Rent or sell?

[tRoN]

Hi guys.

I have a freehold property that I can get at least 2 mil for if I sell.

We have purchased a home in a development with a 5mil bond that will be ready in Q4.

Question is...
Do I sell and put the money in the bond?
Or Do I rent it out. Based on another unit in the complex I could get 12k per month. Levy is R1500 and rates is R839 per month.

The issue is that this is our first home and is somewhat sentimental to us having lived here for 15 years.

Also new home is in joint wife’s and my name. Existing home is in my name.

What are the issues with CGT and how to avoid now or later.

 

[Lupus]

Capital gains tax only kicks in if

R2 million gain or loss on the disposal of a primary residence

So if you're making 2million out of that without paying off the remainder of the bond then you might pay CGT

 

[R13...]

Capital gains tax only kicks in if

R2 million gain or loss on the disposal of a primary residence

So if you're making 2million out of that without paying off the remainder of the bond then you might pay CGT

Aren't you mistaken? CGT as far as I'm aware is not payable on the sale of your primary residence. Unless it has changed in recent times? But if he rents it out, and then sells later he will have to pay CGT

 

[Username:]

Sell it.

Keep rental units to flats and complexes.


I also kept my first house as a rental. If you are lucky you might get good renters but the risk is high.

 

[Lupus]

Aren't you mistaken? CGT as far as I'm aware is not payable on the sale of your primary residence. Unless it has changed in recent times? But if he rents it out, and then sells later he will have to pay CGT

I think if you make a large margin on your primary residence it's CGT, it's on your secondary where the margins are lower? I got that from SARS website on CGT :-(

 

[Drifter]

I would sell and pump it into new bond.

 

[Sepeng]

We're in the exact same boat. We initially wanted to keep it because it's our first place and our kids were born & raised there (well not born - you know what I mean).
We bought it not with growth or returns in mind - we bought it cos it worked for our circumstances at the time.

But the place wasn't a rental place - it was free standing with a pool, would've required quite a bit of maintenance.
So we sold and a few months later bought a place specifically to rent.

 

[Gallderhen]

Aren't you mistaken? CGT as far as I'm aware is not payable on the sale of your primary residence. Unless it has changed in recent times? But if he rents it out, and then sells later he will have to pay CGT

If your sell makes more than R2mil profit on a primary residence, you get taxed on the amount above R2mil.

-G-

 

[saturnz]

sell and leverage an investment property if you want to let

a house is the worst space to let out

 

[Ecco]

Sell. R2mil taken off your bond will free up R20k on your monthly bond payments - much more of a saving then the R12k odd you think you will get from renting the property

 

[Tman*]

Sell it.

Keep rental units to flats and complexes.


I also kept my first house as a rental. If you are lucky you might get good renters but the risk is high.

a house is the worst space to let out

Why all the hate for renting out the house?

In my personal experience I have yielded a higher immediate return from renting out a house vs a flat (flat having astronomical Levi's that cuts into rental income). Looking at the R12000pm for a R2mil property, I dont think it would be the case here tho.

I dont quite understand the "If you are lucky you might get good renters" argument. Irrespective of what type of property I rent out, I perform due diligence on the potential tenants, and only select the most suited lowest risk individuals / families.

There is an argument to be made where its easier to find a tenant for a 1/2 bedroom flat @ R8000 a month, vs renting out a R45 000pm house, but the OP is clearly not in that type of market.

 

[tRoN]

Sell it.

Keep rental units to flats and complexes.


I also kept my first house as a rental. If you are lucky you might get good renters but the risk is high.

Why all the hate for renting out the house?

In my personal experience I have yielded a higher immediate return from renting out a house vs a flat (flat having astronomical Levi's that cuts into rental income). Looking at the R12000pm for a R2mil property, I dont think it would be the case here tho.

I dont quite understand the "If you are lucky you might get good renters" argument. Irrespective of what type of property I rent out, I perform due diligence on the potential tenants, and only select the most suited lowest risk individuals / families.

There is an argument to be made where its easier to find a tenant for a 1/2 bedroom flat @ R8000 a month, vs renting out a R45 000pm house, but the OP is clearly not in that type of market.

I never said it was a house.
It’s a freestanding duplex in a small well managed complex.

 

[Lupus]

I never said it was a house.
It’s a freestanding duplex in a small well managed complex.

You earlier said it was free-hold which normally equates to a house. Though there are places where a free-hold is in a complex they normally have HOA and such. Is it a freestanding sectional title in a complex? If so then keep it to rent out.

 

[Blue Shirt]

Is the old property fully paid off or do you still have a mortgage bond on it?

If fully paid off, you can consider to apply for the maximum mortgage bond that the bank will allow on the old place, because you can then deduct the interest from the rental income which will reduce the tax impact of the rental income. Put the monies raised from that to reduce the mortgage bond on the new property. You will have to balance the risk of having bad tenants against the long-term capital growth. The reality is also that you will probably not break even for a few years (rental income after tax vs interest payments).

If both properties have bonds, I would sell the old place and put what is left over after settlement of the bond into the mortgage on the new place.

The prudent action is to do cashflow calculations on all scenarios keeping in mind the taxable implications of the rental income. Choose the option that gives you the highest free cashflows after tax.

 

[tRoN]

You earlier said it was free-hold which normally equates to a house. Though there are places where a free-hold is in a complex they normally have HOA and such. Is it a freestanding sectional title in a complex? If so then keep it to rent out.

Sorry. I thought freehold meant no bond on it

 

[tRoN]

Is the old property fully paid off or do you still have a mortgage bond on it?

If fully paid off, you can consider to apply for the maximum mortgage bond that the bank will allow on the old place, because you can then deduct the interest from the rental income which will reduce the tax impact of the rental income. Put the monies raised from that to reduce the mortgage bond on the new property. You will have to balance the risk of having bad tenants against the long-term capital growth. The reality is also that you will probably not break even for a few years (rental income after tax vs interest payments).

If both properties have bonds, I would sell the old place and put what is left over after settlement of the bond into the mortgage on the new place.

The prudent action is to do cashflow calculations on all scenarios keeping in mind the taxable implications of the rental income. Choose the option that gives you the highest free cashflows after tax.

Old property has no bond.
So the bank can give you the cash on a mortgage for a free property without their being a sale?

 

[Blue Shirt]

Old property has no bond.
So the bank can give you the cash on a mortgage for a free property without their being a sale?

No reason why they should not, provided your credit rating is good enough. Be open with the bank about the two properties and the reason for raising bond financing on the old property.

 

[saturnz]

Why all the hate for renting out the house?

In my personal experience...

It all has to do with risk, the larger the property, the more things can go wrong and the more costly it can become, especially with a potential eviction.

Moreover major maintenance falls on you, which when compared to well run bodies corporate (found in good locations) the costs may outweigh any levy payments. Infact the maintenance costs on my current house outweigh that of my flat- I'm going to have to paint my house soon after 6 years which will probably set me back close to 30k. In my flat I spent maybe R2000 on repairs at most over the 7 years I've been living here.

Another way to look at it is that parking and storage units have no maintenance, and once compared to a house, then a house makes no sense. I rather buy ten parking bays than one house.

and then there is location location location, its more affordable to buy a flat, parking bay or storage in a suitable location than a house.

 

[TechGirl04]

I would sell the house and take the profits to buy a lower risk investment property like a flat. You could then take the rental income from the flat and put a large portion of it into the 5mil bond every month.

 

[shadow_man]

5 mil bond... A cool 50k a month in bond payments. Wow you lot really do earn too much money!