Do you won an investment Property or thinking of buying one?

You've heard that property should be paid off in 6 years,

In this #Thread we cover reasons NOT to pay off your investment property and the importance of a home loan for investment properties

#PropertyTipswithNthato https://twitter.com/DineoSandra/status/1313387366476902400

Before we begin this thread I'd like to outline the two most common investments properties, primary residence and buy-to let property. The former is where you house your family & the latter is where your tenants live and pay you monthly income i.e Rent

Let's get straight into it, why would an advocate for paying off your house in 6 years be pro homeloans for an investment Property?

The answer is Simple: Tax.
In life, two things in certain, death and taxes.

Most of the working class buy investment properties in their names, the modus operandi is the buy a flat first, then move out and rent it out, right?

Now, since this house is in your name, the income will reflect on your total income for the year in addition to your salary.

Here's the difference between a rental paid off property and a mortgaged property: Net Income
A paid off R1M property can have a net income of R8000 p/m, whereas the same property can have a net income of R2000, or even make a loss for the first few months (negative gearing)

Why is this important?

A higher net income means more tax liabilities on your part, not withstanding that you've put all your money into this property and the latter situation your lumpsum is earning interest or dividend s, while you pay monthly for the house.

You are allowed to the make the following deductions on your taxes for your rental income( whether cash or mortgaged)

* Advertising costs
*rental agents fees
*rates & levies
*cleaning service
*insurance (not household)
*repairs and maintenence
*water and electricity etc

With so many tools to get tax reductions why do to all this effort?

The figure attached shows the interest payable for a R1M House, as you can see it's charged on alsifinf scale, first ten years you're paying most of your bond as interest and lesser capital

This means, your net income will be lesser, but your ROI will be higher, since you didn't put all your R1M into this property, you've only committed to paying R7 821 p/m for 20 years

Interest tax deductions contribute more than 60%-80% of your tax rebates, hence it's important

What's interesting is the fact that, your R1M cash can get you multiple properties easily,

Step 1: buy cash
Step 2: take out a home loan
Step : repeat 1&2

Never leave your cash unattended in a home loan, unless it's for saving purposes

Now, some history lesson, after the black Monday (stock market crash in 1987 and the Great Depression (1929)

World leaders realised that for the economy to grow, money needs to circulate, for money to circulate, people need to constantly borrow from the bank

They then came up with a plan to give tax rebates to people who borrow money to advance their businesses, property includedi Instead of locking all your money into the house the government would give you an incentive to borrow from the bank and pay interest which is tax deductibl

In thet greater scheme of things, one gets more out of a financed rental home as compared to a fully paid property, hence, there's no rush in paying off a rental property, pay off your primary residence, all it does is drain your money, no income except for capital appreciation

Is topic is quite technical, I do a lot of consultative work to assist clients run the numbers and have realist forecasts,

I have covered it in the most basic way in order to teach the concepts