A-Z Explanation of jargon used:

BELOW MARKET VALUE (BMV)

Buying at BMV not only gives you instant equity in the property for the future should you decide to sell or remortgage, but it helps protect you against risk should the market fall.  It also affords you greater leverage and increases your rental yield.   We would typically look for a 25-30% under market value.

BUY TO LET & JET TO LET MORTGAGES.

The two expressions used to describe the specialist mortgages that lenders offer for a property where the letting potential is taken into consideration.  Lenders usually require the rental figure to cover at least 125% of the mortgage and the value of the property to stack up.   Your personal finances are not such an important consideration.

CREATIVE FINANCE.

NO MONEY DOWN (NMD)

A method of raising a mortgage by finding BMV property to achieve 100% finance.

LEASE OPTIONS

By using a 'Lease Options' it possible to acquire properties for just £1.00!! By negotiating a lease option with a seller, the seller agrees to give you the option to buy the property at an agreed price in the future. You also can agree the right to sub-let and reassign the option.

EQUITY.

This is the value you have in the property taking off the finance figure.  Instant equity is the additional value you have in the property by negotiating any reductions at BMV.

HOUSE PRICE TO INCOME RATIO or HPI RATIO

This is a calculation that looks at the average income compared to the house price. E.G. the UK average income is currently £24K and the average house price is £216K. The calculation is 216 divided by 24 = 9. So the figure is 9

LEVERAGE:

A lever helps an individual apply the same force for a greater result.  This also applies with property leverage.  For the same investment of cash the investor can earn a more handsome return by using leverage.

The following 2 examples shows the difference when purchasing the same £100,000 property, first as a purely cash purchase and then with a 70% Loan to Value (LTV) mortgage.

1. 100K cash purchase with 30K growth Cash purchase 30% growth = 30% profit.  Turning 100K into 130K
2. 30K deposit & 70K Mortgage with 30K growth Cash purchase with 70% LTV mortgage 30% growth = 100% profit Turning 30K into 60K

YIELDS:

Gross yield is vanity net yield is sanity.  Profit is king!

This is fairly simple; the term yield is used to describe the rental income in relation to the purchase price.

For example if a property in Swansea costs £100,000 and it rents for £500 per month, which is £6000 per year, then the estimated GROSS yield is:

6,000 over 100,000 = 6% gross yields.

Lenders will look at the rental figure to cover the mortgage by 125% approx.

The NET yield is the crucial figure, which should make or break a property deal; this is the profitability of the property and tells you what you will have left in your hand once any additional costs are covered.  Additional cost would normally include buildings insurance, repairs, admin costs and any service charges that you may have to cover but not including the mortgage payment.   We would always look for a property that’s income would easily cover the mortgage plus costs and leave us in a ‘Cash Flow Positive’ situation.  Some analysts call it the ‘Rent Net of Costs’ figure, we would expect this to be at least 10% of the rental and allows for small fluctuation in the interest rates.

Taking the above example and adding on some additional costs:

£6,000 (rental) less costs say £1000 = 5,000 over 100,000 = 5% net yield.