Buying my first property?

[1nsane!]

Hi Guys,

I have a question regarding something I have planned in my head. Just want a few opinions from the forumites.

My wife and I are currently living in a house that is too big for us. It is a 3 bedroom, 2 and a half bathroom unit and we are only two people. I want a smaller place, with a garden and TWO GARAGES. At the moment not having a garage is my biggest problem, as I love working on my car. My bakkie looks like a proper storage unit with all the tools I leave in it.

The place we live in now can easily be rented out for about R5.5k p/m. I have seen a VERY nice place close to us for about R8.7k p/m. In my mind, by my logic, I then only pay about R3k p/m due to the fact that I generate income from my "primary residence".

Now, to throw another spanner into the works, the property we live in currently is not in my name, it is in my wife's name. How does the tax work on the R5.5k p/m income?

Is this a good idea? As far as I can see, buying a property is always a good investment?

Please advise a newb, good idea, bad idea?

 

[fdaniels]

That plan can work but ...

1. Don't count on your current place being occupied 365 days a year
2. Renting can be dodgy as people don't always pay on time, and can mess your place up.
3. You are still going to be resposible for your rates / water on your current property.
4. I can't comment on the tax but I reckon that SARS sees that the same as any income. So add it to your wife's current income and work out the month tax on the total. You will need to set aside the difference as tax.

 

[initroot]

I could be wrong but this is what I remember...
It will be seen as rental income. I take your not married in community of property?
If so the rental income would be divided between you and your wife. Both will only pay tax on their half of it then. I don't see that will make much difference in your taxable income, it's a small amount.

 

[biometrics]

I've rented out a house and flat before. Not again.

 

[Tacet]

I'm currently in my third year of renting a unit out. I work through a rental company (after my second tenant, who was one of the bad ones). It can work, but make sure that you work through a reputable company, and make sure what the municipality says about the electricity bill (or better, install prepaid). Tshwane places the onus for the bill on the owner, even if it is in the tenant's name. So if the tenant simply don't pay, you end up with a mean bill. Personally I keep the bill in my name, and email it to them every month. That at least gives me warning if they're not intending to pay up. Legally you may not cut the electricity, even if they don't pay, but I just make it the rental company's problem and ask them to send a nice legal letter. Seems to work.

Re tax:
All expenses on the unit can be deducted from tax. That includes the interest on a bond, all repairs (not upgrades), the rental company's fees, levies, and property tax. On the other side is all income generated from the unit, which would be your rental income. The way I understand it, the net gain/loss on the unit is added to your personal tax, so it can be a nice way to get something back from tax at the end of the fin year, if your losses on the unit is large enough. I'm not sure how long, but after a certain amount of time of making a loss (3 years, can someone confirm?) they will ring-fence the unit, which means that the tax on it is not added to your personal tax. I think they will then take that taxable loss into consideration when you starting making profit on the unit, and deduct it from that profit. I'm not there yet, so I'm not 100% sure of myself.

So, if your wife has a taxable income, the rental income would, when you make a profit, be added to her personal income, pushing her into a slightly higher tax bracket. If she doesn't have a taxable income, she'll only be taxed if the income on the unit is more than the minimum taxable income.

All that is based on the assumption that you and your wife is taxed separately. Also, it would be good if someone could confirm my possibly inane ramblings.

 

[Rockhound]

That plan can work but ...

1. Don't count on your current place being occupied 365 days a year
2. Renting can be dodgy as people don't always pay on time, and can mess your place up.

fdaniels is absolutely correct.

Renters can be a nightmare and agents also sometimes.
When you don't have renters it can seriously screw up your cashflow.
And after people messed up your place you will need to fix it to be able to get new renters.
Remember to insist on deposits for if the renters mess your place up.
And never fall for the deposit is the last months rent. Because if they leave and the place is messed up you don't have any recourse. Except lawyers which are expensive.

3. You are still going to be resposible for your rates / water on your current property.

True but you can claim this as a deduction against the rental income.

4. I can't comment on the tax but I reckon that SARS sees that the same as any income. So add it to your wife's current income and work out the month tax on the total. You will need to set aside the difference as tax.

Also true.
The rental income will be a business income in your wife's name unless your married in community of property.
In which case it will be a 50/50 split between your wife and yourself.
Also good advice to set aside a monthly amount for tax.
She will also become a provisional taxpayer because SARS considers rental income as a business.
She will have to pay provisional tax every February and August on the expected rental profit.

Things you will be able to deduct against the rental income.
- Interest on a bond on the property that she is renting out.
- Rates and taxes.
- Gardening services (Renters don't take care of your garden, I usually include it in the rent)
- Repairs and maintenance
- Commission paid to rental agents.
- A small portion of phone bill. (Say 5%. Used for managing property)
- Levy for communal property. (if applicable)
- etc.

Best keep detailed records of all the above for tax purposes.

Hope this helps.