Investment Glossary
a b c d e f g h i j k l m n o p q r s t u v w y z
Below is a glossary and explanation of the key terms used in investment:
Acquisition cost – the costs associated with buying an asset. This can include purchase price as well as other associated costs to prepare the asset for use, such as conveyancing and legal disbursements, searches, mortgage fees, valuations, broker fees, etc to name but a few.
Affordable Housing – Residential property that is affordable to middle-income people, as defined by the local authority.
Alternative Investment Vehicles – Items (vehicles) which are not commonly invested in, and so not normal, primarily due to lack of public awareness. For example where an investment in a bond is 'normal', and investment in wine would be considered an alternative investment.
Alternative Property Investment – investment into property vehicles which are not considered the norm, such as car park spaces.
Anecdotal Evidence – Information that is based on hearsay as opposed to facts. Usually found in casual discussions or sometimes reported in the press.
Annualised – The return on investments on a year-by-year basis. For example, if a 4 year investment promises a 40% return, the yearly return will be '10% annualised'. This should not be confused with 'per annum' which is a fixed annual figure.
Asset – An item owned by a company or organisation, that they can benefit from. Usually something that's resalable value will increase, and which can be used as collateral to borrow money against.
Asset product - A product which has a positive economic value
Association of Residential Lettings Agents (ARLA) – The professional body which regulates letting agents in the private lending sector
Austerity Cuts – Budget cuts which a government will put in place to stabilise their country's economy
Austerity Measures – The measures undertaken by a government to repay creditors. Usually takes the form of tax increases or spending cuts.
B2L – A short acronym for the term Buy to let, which relates to buying a property in order to let or rent it to a tenant.
Bad Debt Recovery – When an unpaid debt, otherwise known as a bad debt, is repaid.
Bailout Fund – A countries financial reserves which are used by the government to provide assistance in times of crisis
Balance Sheet – A statement containing details of all assets and liabilities
Bank of England – The central bank of the United Kingdom.
Bank regulatory Requirements – Government set regulation requirements and guidelines for banks. Used to ensure the banks comply.
Bear Market – A market in which prices are expected to fall, or have already started to do so. This is the opposite of a Bull Market.
Below Market Value – Pricing an asset less than it would be sold on the open market.
Blue Chip Company – A company with stock which sells at a high price, usually due to steady earnings and public confidence.
Bonds – A security against a debt, where the the issuer is entitled to pay interest on the debt.
Book Value – The value of an asset as stated on the balance sheet or accounting books.
BRIC Countries – Brazil, Russia, India and China, all classed as emerging markets by Goldman Sachs in 2001.
Bridging Loan – A short term loan taken out in order to buy a new asset before the previous one has been sold. Commonly used in property transactions.
British Bankers Association – The trade association which represents UK banks.
Bull Market – a market in which prices are expected to rise, or have already started to. The opposite of a Bear Market.
Buy to Let – a property which has been brought in order to rent to paying tenants.
Buy to let Mortgage – A mortgage which is available to people investing in buy to let property. Lenders will look at the potential rental income instead of personal income. Mortgages will often be at a different percentage rate to that of a residential mortgage.
Buy to Let Strategy – Investment strategy used to purchase a property which will be rented to tenants.
Buyers Market – If supply of an asset is higher than demand, the prices will be lower and so of benefit to a buyer.
Buying off Plan – Buying a property before it has been constructed. The purchaser will only see the plans and construction site.
Capital – Can relate to:
a. Cash or other assets invested in order to make an income or profit
b. The net worth of a business
c. The assets of a business or individual#
Capital Gain – If an asset is sold for a higher price than it was brought for, the Captal Gain is the profit made. Sale price – purchase price = Gross Capital Gain
Capital Gains Tax – The tax which must be paid on any profit from selling off an asset
Capital Growth – Relates to an increase in market value of an asset. Can also be called Capital Appreciation.
Capital Protection Investments – An investment where capital is protected and will be returned to the investor if there is a default situation. The risk is lowest, but returns are also lower than for other investments.
Cash Flow – The flow of money into and out of a business or investment. Could be positive or negative.
Chattel – Term for a personal possession, generally used by auction houses and will writers.
Coalition – A grouping of people, businesses or governments in order to work together for the good of both.
Collateral – The security which is used to guarantee a loan
Commercial property – A property which is used for business purposes, such as retail, office or industry.
Commercial Property Funds – A fund which is used to buy commercial property in order to make money through refurbishing, renting, buying and selling.
Commodites – Traded goods which are primarily available on the stock exchanges. Could include gold, silver and coffee. People can invest without having to take delivery of the product, which is known as 'paper trades'.
Completion – When ownership of a property is legally transferred to the buyer by the seller. This occurs in the final stages of purchasing.
Compulsory Purchase Order – A legal requirement which can be put in place by the UK government to buy property or land from an owner for public interest purposes such as to build a railway or road.
Construction Finance – A loan used to cover the associated costs of land development or construction.
Consumer Price Index – An indicator which is used to measure monthly inflation levels, in relation to the cost of specific consumer goods.
Corporate Debt – Debt securities which are not related to government. Commercial papers are issued for short term security, and bonds for long term.
Corporation Tax – A tax which is imposed on the profit of a company
Covenants Conditions and Restrictions – Restrictions on the use of a property which are legally binding. They will be attached to the deed of the property to ensure that the design and use of the property is maintained.
Credit Rating Agencies – Businesses, banks and individuals will receive ratings relating to their credit history from these agencies.
Credit Scoring Systems – A score which is assigned to an individual in order to rate their creditworthiness. It is based on outstanding debts, payment history, general credit history and credit in use. Often used by Mortgage lenders.
Dead Cat Bounce – This term is used when talking about the performance chart of stock which is rapidly falling, which shows a sudden rise after a crash. Not the same as a double dip recession.
Debt Crisis – When a country cannot pay its debts, a debt crisis can lead to other countires paying the debt the debt, which is known as a Bailout.
Debt Restructuring – The process by which companies reduce or negotiate unpaid debts in order to continue operating.
Declaring Income – To officially publicise any money which has been received through employment, sale of goods or property or any profit from investments.
Delinquent Mortgages – When a borrower has failed to make the requisite repayments on a mortgage, causing it to default.
Deposit Protection – When deposited funds relating to investment vehicles are protected should an investment have an unsuccessful outcome. The protection usually comes form an insurance policy or third party underwriter.
Depreciation – The amount that an asset's value declines from one accounting period to the beginning of the next. This is the opposite of Appreciation.
Developed Markets – The most industrially and economically developed countries, such as the USA, Germany, UK and Hong Kong.
Developer – The name given to organisation or individual who builds property on land they own.
Discount Property – A property with a price which has been reduced, usually to below market value.
Distressed Assets – The term given to assets being sold at a reduced price.
Domicile – The country where a person lives, or uses for tax purposes.
Double Dip Recession – The name given when a country goes into a recession, which is the followed by a short period of growth before going into another recession.
Due Diligence – The research which is conducted before an investment, normally by lawyers or investors.
Easement – Term relating to a right of use on a passage of land which is owned by someone else. Commonly granted for access to a property.
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Normally used as a tool for evaluating, is shows the net income with the other elements added back on. Can be used to calculate performance of a long term asset such as a hotel.
Economic Crisis – The name given when a country goes through a severe downturn in economy.
Economic Data – Based on statistics, this data shows general trends in an economy. It can also be applied to a market or an individual project.
Emerging Markets – This terms relates to countries which have financial markets in development, which will eventually become developed markets.
Equities – Normally stocks and shares, this term relates to ownership of interests within companies.
Equity – the monetary difference between the value of a property and money owed to the mortgage lender or bank.
Equity Derivatives – An investment vehicle that's value is based on stock.
Equity Release – The process by which capital is raised from the equity held in a property. Banks will lend money based on a percentage of the equity. This is called an equity release or re-mortgage.
Escrow – A payment protection system, allowing valuable objects such as cash or contracts to be held by a neutral third party, and released when the conditions have been met.
Escrow Agents – The neutral third party which holds the valuable or important objects.
Eurobonds – The name for a bond which is in a different currency to that of the country is was issued in.
Eurozone Property – The name for property located in one of the European countries which uses the Euro as currency.
Exit Strategy – The plans put in place by an investor, covering when they eventually close an investment and release any profit.
Exotic Derivatives – Contracts that depend on the value of a specific set of assets, and which are complex and unusual in some way. Opposite of Vanilla Derivatives.
Financial Services Authority – Also referred to as FSA, this is the independent agency which controls and regulates the financial services industry.
Financial Stress Testing – A series of tests conducted by the financial industry to determine the outcome of situations, and measure the viability of an investment.
Fixed Rate Mortgages – The name for a mortgage which has an interest rate that does not change throughout the term of the mortgage.
Flipping Property – The process of buying a property with the intention of selling it on straight away to a waiting buyer. Can also relate to a property which is brought, renovated and sold over a short period of time.
Flotation – Term used when a company issues shares to the public for the first time, via the stock market. Can also be called an Initial Public Offering.
For Sale by Owner – Refers to the sale of a property by the owner direct, without using an agent. This will result in reduced costs, but the seller takes on all transaction responsibilities.
Force Majeure – Also referred to as an act of God, this terms relates to something, such as a natural disaster, which disrups the course of a construction contract.
Foreclosed Property – A property which has been taken (repossessed) by a money lender when a mortgage has not been paid (delinquent mortgage). The property will then be auctioned to recoup the money.
Freehold Property – When a buyer has complete ownership of a property. The opposite of a leasehold property.
FRI Lease – Full Repairing and Insuring Lease is a lease that gives the tenant full responsibility for repairing and insuring a property.
FTSE – Financial Times Stock Exchange is an organisation which calculates the index on the UK Stock Exchange.
Futures – The name for a financial contract which states that an asset such as a bond must be bought or sold on a set date and for a set price, both of which have been pre-agreed.
Gazanging – A term coined by UK journalists relating the a seller pulling out of a house and leaving the buyer hanging.
Gazumping – Taken from the Yiddish word Gezumph which means to cheat or overcharge, it relates to a seller excepting an offer to buy property from one buyer, then excepting a higher offer from another.
Gazundering – A term used when a buyer offers a lower price just before the completion of a sale, thus threatening the collapse of the chain.
Gearing – The ratio of funds which have been borrowed compared to the value of a property.
Gilts – Government bonds or debt securities which have been issued by the UK, South African or Irish governments.
Global Downturn – When the global economic market cycle changes from rising to falling.
Global Economic Recovery – the name for the period when Gross Domestic Product (GDP) rises following a recession.
Government Cooling Measures – The steps taken by a government to slow a market, such as increasing the taxes on property to cool the housing market.
Government Deficit – The difference between the money a government receives and spends each year.
Government Divestment – The process of selling or liquefying a government investment.
Gross Domestic Product – Also known as GDP, an annual measure of the economic output of a country.
Gross Yield – Relates to the return of an investment divided by the cost. For example dividing the income of a property by it's value.
Ground Rent – The amount of rent which the owners of a leasehold property pay annually to the owner of the freehold.
Guaranteed Rental – Relating to an investment in a property where rental income is guaranteed by the developer or management company. A specified period of time will be agreed in the contract.
Hands Free Investment Property – A property which is bought as an investment, and does not require the investor to spend any time on it.
HBOS – Halifax Bank of Scotland is the new name following the merger of two banks in the UK to create one banking and insurance company.
Hedge Funds – An investment vehicle which consist of a portfolio of strategies which are only open to a small number of investors who have large capital.
Holiday Investment Property – A house which is let to people on holiday, and also used for personal use by the owner.
Hotel Room Investment – Putting money into a hotel unit. The income is generated by guests. It is similar to a buy to let property but normally has a hotel chain running the everyday management.
Houses of Multiple Occupation - A term in the UK for a house which is lived in by three or more unrelated residents.
Housing and Urban Development – The Federal Agency department in the United States which is responsible for housing and urban development.
Housing Information Packs – An old UK requirement of property sale which was abolished in 2010.
Hung Parliament – After an election when no party has the majority. Can lead to either a coalition of two parties, or a minority government.
ICAP – Abbreviation of Intercapital, the largest inter-dealer money broker for financial institutions in the world. Based in London but with offices around the world, the organisation handles transactions of over USD two trillion per day.
IMF – The International Monetary Fund, an intergovernmental organisation which promotes overseas financial cooperation. The IMF has 187 members.
Income generating Assets – An asset which is invested in to create income instead of capital growth.
Index Linked – When a return is linked to a measure such as the consumer price index.
Inflation – When the price of consumer goods or services increases. At a country wide level defined as a percentage increase.
Initial Public Offering – When a company first offers or floats stock to the public.
INREV -The European Association for Investors in non-listed Real Estate Vehicles. INREV is a platform for knowledge sharing in the non-listed real estate fund market. They primarily deal with institutional investors. Fund managers, investment banks, lawyers and other advisors provide additional support.
Interest Only Mortgages – A mortgage where the borrower pays interest on the principle for a pre-agreed period of time.
Interest Rates – The rates applied to interested on loans and mortgages.
International Bank for Reconstruction and Development – Established in 1944, IBRD is a co-operative that works to reduce poverty in middle-income families. It is the lending arm of the World Bank.
International Development Association – Established in 1960, the IDA works to reduce poverty for the worlds poorest countries. It is a lending arm of the World Bank.
International Monetary Fund – IMF is an agency of the United Nations consisting of 184 countries that works to prevent an international crisis.
Investment – Creating profit through purchasing an asset or committing capital.
Investment Diversification – The spreading of investment capital across a number of investment vehicles. Can lead to lower returns, but will also reduce risks.
Investment Grade Property – Real estate which is of sufficient size and quality to be included in institutional property portfolios including pensions and REITs.
Investment Objectives – The overall goals of an investment strategy.
Investment Property Databank – IPD is an organisation based in London which supplies objective business information about the commercial property market. Produces information used by investors, analysts and researchers.
Investment Risk
People who put money into an investment vehicle to make a profit.
ISA – An Individual Savings Account, introduced by the UK government in 1999 to encourage savings. Individuals can invest a set tax-free allowance. They can either have a Cash ISA or a Stocks and Shares ISA.
Joint Venture – The economic contract between two or more parties.
Key Performance Indicators – Also known as KPI's, they are measures of performance set by a company, and can be financial or non-financial.
Land Rehabilitation Projects – Following an industrial process or natural disaster, LRPs return land to its former state.
Last Will and Testament – A legal declaration made by people to declare who or where their property and assets (chattels) will go to upon their death.
Lease – A contract giving exclusive use of land or property, over a set timeframe.
Lease to Own – A method for buying property where there is a lease period before the properyy is purchased.
Leasehold – the right to use the property as stated in the lease.
Leverage – The amount of borrowed money used by a company or individual.
Liability – A legal obligation to pay a debt.
Lien – A legal claim that must be paid when a property is sold. Could be a loan or mortgage.
Life Insurance – A policy which is paid into in order for a lump sum to be paid our to a named beneficiary at time of death.
Liquidation – Selling off assets to raise capital.
Liquidity – Relates to how easy it will be to sell an asset for cash.
Loan Guarantees – A legal promise by an individual (guarantor) that they will take on responsibility for, and pay a loan if the borrower defaults.
Loan to Value – Expressed as a percentage, LTV is the Ratio of the assets value and mortgage against the loan amount.
Long Term Investment Strategy – An investment lasting over 5 years.
Long Term Property Investment – A property which is bought for investment and held for 5 years or more.
Low Income Area – An area of the country where household income is generally below the national average.
Margin – The difference between interest indicator rate of the lender and the rate charged to borrowers.
Market Variable – Outside influences that can affect an investment market.
Market Volatility – The speed with which an asset's price moves up or down. Used to calculate the annual standard deviation of the daily price change.
Medium Term Investments – Investments held for 2-5 years.
Mena – Stands for Middle East and North Africa.
Mezzanine Finance – A combination of debt and equity financing, used to increase a company's growth or development. The lender is protected and can convert the loand to partial ownership is they desire.
Monetary Easing – UK term for the method used by central banks to stimulate an economy by lowering interest rates and increasing the supply of money.
Monetary Policy – US term for the method used by central banks to stimulate an economy by lowering interest rates and increasing the supply of money.
Mortgage – A loan used to buy property, where the property acts as collateral.
Mortgage Crisis – A rise in the number of foreclosures in the US which can cause a financial crisis.
Mortgage Securitization – Pooling mortgages so that they can be offered to investors as bonds, securities or collateral obligations.
Negative Equity – When a property owner owes more money to a lender than the value of the property.
Negative Gearing – When the loan repayments exceed the returns generated from an asset.
Net Yield – The income received over 12 months, divided by the property value.
NINJA Mortgage – A sub-prime mortgage where the lender will only take into account the borrowers credit rating. Stands for No Income, No Job, No Assets.
Nominal Value – The going rate of an asset if sold at a specific time.
Non Disclosure Agreement – Contracts that put a restriction on the disclosure of confidential information.
Notary – An individual who is employed by the state specifically to witness signings of contracts and documents. Also known as a notary public, they are usually required when property deeds are signed in Europe.
Occupancy Rate – The percentage of properties in a building or area which are occupied.
OECD – The Organisation for Economic Co-operation and Development. It consits of 30 countaries with the common aim of encouraging financial stability and economic growth.
Offer – An expression of interest in a property or other investment with the stated highest or lowest price the investor is willing to pay.
Offshore Company – When a company is incorporated in a country with low tax rates of little government control.
Option to Purchase – A legal contract what allows a person to buy a property, usually after they have been renting or leasing it.
Over Supply – When too much product is supplied and demand does not equal the supply. Leads to market saturation.
Over-Inflated – When the price of something becomes greater than it's real value.
Overseas Property Investment – Property that is owned outside of the investors country of domicile.
Paper Profit – The profit based on the amount of money that would be made if an investment was liquidated at that specific time. Often vary greatly from actual profit.
Pensions – The money received once a person has retired from work. The result of paying into a pension fund.
PIIGS – stands for the countries: Portugal, Italy, Greece and Spain.
Political Unrest - A time when the greater public protest against a government. Can also include a military coup.
Ponzi Scheme – A fraudulent investment scheme, where old investors are paid using new investors capital.
Portfolio – An individual or company’s collection on investments and properties.
Positive Gearing – Borrowing money to invest in an income generating asset. The returns exceed the repayments on the loan.
Property Auction – The sale of a property to the highest bidder.
Property Bonds – Funds which have been invested in property.
Property Bubble – A quick increase in the market value of property. Will eventually reach an unsustainable level in relation to buyers incomes, and result in a crash.
Property Crash – When the price of property rapidly declines after a property bubble. Can leave owners in negative equity.
Property Investment Blog – An online forum where someone regularly writes about property investment.
Property Investment Costs – The different costs associated with buying property.
Property Investment Diversification – Taking on multiple investment vehicles to spread the risk.
Property Investor – Someone who puts money into property to gain profit.
Property Management Company – A company which manges the day to day running of buy to let properties.
Purchasing Power -The amount of goods or services that a currency can buy, also buying power.
Quantitative Easing – When a government prints more cash in order to increase cashflow.
Real Economic Growth – The rate of economic growth which has been adjusted for inflation.
Real Estate Investment Trusts – A corporation that buys and manages shares with a portfolio of real estate. Uses the combined capital of investors. Also known as REIT.
Real Estate Operating Companies – Company which buys and manages shares in real estate, investors profit from capital gains and earnings are invested back into the business.
Real Estate Owned – When a property is owned by the bank due to an unsuccessful auction.
Real Estate Syndication – A group of two or more investors from a company who part own the property.
Real Value – The amount that would be paid for an asset at a given time.
Recession – Economic decline when GDP decreases for two or more consecutive quarters.
Recovery – A growth period following a recession.
Repatriation – When capital is returned from a foreign country to the country of origin.
Repossessed Property – When a property is taken by the money lender, for example if the mortgage defaults.
Return Investment – A percentage of the return from an investment divided by cost.
Royal Institute of Chartered Surveyors – The organisation which regulates surveyors in the UK. Also known as RICS.
Secure Exit Strategy – An investment strategy which is unique.
Security – A certificate which states ownership
Security Trustee – The person who looks after the assets of a trust.
Seized Property – Property which has been taken off the original owner. Could be because of outstanding debts such as a mortgage.
Self Invested Personal Pension – A UK pension scheme which is run by the government and gives more choice over investment.
Senior Debt – Debts which should be paid first.
Share – A part of the company's capital. Owned by a shareholder.
Short Sale – Selling a property for less than it is worth for a quick result.
Short term Investment Strategies – A strategy for investment which usually spans 1-2 years.
Sovereign Debt – Money owed by a government with a sovereign.
Stagflation – A time of high inflation and low economic growth.
Standard and Poors – A US credit rating organisation.
Stock – Shares which are traded in the US, or fixed interested securities in the UK.
Student Let – A property or complex which has been bought to let to students.
Subprime Mortgages – Mortgages in the US which are given to high-risk borrowers with low credit ratings.
Tangible Assets – An asset, such as property, which has a physical existence.
Toxic Asset - An asset such as property which has been bought following a repossession.
Toxic Debt – A debt which is less likely to be paid off.
Value Added Tax – The tax which would be due on the estimated market value of a product. Commonly known as VAT.
Vanilla Derivatives – Normal, or standard, derivative contracts.
Variance – The difference between actual and planned costs for a product or service.
VAT Exempt – When something does not have to pay Value Added Tax in the UK.
Venture Capital – Given to companies that can't secure a bank loan in order to help them start-up.
World Bank – The international financial institution comprising the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).
Yield – Expressed as a percentage, the annual rate of return on a capital investment.
Zoning – A term for land used at government planning level. Could be farm land, a green belt, redevelopment.
