The economic downturn brought an end to the double digit growth the property market experienced over the past few years. While it might not be as easy to make a quick buck as a few years ago, buying a property is still a good long-term investment. Investing in property, like investing in shares, is the best way to make sure your money beats the eroding effect of inflation in the long run.

It is important to note that when you rent out a property to a tenant, the Receiver of Revenue will consider the rent received as income and it will be included as “gross income” on your tax form. Gross income is usually a basic form of income like a salary. Do not omit your rental income from your tax form – the taxman can easily pick up undeclared rental income by contacting the deeds office.

On the positive side, you will be allowed to deduct expenses incurred in order to generate rental income from the amount you receive as income. This will include expenses like water and electricity (if you pay the bill), rates and taxes, insurance, agent fees, body corporate levies and certain household expenses. It might be a good idea to stipulate these expenses in the rental contract as this will indicate the expenses were incurred as part of the lease. Always keep invoices and statements in a safe place – the South African Revenue Service require that you keep these records for five years.

While the taxman considers repairs to your investment property as tax deductible expenses, improvements are considered of a capital nature and will therefore not be tax deductible. The general rule is that if the expense is incurred to restore the property to its original condition, it will be tax deductible. Expenses incurred to upgrade your home, will not be deductible.

Something that you might not be aware of is that if your investment property is covered by a bond, your interest payments to the bank will also be tax deductible. The capital part of your payment may not be subtracted though. Your bank will be able to supply you with an amortisation table that will indicate which part of your installment is interest on the bond.

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Saving up a deposit for your first property brings great financial rewards.

Over the last couple of years, the banks’ lending criteria have become increasingly stringent, and in particular, deposit requirements have remained high. Some banks have adopted policies of only awarding bonds at a 70% loan to value. That means a deposit of R300 000 required on the purchase of a R1m property, a steep requirement for most prospective homeowners. More recently banks have changed these policies and have become more competitive.

However, the difficulty in obtaining a 100% bond is not the only reason why it is imperative to save up a deposit for a property purchase. Even if you do obtain a 100% bond, you will still need additional funds to cover the many other costs related to buying a property, such as the transfer duties and numerous fees that add up to significant amounts.

Beyond this, however, there are substantial financial benefits to be realised over the longer term, if you can put down a deposit. The bigger the deposit you can make, the less money you have to lend from the bank at high interest rates, and the less interest you will have to pay the bank over the next 20 years. Furthermore, homeowners who contribute from their own pocket to finance a property are considered a lower risk of default to the bank, which means the bank can offer a lower interest rate on the home loan. Even a 1% reduction in the interest rate on your home loan will save thousands of rands over the term of the bond. These savings, in many cases, add up to far more than the deposit amount.

A deposit will also ensure that the monthly repayments on the home loan are lower, which improves your affordability score and allows you to apply for a higher bond amount than you could if you had no deposit.

So when should you start saving for your first property?

From the day you receive your first salary cheque. The sooner you start the better and the reason for this is what Albert Einstein called the eighth wonder of the world: compound interest. While it simply refers to earning interest on interest already earned, the snowball effect compound interest creates in exponentially growing even small investment, given time, is truly a wonder.

For example, if you save just R100 a month over 40 years with a 10% escalation, you will accumulate more than R2m. If you save R1 000 a month – ten times more – over 20 years – half the time – with the same 10% escalation, you will accumulate far less: just over R1.5m.

This is the power of compound interest – growing your money exponentially faster the longer it is allowed to work. As such, the youth have a massive advantage in terms of building wealth, because they have more time to allow the wonder of coumpound interest to work for them. It is unfortunate that so few young people realise the power they hold in their hands to secure their financial future, by saving even the smallest amount every month, and allowing compound interest to work for them.

The sooner you start saving, the bigger the deposit you will be able to bring to the table when negotiating a home loan, and the more you will benefit financially from the savings in the interest payable over the life of the bond, the lower interest rate you can obtain, and the higher value property you can afford. 

However, even if you missed the opportunity to start saving when you received your first salary cheque, it is never too late to start. Start saving right now, and don’t let another month go by in which compound interest could have been working for you! – Adrian Goslett* – 18 August 2010

By choosing Mortgage Plus for a loan, you will get that continual service to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za