Bond vs. tax

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Merlin

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Hello, everyone,



I've just purchased my first property. The first bond payment will go off in a few days' time.

The property is being let out for rental income.

My deductions for tax purposes will the bond interest, municipal rates, the levy, the letting agent, and maintenance.

I would like to pay off more than the minimum on my bond, and have the option of putting a large sum down with the first payment, however I am not sure whether the interest that I save by doing so is more than the tax benefit gained by the interest deduction against my rental income, which I believe I can take advantage of for three years.

I could really do with some advice regarding the best option here, please.

Many thanks.
 
Firstly, I assume you have a flexi bond, as in what you prepay, you can borrow against.

My advice… always just make sure you show Sars a total loss.

If you have surplus money, put it in your bond (if you still show a loss)
 
SARS will get suspicious if you show a loss more than 3 years in a row and might demand a written audit. Make at least a modest profit, since if it is low, you won't have to pay much tax

Been this route as I have been renting out houses since 1985. A written, verified audit is a pain

SARS are aware of "tricks" that landlords get up to

Don't forget insurance. Having a reasonable maintenance expense is ok, even if a bit of that is for your house you live in. A tame contractor helps
 
Thank you.

To the best of my knowledge, my bond is flexi bond.

Unless I raise the rent by about 20%, it's going to run a loss regardless. There was a debacle during the purchase process which has resulted in me having to go with a letting agent. That was never part of my plan. As a result, the monthly cost will now overrun the income.

Before you ask why I'm not moving into my only property, it's because my current rental setup is a lot less, all inclusive, so it makes sense for me to stay here, and make use of a tenant to help pay off my place.

It is a sectional title unit, so the BC does have insurance. As far as I know, a Standard Bank home loan has homeowner's insurance included by default, for things like burst geysers, etc.

I will keep a spreadsheet, and all documentation related to the property.
 
Merlin said:
There was a debacle during the purchase process which has resulted in me having to go with a letting agent.
Click to expand...
Agents are snakes.

Merlin said:
Before you ask why I'm not moving into my only property, it's because my current rental setup is a lot less, all inclusive, so it makes sense for me to stay here, and make use of a tenant to help pay off my place.
Click to expand...
Friend of mine did that. Until he realised it actually cost a lot more having a tenant. Ended up selling the place 3 years later and now just renting as its a lot cheaper.
 
RedViking said:
Agents are snakes.


Friend of mine did that. Until he realised it actually cost a lot more having a tenant. Ended up selling the place 3 years later and now just renting as its a lot cheaper.
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They are indeed. It was the only way to retain the existing tenant though, which I wanted from day 1, rather than risking a random.

The entire purchase process has been a nightmare, for a variety of reasons, involving lying conveyancing attorneys, threats, a slimeball agent, a'hole sellers, a horrid BC management agency, etc.. I've had lawyers involved, and am mulling over absorbing the cost to sue the agent, and the sellers, for a start.

I am not excited about owning property in the least, in spite of liking the actual property.

I have shelved all future plans for additional property investment. It's just not worth the frustration, for me.

I may sell it on once the numbers balance.

Don't take from my experience that all property purchases are bad, and the all such ownership is bad. I live a very different lifestyle, and for me, this has not been a positive experience.
 
Merlin said:
Hello, everyone,



I've just purchased my first property. The first bond payment will go off in a few days' time.

The property is being let out for rental income.

My deductions for tax purposes will the bond interest, municipal rates, the levy, the letting agent, and maintenance.

I would like to pay off more than the minimum on my bond, and have the option of putting a large sum down with the first payment, however I am not sure whether the interest that I save by doing so is more than the tax benefit gained by the interest deduction against my rental income, which I believe I can take advantage of for three years.

I could really do with some advice regarding the best option here, please.

Many thanks.
Click to expand...
What is the big lump sum..

If it's between 150k- 300k then you can earn more interest on that then you save on the bond.
 
BadBoyGP said:
What is the big lump sum..

If it's between 150k- 300k then you can earn more interest on that then you save on the bond.
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Hi BB,



It's in excess of that.

I earned a lot of interest on my liquid capital last year, however SARS absolutely nailed me for it, so to avoid a repeat, and to take advantage of the difference in interest rates, I dumped the majority of my residual liquid savings into the bond.
 
Merlin said:
Hi BB,



It's in excess of that.

I earned a lot of interest on my liquid capital last year, however SARS absolutely nailed me for it, so to avoid a repeat, and to take advantage of the difference in interest rates, I dumped the majority of my residual liquid savings into the bond.
Click to expand...

How did sars nailed you?
 
Merlin said:
I had to pay in, a lot, as the interest earned pushed me into a higher bracket.

The tax rate on the interest was also excessive, in my opinion.
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On your bond???? Seriously

No bank in SA disclose interest you save on a bond.

I have multiple bonds, even bonds paid up for 10 years, so save on interest charges.

Sars…… and prepaying your bond doesnt go hand in hand. (Or what am I missing here)
 
zerocool2009 said:
On your bond???? Seriously

No bank in SA disclose interest you save on a bond.

I have multiple bonds, even bonds paid up for 10 years, so save on interest charges.

Sars…… and prepaying your bond doesnt go hand in hand. (Or what am I missing here)
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You should read slower
 
Speedster said:
You should read slower
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Ok… the topic is prepaying your bond.

I am in that same boat this year, interest earned on investments : R60 000. But nothing related to bonds.

I read it again, that’s why I asked : how does prepaying a bond (and getting nailed on interest goes hand in hand)

If he meant, he will rather prepay his bond, to pay less in interest earned on savings… (sorry, I couldnt decode that)
 
Merlin said:
I had to pay in, a lot, as the interest earned pushed me into a higher bracket.

The tax rate on the interest was also excessive, in my opinion.
Click to expand...

If you earn alot of interest, pay your bond off. But dont close it

Then buy ETF’s (its not interest linked, and max 20% taxed).
 
Speedster said:
You should read slower
Click to expand...

I wanted to start an interest thread actually last week, regarding how to curb interest charges and tax submissions. (As in, to pay as little tax possible on savings/investment accounts).

The best advice I got from one of SA’s savings/investing guru’s.

Swop unit trusts for ETF’s, for starters. On top of that, push a RA more aggressively
 
I don't have an RA. I don't trust the current future prospects of this, given the returns many are getting and what the thieves in power are bandying about.

I'm looking to aggressively pay off my bond, aiming for the end of next year, if possible.

It made more sense to me to clear this, leaving clean rental income to supplement my income, and avoid unnecessary interest.

Getting taxed heavily on interest versus reducing wasteful debt is a no brainer, to me.
 
Merlin said:
I don't have an RA. I don't trust the current future prospects of this, given the returns many are getting and what the thieves in power are bandying about.

I'm looking to aggressively pay off my bond, aiming for the end of next year, if possible.

It made more sense to me to clear this, leaving clean rental income to supplement my income, and avoid unnecessary interest.

Getting taxed heavily on interest versus reducing wasteful debt is a no brainer, to me.
Click to expand...
The tax you pay on interest is exactly the same rate you would pay on other income (excluding the R23,800 interest exemption). And if you put the lump sum into your bond you will not be able to offset the interest cost against the rental income so you'll end up paying more tax on that. Make sure you do your calcs properly or you might end up paying more tax by putting it in your bond.
 
Jehosefat said:
The tax you pay on interest is exactly the same rate you would pay on other income (excluding the R23,800 interest exemption). And if you put the lump sum into your bond you will not be able to offset the interest cost against the rental income so you'll end up paying more tax on that. Make sure you do your calcs properly or you might end up paying more tax by putting it in your bond.
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Thanks, Jehosefat. Understood.

Quite frankly, I've had such a unbelievably awful experience with buying this place that I just want to clear it, balance the numbers, and get rid of the @#$%ing thing. I don't want to touch property ownership ever again.
 
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