Investment A-Z

Question 1

Concept

Answer 1

Definition

Question 2

A – All Risks Yield

Answer 2

A growth implicit yield used in an investment valuation that reflects all of the risks and rewards of the subject property.

Question 3

B – Beta

Answer 3

A measure of volatility or systematic risk used in the capital asset pricing model (CAPM).

Question 4

C – Capital Stack

Answer 4

Defines the priority of rights to income and profits generated by an investment, including equity and debt.

Question 5

D – Debt Service Coverage Ratio

Answer 5

A metric to analyse if an investment generates enough cashflow to repay lending, calculated as net annual income divided by yearly debt payments.

Question 6

E – Equity Multiple

Answer 6

A measure of total return on initial investment, showing how much an investor makes or has made from an investment.

Question 7

F – Full Repairing

Answer 7

A type of lease where the tenant is responsible for repairing the whole property, with no cost to the landlord.

Question 8

G – Gap Analysis

Answer 8

Used in investment management to compare current performance to expected or desired performance.

Question 9

H – Holding Period

Answer 9

The length of time an investment will be held, important in discounted cash flow valuations.

Question 10

I – Internal Rate of Return

Answer 10

A measure of an investment’s profitability over its lifetime; a higher IRR indicates a more profitable investment.

Question 11

J – Junior Debt

Answer 11

Debt that ranks lower than senior debt, offering higher returns but riskier in the event of default.

Question 12

K – Key Performance Indicator

Answer 12

KPIs are used to measure and benchmark investment performance.

Question 13

L – Loan to Cost

Answer 13

A ratio that compares finance cost to the total cost of an investment; higher LTC indicates higher risk.

Question 14

M – Mezzanine Debt

Answer 14

A combination of debt and equity financing, higher risk than senior debt but offers higher returns.

Question 15

N – Net Initial Yield

Answer 15

The initial yield at the start of the investment, including purchaser’s costs.

Question 16

O – Open Market Rent Review

Answer 16

A valuation basis where rent reviews are based on the open market rental value, requiring comparable evidence.

Question 17

P – Purchaser’s Costs

Answer 17

Costs deducted at the end of an investment valuation to calculate Market Value, e.g., agent’s fees, legal fees.

Question 18

Q – Quarterly in Advance

Answer 18

Rental income is typically paid quarterly in advance, although valuations assume annual in arrears.

Question 19

R – Risk

Answer 19

An essential component in investment analysis, relating to both the market and property-specific risks.

Question 20

S – Senior Debt

Answer 20

Debt that takes priority over unsecured or junior debt and is repaid first in insolvency.

Question 21

T – Time Value of Money

Answer 21

A concept that £1 in the future is worth less than £1 today, used in PV and YP formulae.

Question 22

U – Unsecured

Answer 22

Debt not backed by collateral, riskier but offers higher returns (e.g., personal loans).

Question 23

V – Value Add

Answer 23

An investment strategy where properties are purchased and improved to increase capital value.

Question 24

W – Weighted Average Unexpired Lease Term (WAULT)

Answer 24

Used to assess the average number of years remaining on leases across all properties in a portfolio.

Question 25

X – eXtra

Answer 25

Continuously gaining extra CPD on investments and valuations.

Question 26

Y – Yield

Answer 26

Annual return on an investment expressed as a percentage, calculated as rent divided by purchase price.

Question 27

Z – Zoning

Answer 27

A method of valuation analysis where the front of a retail shop is worth more than the rear.