Is it a good idea to bond an investment property?

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[READER QUESTION] 'Or would I be better off investing R8 000 per month into a fixed deposit earning the interest over 20 years?' MariusFenwick of thisiswealthup replies... PersonalFinance Property

I come from a family that has always believed that property is a good investment.

Marius Fenwick Profile Mail The only way that an investment property makes sense is to bond it. Why do I say this? A mistake that’s often made is to take the sales value of a property and calculate the return by merely comparing that to the purchase price. All other costs are ignored. Once the peripheral costs like bond interest, maintenance, rates and taxes, levies, insurance and so on are taken into consideration, residential property rarely provides a return ahead of inflation.

The opposite principle applies to your primary residence where a cash purchase is preferred due to the cost of financing over an extended period. When bonded over a 25-year period your repayment increases your actual cost of the property threefold.Investment income is fully taxable. This means that your total rental income will be considered taxable income.

It is important to note that Sars will only allow expenses to exceed income for a limited period of between three and five years, depending on your motivation of why expenses exceed income.

 

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