Are you thinking about dipping your foot in with property investment, but don’t really know where to start? There is a lot of information out there, but many first-time investors become overwhelmed by all the technical stuff.

Don’t panic though – here is a list of some of the most common phrases to do with property investment – and they have been de-mystified for you.

Capital gain

Capital gain occurs when the property increases in value, over and above what you paid for it, and what you have spent on repayments, improvements and additional costs.

So if you purchased a property for $200,000, and you spent $40,000 on improvements, and $50,000 on repayments – then you sold the property for $350,000, your gross capital gain would be $60,000.

Equity

Equity is the difference between what you owe on your loan, and how much your property is worth. You can build equity by investing in property that is likely to increase in value, while you work to reduce your loan amount.

If you purchase a property for $300,000 and you put down a $30,000 deposit you would owe $270,000. Therefore you have $30,000 equity in the property.

Investment Strategy

Your investment strategy is the plan that you make, taking into account your financial goals. Are you looking for a way to get a quick win – and only plan to focus on short term gain? Or are you looking to build an investment portfolio over a number of years or decades?

This could be something to discuss with your accountant or financial planner, as well as your mortgage broker.

Interest only loans

Interest only loans allow you to borrow money and only repay the interest for a specific period of time. Usually the interest only period lasts from 1 to 5 years.

These loans are helpful if you’re focussing on short term gain, and plan to sell the property within the first few years.

Introductory rate loans

‘Honeymoon rate’ loans offer a lower interest rate for a short period at the beginning of the loan, before you return to standard variable interest rates.

These loans can be attractive for owner builders, or those planning to achieve a short term gain on their investment. The lower repayments mean that you could pay more off your loan balance in the short term.

Line of credit

A line of credit is a pre-approved amount of money that you can borrow when you need it – either as a lump sum or in small portions.

This option is popular with experienced investors, who are always on the lookout for their next property purchase, and need to be able to move quickly.

Redraw facility

A redraw facility allows you to make extra repayments against your loan, and then take the money back later if you need it. This is a great feature for people buying and selling multiple investment properties.

All in one accounts

All in one accounts are designed so that all of your income goes to the one place, and the account is used for your loan as well as all of your expenses.

Because everything goes into this account, the amount that you owe will be reduced. Be sure to look into all of the fees involved with this option.

Offset account

An offset account is a savings account linked with your loan which reduces the interest you pay. Your lender will take your savings into account and deduct this figure from what you owe before calculating your interest.

Construction loans

If you’re building a home and you don’t need to borrow the full amount upfront, a construction loan allows you to only pay interest on the amount that you have spent.

Bridging finance

Bridging finance is designed to help you purchase one property before you sell the other. Once you sell the old property, the funds are paid straight into the loan for the new property.

The danger here is, if you don’t sell the old property as quickly as you thought, you will be responsible for servicing a much larger loan.

Of course, there’s so much more to think about when you start looking for an investment property. But armed with some of the lingo – you will be an expert in no time.