survey fees and any other due diligence costs directly related to the acquisition. 

ADF: The Australian Defence Force (ADF) comprises of the Royal Australian Navy (RAN), Australian Army & the Royal Australian Air Force (RAAF) 

ADF home loans: Defence Home Owner Assistance Scheme (DHOAS) loans are different from typical home loans, as you must apply for one through only one of three approved providers. There is a range of loans available from the three providers, providing some flexibility for your loan.

ADF housing assistance: The ADF offers housing assistance for serving members and their families to subsidise the cost of renting a property in a private rental market. It depends on your location, rank, categorisation & family circumstances and comes in the form of Living in Accommodation (LIA), Rent Allowance (RA) or Married Quarter (MQ).

Amortisation Period: This is the length of time a loan is calculated over and repaid. It’s the process of recovering the capital investment over time through scheduled, systematic repayments. 

Annual percentage rate (APR): The interest rate charged to the borrower, excluding expenses such as opening the account and account-keeping fees. The APR is the basic cost of your credit as a percentage of the total loan amount. 

Even one credit card will have more than one APR – one for purchases, one for cash advances, and one charged if you make late payments.

Annualised return: the average amount earned by your property investment each year, calculated by total rental income and estimated capital growth. 

Appraisal: a written report of the estimated value of a property, usually prepared by a valuer appointed by the purchaser’s lender.

Appreciation: nothing like your Facebook or Instagram engagement – but a significant increase in the price or value of an asset. It occurs when the market value of an asset is higher than the price an investor paid at the time.

Asset allocation: The strategy in which you allocate your money across different assets. For example: shares, property, and fixed interest. 

Australian Prudential Regulation Authority (APRA): The regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and the majority of the superannuation industry. They are responsible for ensuring Australia has a stable, efficient and competitive financial system. 

Australian Securities and Investment Commission (ASIC): An independent commission of the Australian Government tasked as the national corporate regulator. It regulates company and financial services – and enforces laws to protect Australian consumers, investors and creditors. 

Australian Securities Exchange (ASX): Australia’s biggest exchange opened in 2006 – this is where shares in public companies, futures, options, warrants and other securities and derivatives are traded. It’s now one of the world’s top-10 listed exchange groups measured by market capitalization.

Balanced fund: A fund that invests across a mix of assets like cash, fixed interest investments, property, and shares to achieve medium to long-term capital growth and a reasonable income level.

Building approval: Also called ‘building certification’, it refers to whether the end result of a build complies with the relevant standards, codes, and acts under the Sustainable Planning Act 2009 (SPA) and under specific building legislation.

Building inspection: A building Inspection is an extensive inspection of a building by a qualified contractor or inspector. It usually covers all major systems including foundation, plumbing, electrical, roof, heating and air conditioning.

Builders warranty insurance: Builders Warranty Insurance (also known as Home Warranty Insurance) provides a safety net for homeowners to compensate for losses due to faulty workmanship and incomplete building work if their builder dies, disappears or becomes insolvent and can’t pay off their debts. 

Buyers market: a situation where supply is greater than demand, forcing the market value average to remain low and thus giving buyers the upper hand over sellers. 

Capital gain/growth: The increase in value of an asset over time. The difference between what you paid for it (including buying costs) and what you got when you sold it (less selling costs).

E.g; If you bought a property for $500,000 and it’s now worth $650,000, you’ve made a capital gain of $150,000. 

Capitalisation rate: This ratio, expressed as a percentage, is an estimation of an investor’s potential return on a real estate investment. It is the net operating income divided by the sales price or value of a property. 

Cash flow positive: Your investment is cash-flow positive if the incomings are more than your outgoings after claimed tax-deductible items. 

E.g: You receive more rent than your mortgage repayments, plus you are still ahead after taking into account items such as interest on the loan, maintenance, insurance, land tax and council rates.

Cash rate: A cash rate is also known as the bank rate or base interest rate that a central bank (such as the Reserve Bank of Australia (RBA) or Federal reserve) will charge commercial banks for loans.

Compound interest: This is the initial principal on the original amount of money and the accumulated interest from previous periods, creating a situation known as ‘interest on interest’. 

Consumer Price Index (CPI): The change of purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services: such as food, transport & medical care. 

Australian Bureau of Statistics, 2022: The CPI rose 5.1% over the last 12-month period up to the March 2022 quarter – due to higher dwelling construction costs and automotive fuel prices. 

Conveyancing: The process that legally transfers property ownership from one person to another. A conveyancer will help you meet all legal requirements for purchasing the property. 

They will handle most of the paperwork and questions you have about the process – at the end, they will review and explain the terms & conditions of the contract. 

Debt to equity ratio: Total debt divided by total equity. The equity represents the amount of funds.

Defence Housing Australia: DHA provides housing and services to the ADF and their families.   

DHA rent allowance & assistance: Effectively, Defence pays the DHA market rent for the house and then subsidies that cost, ensuring that members pay about 50 per cent of the actual cost averaged across Australia. This is to compensate them for the financial burden of the frequent moves throughout their careers. 

The Defence Home Ownership Assistance Scheme DHOAS: DHOAS was designed to incentivise members to stay in the ADF – the longer you serve, the more entitlement you accrue and the longer you can receive assistance.

DHOAS Lump Sum: Under certain circumstances, you may be eligible to have your DHOAS subsidy paid out as a lump sum towards your loan. If you have accrued sufficient entitlement you can convert up to four years of your service into a lump sum payment. The lump sum will only be paid at the tier 1 rate.

This equates to $305 per month x 4 years [48 months] = $14,640

This can be especially useful if you’re looking to fast-track your housing investment, but will only be applicable in some situations!

Due diligence: An investigation of the legal, financial & physical nature of the contract – including the entitlements and liabilities attached to real estate assets usually for acquisition and compliance purposes. 

Equity release: A way of accessing the equity in your home to provide you with additional funds to further your investments.

Expression of interest (EOI): An expression of interest (EOI) is ultimately an offer made in good faith to establish a negotiation process with the aim of executing a legally binding contract.

Extension of time (EOT): An extension of the contract period originally granted to a contractor to allow for delays to the works which the contract has no control over, including weather and delays caused by the principal. 

First Home Owners Grant (FHOG): The FHOG is provided by state governments to first home buyers, to offset the effect of the GST on buying or building a new home.

Fixed interest rate: It’s locked in at a specific interest rate for a specified term, usually one to five years. It protects against interest rate rises and means you won’t benefit from falling interest rates. Opposite of variable interest rate. 

Gearing: otherwise known as “leveraging”, it’s a measure of indebtedness; the extent of borrowings against the equity held. The strategy of borrowing money to invest, such as when you buy a house using a mortgage or to buy shares. 

Growth asset: Assets such as shares and property that not only produce a passive income but have the potential to grow in value over time.

Home Purchase Assistance Scheme (HPAS): HPAS is used to purchase your own home in your current or new posting location. It gets paid into your bank account as a lump sum of $16,949 (before tax) before you buy a house or sign a contract on a new build.

Home Purchase or Sales Expenses Allowance (HPSEA): Unlike HPAS, which is a lump sum payment, HPSEA is used to reimburse the reasonable costs of selling your home and purchasing a new one when you’ve moved for Defence reasons. 

Note: You can only apply for HPSEA if you have used HPAS on the house you are moving out of. 

As long as you then follow the buy-sell-buy-sell process each time you move to a new posting locality, you can keep receiving HPSEA for each purchase and sale. 

Interest only loans: Only repaying the interest charged on your mortgage, not paying anything off the principal or amount owing. 

Income-producing asset: An asset that generates an income. It can be dividends paid on shares, investment properties that generate rental income, bonds and bank accounts that produce interest. 

Land tax threshold: Each of Australia’s states and territories has different rules for how tax is levied on the unimproved land value of investment properties. With all your investment properties in one state you may exceed that state’s land tax threshold and incur a sizeable tax bill. Check out this Land tax threshold calculator

Land settlement: Once contract conditions are met, settlement will take place. This is when the purchase price balance is transferred to the seller, and your representative will ensure your documents are registered, so the title reflects the land ownership change. 

Lenders mortgage insurance (LMI): LMI protects a credit provider if borrowers cannot repay their loan. LMI is usually a one-off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the property’s value. LMI does not benefit the borrower, and it only protects the lender. 

Loan to value ratio (LVR): LVR shows the ratio of the value of your property to the size of your loan as a percentage. To calculate it, divide the loan amount by the property’s value, then multiply by 100 to get a percentage.  Banks and financial institutions use this to measure whether you can afford the loan. 

Liquidity: How easily an investment or financial product can be converted to cash. Shares in large publicly listed companies regularly traded on the ASX (Australian Securities Exchange) are considered liquid assets. Property investments are less liquid, due to difficulties and time delays that may be experienced when buying and selling. 

Market value: After taking into account the current economic state of the market, this is the estimated amount that an owner could sell their asset for. 

Median House Price: The ‘midway’ sale price in a list of properties – ranked from highest price to the lowest over a set period.

For example, if 51 houses were sold, the sale price of the 26th house would be the ‘median’ house price. 

Negative gearing: Borrowing money to invest where the return from the investment is less than the borrowing costs.  The rental income from your investment property is less than the interest repayments on the loan used to purchase the property.

For example, if you receive rent on a property for $600 a month, but your mortgage repayments are $900 a month. Your shortfall is $300, which you can claim as a loss when doing your tax return. 

Offer & Acceptance (O&A): When you make an offer to purchase a property you will need to sign one of these forms. After the owner accepts it, it becomes a binding contract. 

Offset account: A transaction account that is linked to a mortgage account. It reduces your interest payable as interest is only charged on the net balance, i.e. your mortgage balance less your offset account balance.

PACMAN: Also known as the ADF pay and condition manual (PACMAN) was designed for administrators and decision-making purposes, it contains a complete guide to ADF income, allowances and claiming on work-related deductions. 

Principal and interest: The amount borrowed or still to be repaid, plus the interest on the mortgage. The principal is part of the repayment that reduces the mortgage balance.

Practical Completion: Generally it means the building work has met the point where all work is complete or all but completed, in accordance with the contract as marked by the contractor with a certificate of practical completion – except for any minor defects that do not prevent it from being used for its intended purpose. 

PPOR or PPR: A principal place of residence is the land you own and occupy. Essentially, it is the physical address where you live – not a property you own and rent out to tenants. 

Positive gearing: is simply an investment that generates more in rental income than it costs in loan repayments, strata fees and other homeownership-associated expenses. Note: you may be subject to additional tax on any income derived from a positively geared investment. 

Pre-approval (finance): This is an indication from a financial institution that they will lend the funds to an individual. It’s not a prerequisite but it most certainly helps to assess your ability to borrow funds.

Rent: A tenant’s regular payment to a landlord for the use of property or land.

Rent review: The purpose of having periodic rent reviews for your lease is to ensure the rent is kept in line with the current market’s conditions, usually in line with the Consumer Price Index, or in accordance with a market valuation. 

Rentvesting: a type of investment strategy for would-be homeowners who can’t afford to buy in a certain area. Essentially, it’s simply renting a property where you want to live (close to work, family – lifestyle choices like the beach) and buying an investment property in a location that gives you the best chance for capital growth at the same time.

Return on Investment (ROI): a percentage of the amount invested, calculated by dividing the profit and cost of that investment. For example: an investment with a profit of $100 and a cost of $100 would have an ROI of 1 – or 100% when written as a percentage. 

Serviceability: A bank calculates this as a percentage to gauge your ability to pay off a loan. They do this by looking at your income VS expenses (among other things) to determine how comfortably you will be able to pay off the balance of the loan. 

Stamp duty: A state tax imposed on certain transactions. You may have to pay stamp duty on car registrations, mortgages and property transfers. 

Tenant: A tenant is a person who occupies land or property rented from a landlord.

Term deposit: An account where money is deposited for a set period. The interest rate is usually fixed for the deposit term. It is generally higher than a transaction account but not consistently higher than some other at-call high-interest savings accounts. Also known as a fixed deposit. 

Vacancy rates: a measure of how many properties are available for rent over a specific time period. A low vacancy rate means there are not very many dwellings available to rent (typically good for investors), while a high vacancy rate means there is a surplus of vacant rentals. 

Valuation: The prediction of the value of an asset at that point in time; depending on the purpose for which the valuation is required. 

Variable interest rate: You receive interest on an investment or pay interest on a loan at a rate that may go up or down during the term. Opposite of fixed interest rate. 

Yield: The rate of return on investment – the return to an investor on an investment, shown as a percentage of the amount invested. An example for real estate rental yield would be to take the net rental income, divide it by the properties value and multiply by 100.

Here at Axon, we educate, coach and mentor you to invest in property and help you set yourself up for a lifetime of investment success. 

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