Buying second house as investment

[Gnarls]

^That's very general. Property is obviously location specific but I just can't see how a positively geared property can be worse than investments especially if you've put very little down as a deposit.

 

[CheekyC]

^That's very general. Property is obviously location specific but I just can't see how a positively geared property can be worse than investments especially if you've put very little down as a deposit.

I you have little deposit and go for a bond, remember that after 20 years your property will have cost you 3x the purchase price. With at most 50% capital gains. In real terms that is no gain at all. With an investment you get far better returns and if your compound that over 20 years, that becomes a huge investment. I have a warehouse that has a tenant and I earn R10K nett per month. It is fully paid up, but has had 0% capital growth in the last 5 years. I am seriously considering selling it and investing it money....

 

[CheekyC]

Read http://www.moneyweb.co.za/moneyweb-investment-insights/your-house-is-not-an-asset

Exactly.. yes you can use it as security, but you must not see your house as part of your investment or retirement portfolio

 

[Gnarls]

I you have little deposit and go for a bond, remember that after 20 years your property will have cost you 3x the purchase price. With at most 50% capital gains. In real terms that is no gain at all. With an investment you get far better returns and if your compound that over 20 years, that becomes a huge investment. I have a warehouse that has a tenant and I earn R10K nett per month. It is fully paid up, but has had 0% capital growth in the last 5 years. I am seriously considering selling it and investing it money....

But if you have a cash positive property why would you pay it off at all? I don't mean to sound presumptious but why not just refinance the property so you're breaking even and then invest that while still maintaining ownership of the property?

 

[Billy]

But if you have a cash positive property why would you pay it off at all? I don't mean to sound presumptious but why not just refinance the property so you're breaking even and then invest that while still maintaining ownership of the property?

Because the tax advantage of the new loan is not allowed by SARS.

 

[CheekyC]

But if you have a cash positive property why would you pay it off at all? I don't mean to sound presumptious but why not just refinance the property so you're breaking even and then invest that while still maintaining ownership of the property?

True that is an option to consider. Tbh did not think of that. So the question is then whether to but another warehouse next door that is fully let and then do what you suggest

 

[Gnarls]

Because the tax advantage of the new loan is not allowed by SARS.

Well, not a new loan but just getting the accumulated capital out of the property and using that as a deposit on a new one or use the cashflow generated by the first to finance the shortfall on the second. I'm not a tax expert and I'd advise the OP to seek the proper advice before doing anything but letting cash sit in a mortgage whereas it could be working harder somewhere else seems counterproductive to me.

This is more along the lines of what I meant

Originally Posted by eehellfire

Bit of a resurrect, but anyway...

If you have an access bond on the rented property, just keep withdrawing capital amount from the bond. In this way, you keep the interest portion of your monthly instalment maximised, and thus maximise your tax benefit.
You can just deposit that capital amount into your other bond.

 

[wizardofid]

This is my problem we bought a house 8 years ago (4 bedroom, double garage, study, living, kitchen, burger erf it also has a separate building that we use as a cafe and located in the main street). We paid 120K cash for the property we spend about 250k fixing up the house and business.

How do you go about reevaluating the property 8 years later, just worried we put too much into the property, thing is we have no outstanding debts or bonds, what we have done in the past 8 years has only been cash.

 

[Billy]

Well, not a new loan but just getting the accumulated capital out of the property and using that as a deposit on a new one or use the cashflow generated by the first to finance the shortfall on the second. I'm not a tax expert and I'd advise the OP to seek the proper advice before doing anything but letting cash sit in a mortgage whereas it could be working harder somewhere else seems counterproductive to me.

This is more along the lines of what I meant

If you now claim the total interest on your tax it is tax evasion, and illegal.

 

[Gnarls]

If you now claim the total interest on your tax it is tax evasion, and illegal.

But you wouldn't.

 

[czc]

Read http://www.moneyweb.co.za/moneyweb-investment-insights/your-house-is-not-an-asset

Response article: http://www.moneyweb.co.za/moneyweb-soapbox/why-your-home-is-an-asset

 

[supersunbird]

Its a investment that is much more work to manage generally, but then again its a geared investment*, which is much harder to do with shares... I do both.

*Talking about renting out a property with a bond on it.

 

[creeper]

Response article: http://www.moneyweb.co.za/moneyweb-soapbox/why-your-home-is-an-asset

And that is why enjoy reading moneyweb. They provide a good for and against articles on subjects.

 

[Dolby]

SARS will not recognise any new loan you take out on your rental property for deduction as it was not required to procure the income producing product (house). The monthly interest on your current bond on the rental property IS deductible

So if I have a second property - paid off etc - and decide to take a bond to renovate and repair it, they won't see it as required and I can't claim tax ?

 

[TheTwo]

For tax purposes, only the interest (not capital) on the loan is deductible against income. Additionally you must take into account other costs which are deductible. Rates, Levies, insurance, security etc etc.

Also SARS will not recognise the new loan against your income as it was not required to procure the income producing property.

Knowledgeable, can you so my tax for me?

 

[ToxicBunny]

So if I have a second property - paid off etc - and decide to take a bond to renovate and repair it, they won't see it as required and I can't claim tax ?

If you are using it to improve, then you should be able to claim the tax...
Its an "expense" you incurred to keep the income stream flowing by maintaining/improving the income generating asset.

 

[surface]

So if I have a second property - paid off etc - and decide to take a bond to renovate and repair it, they won't see it as required and I can't claim tax ?

http://www.sars.gov.za/TaxTypes/PIT/Pages/Tax-on-rental-income.aspx

Can the taxable amount be reduced?

Yes, the taxable amount (rental income) may be reduced as you may incur expenses during the period that the property was let. Only expenses incurred in the production of that rental income can be claimed. Any capital and/or private expenses won’t be allowed as a deduction.


Which expenses are allowed?

Expenses that may be deducted from taxable income include:

rates and taxes
bond interest
advertisements
agency fees of estate agents
insurance (only homeowners not household contents)
garden services
repairs in respect of the area let and
security and property levies


Which expenses are not allowed?

Maintenance and repairs should be noted as specific costs and should not be confused with improvement costs. The latter is a capital expense that would be included in the base cost of the property, to effectively reduce the capital gain (or loss) on the disposal of the property, for capital gains tax purposes.

When it comes to VAT expense claims, the supply of a “dwelling” is an exempt supply for VAT purposes, and you can’t deduct VAT incurred on its expenses.

 

[StrontiumDog]

Its a investment that is much more work to manage generally, but then again its a geared investment*, which is much harder to do with shares... I do both.

*Talking about renting out a property with a bond on it.

What about listed property funds? That takes advantage of gearing, indirectly yeah?

Best & worst listed property funds 04 Jul 2013