Common terms and acronyms Part 1 – From ROI to VOI, we unpack them all! (Ep. 186)

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In this week’s episode, Dave, Cate and Pete take you through:

    1. The difference between ROI (return on investment) and ROE (return on equity). Pete explains this critical differential and he and Dave highlight the sheer power of leveraging with a simple example. However, he cautions us about what investors should be focusing on when calculating a return. Pete also touches on time value of money; “If somebody gives you a dollar today, it’s not the same as a dollar in ten years.” Provisioning for inflation is something that is quite relevant for longer term property arrangements, particularly commercial leasing.  Our Property Professor shares some valuable formulae to consider in relation to the time value of money, including net present value (NPV).
    2. Gross lease vs net lease. Pete compares the differences and explains the critical things that commercial property landlords need to be familiar with when it comes to calculating and forecasting their rental returns.
    3. LVR, LMI, AML, VOI, valuation types (short form, long form, desktop, curbside, AVM, as if complete). Dave takes our listeners through each of these terms, some of which may be very familiar for our listeners but he has some twists and turns to shed light on for some of the lesser known acronyms and he expands on some of the detail behind many of these concepts. Pete and Cate discuss the importance of valuation assessments for “as if complete” in order to avoid overcapitalisation risk.
    4. Valuation vs appraisal: why is this critical to understand? Even if the techniques are the the same, one is libel and one is just an opinion. Pete explores this important discretion.
    5. AIP, partial and full drawdowns, and LOO: Dave covers these important acronyms for our listeners and shares some great detail on construction lending; something particularly detailed for strategic mortgage brokers and banks, but a concept that many wouldn’t necessarily know.
    6. COC and FTC : A certificate of currency (COC) is a requirement for every newly purchased property, and it’s easy to arrange but often prompts a lot of questions. Funds to complete (FTC) is one of the most stressful last minute conversations when it’s unexpected and raising a question around shortfall funds. Cate and Dave shed light on some of the causes of this so that our listeners can provision for the unexpected headache at settlement time.

Gold Nuggets

Unanimous: “Don’t change your job while you’re going for a loan or awaiting settlement!”

David Johnson, the ‘Property Planner’s Gold Nugget: Pete suggests that any borrowers who find themselves confused about acronyms in their loan documentation or correspondence, they should ask their strategic mortgage broker or banker to explain it all.

And the team wish our listeners a happy 2023 with a special message each from the Property Planner, the Property Buyer and the Property Professor!


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