Are you paying too much tax? With a property rental loss system, you can create an investment strategy that will work both ways: 1. It will give you significant tax relief; and 2. use the best proven investment vehicle: Unit Trust Investments.

This way you can enjoy a real estate portfolio as well as a Unit Trust portfolio that is growing stronger than real estate.

Explanation:

If you own a second property as an investment and earn monthly rental income, you must report this income to SARS, which means you pay tax on the additional income you receive from your investment.

To create a “rental loss,” simply make sure your tenants are paying less in rent than you’re paying in your bond to the bank. By having to pay on your property, you have created a rental loss, which is tax deductible against your personal tax.

Normally, real estate investors “milk” their properties every 3 to 5 years. This means that an appraisal expert inspects his property to determine if the property has increased in value.

If the rental income has increased steadily over those 3-5 years, the rental income will most likely equal your refund to your bank. At this time, your property has also increased in value, and by appraising your property, you will see how much your investment property has grown.

To strengthen your chances of receiving bank refinancing, you can also use additional rental income to prove your affordability.

As an example:

If the property has grown by 300,000 in value, you can ask the bank to refinance this amount on your property. This amount paid by the bank is tax free. You can now move on to the next phase of your plan and that is to invest this money in a Unit Trust linked investment.

The advantage of borrowing money from the bank is that you will again pay less personal taxes, because you have created a new rental loss. But first, a word of caution. It is vital that you research which legal entity and for how long you are allowed to have a “rental loss” on a property.

Published figures have shown that Unit Trust growth outpaced overall property growth. So you may ask: why don’t I sell my property and invest in a proven Unit Trust vehicle? The difference is that you will then have to pay taxes on your 300,000 profit and only invest the balance in the Unit Trust. You will also have sold the vehicle that allows you tax relief and you will be left with only one investment: the Unit Trust investment.

With a rental loss strategy, you’ve used your one investment vehicle to create another investment vehicle while saving some money on taxes. This type of strategy can achieve great financial results. The key to success is proper planning and execution of your strategy, along with patience and discipline.

Konrad Wentzel
Independent Financial Planner
PSF 7234
+27 82 46 222 12
http://www.icoveronline.co.za

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