Investing in Property Archives - Harbour & Associates

It is interesting that, although it is the buyer who pays the conveyancing fees, it is the seller who is entitled to choose the conveyancer. Now, let’s say that you are a property investor and you have a good relationship with a particular conveyancer. As an experienced investor you don’t care whether your offer is accepted ot not, because you can always make an offer on another property. Now you are in a strong bargaining position. Simply change the OTP to state that you are entitled to appoint a conveyancer of your choice. There is no way that this little…

A couple who booked a meeting with me were not sleeping at night because they had been doing more than R1m a year turnover from their two multi-unit AirBnB premises and they weren’t VAT registered. What does the law say about this? As soon as you exceed R1m a year VATable turnover, you must register as a VAT vendor. If you don’t, SARS may deem you to have done so and demand the VAT portion of all your invoices, even if you didn’t add VAT. This is what they were panicking about. The good news for them was, in my…

This question is only relevant when the liability date could fall either into the previous tax year or the new tax year of the seller. Let’s say that the seller’s tax year ends on 28 February. The Offer to Purchase was signed by both parties on 15 January 2023. The supensive clauses were satisfied on 5 February 2023. The transfer was registered at the Deeds Office on 25 March 2023. From a CGT point of view, when were the proceeds of the sale received by or accrued to the seller? (see 3(a) Eighth Schedule, Income Tax Act) My view, as…

Let’s say your trust owns an asset such as fixed property. s42 allows you to interpose a company between the trust and the asset without Transfer Duty and without CGT. But let’s say you had that structure and, for some reason, wanted to remove the company so that the trust owned the asset directly. Is there a provision similar to s42 that allows this without taxes? The answer is no. In fact a lot of people held fixed property in a company which they owned personally. This was because they could sell the shares in the company and Transfer Duty…

If you are looking for an investment property, my answer is a definite no. The reason is, that you make your profit when you buy, so, if you don’t buy well, you don’t make a profit and your dreams of building a significant property portfolio will die. So, how can I say that an off plan purchase is not a good buy? Simply because it is at market value and a good buy is always below market value. The better you buy, the more successful you will be, so, get into the habit of putting in stupid offers and not…

In my discussions about Trusts, I frequently have a go at attorneys who are self-confessed cut and paste experts. I point out that the more you cut and paste, the more likely you are to produce garbage. In fact, I dedicated a whole chapter on this in my book “16 Steps to Wealth”. But this week, I came across another cut and paste idiot. Me!! When we agreed to lease our residence in Pezula, Knysna, it was from the owners, who would move out so that we could move in. I offered to draw up the lease and they agreed.

It is a general rule in tax that transactions between connected persons are deemed to be at market value. Typically, this arises when someone sells their fixed property or shares in a private company to their trust. The question then arises “Who must do the valuation?” and the Income Tax Act and Transfer Duties Act are silent in that regard. They simply say that SARS may challenge any valuation. This means that the seller can determine the market value. And that raises the question “On what basis must the asset be valued?” Generally, companies are valued on their last signed…

The sale of property always attracts VAT or Transfer Duty but never both. Under special circumstances, the sale can be zero rated. This is when you buy a commercial property renting business as a going concern. Developers are invariably VAT registered, so the VAT that they charge you replaces Transfer Duty. They often advertise this as “No Transfer Duty” and then bury the VAT in their selling price, so you don’t see it. In the above example the Transfer Duty (after taking the VAT out of the price) would have been R44 963, but the VAT in the selling…

I have often said that it is cheaper to rent than to own your own home. I have also often said that the best form of investment is residential property for rental. So, how can these two apparently contradictory statements both be correct? Let’s first talk about renting rather than owning. Why is it cheaper? Because the people that we rent from did not make good investments. Their ROI can be as low as 3,5%. Usually they are either renting us a property that was at one time their residence and had been bought for that purpose, or they were…

I get so many people wanting to buy a shelf trust because they need to sign an offer to purchase urgently. Why? Because the seller has given them a deadline! What’s wrong with this scenario? Firstly, they should be buying the property in a company of which their new trust will become the owner. They clearly haven’t read my book “16 Steps to Wealth“ Then, they are not following one of the basic principles of successful property investment – you must not want anything badly. If you get the wants, you will not buy well, and don’t forget that…

When planning an Asset for Share swap using the s42 provisions in the Income Tax Act, you will see that the shares have to be new issues, not existing shares. As we invariably want all of the shares to be owned by a trust, we find it best to use a new company. The way an Asset for Share swap works is the new company issues 100% of its shares to the trust in return for an asset or assets (usually fixed property). There is no tax against this transaction. No CGT, no Transfer duty, no tax. There are, however,…

I was chatting to a client on Zoom and trying to do some quick arithmetic at the same time. I didn’t do too well! She had R35m which she wanted to lend to an investment company that would be owned by a new trust. The question was. How much tax would she pay as a result of s7C of the Income Tax Act. s7C says that she would have to charge the company interest on the loan at least at the official rate which is currently 5,25%. Because the company deducts the interest from its taxable income, that’s a negative…

You know, for a Pr(Eng); CA(SA); I can sound pretty dumb at times. Like when a client recently asked me if I was familiar with Velocity Banking. Nope, never heard of it! So he then went to some lengths to explain this miraculous method of paying off your mortgage bond in no time flat. Um, surely all you’re saying is that if you put all of your excess income over expenditure towards your bond, then, because that extra reduces the capital, it also reduces the interest and the interest on the interest? Yes, well, if you put it like that,…

Covid has changed our lifestyles so much that it got me thinking about the future of investment properties. Consider this – Many people (me included) have realised that there’s no need to go to work in an office. The universal acceptance of Zoom, Google Meet and now, even Whatsapp, have changed that. Office space is now left empty and unlettable. Some of us (me included) have even taken the next step and realised that if they work from home, then home can be anywhere. So why own property in one place, when you can rent (and move on) wherever you…

So many people think that first prize is to buy their own home. But is that really the best option? What does it entail? Insurance Gardening Maintenance Neighbours that you’re stuck with A big chunk of non-discretionary expenses Stress to sell when you want to move on So what is the alternative? Renting your home. The advantages? No insurance No gardening No maintenance Neighbours that you are not stuck with Flexibility to up size or down size Minimum stress when you want to move on Compare the long term financial effect. In the short term, the cost of renting is…

There are two excellent sources for some of your property calculations. They are www.Property24.com and www.privateproperty.co.za . They enable you to determine your bond repayments and your affordability. However…

It is critical that, before buying an investment property, you do the numbers in order to determine what price you are prepared to pay. If you do them properly, you will realise that finding a good buy is harder than you expected, but that simply forces you to buy with your head and not your heart. Here’s how I did it when I was in the buying mode of my property investment career. You need a modicum of Excel skills because you must build a model into which you can plug the numbers, and see what happens to the monthly…

If you think that the value of your investment properties is relevant, then your thinking could well be skewed. The only number that really matters is the net rental income that each of the properties produces. And it is the net rental income from which you would calculate the value. Having said that, it is possible that you could sell the property for more than its real worth (based on rental), and that implies that it is a bad investment that should be disposed of, and replaced by one that gives a better return. This typically applies at the top…

It was once fashionable to hold property in a company, so that when you wanted to sell it, you sold the shares only and the purchaser avoided Transfer Duty, so you got a better price. That led to a structure like this. This assumes that the properties cost R10m and are worth R40m when you die. The company must have borrowed the R10m to buy the properties, so it is worth the gain in the properties’ value. Despite changes to…

The property market in South Africa is undergoing zero or near-zero growth, doubtless because it reflects the economy in general, and also because so many income earners are leaving the country because they believe they can do better elsewhere. So, is it a good time to buy? It usually makes no difference whether you buy when the market is low or when it is high. The trick is always to buy below prevailing prices. The first consideration is why are you buying? Somewhere to live. If this is a first time buy, then yes, buy when the market is low.

Investing in Property

Can I, as the buyer of fixed property, appoint the Conveyancer?

If I earn over R1m a year from AirBnB, must I register for VAT?

On what date does the seller become liable for CGT on the sale of fixed property.

Can I do the opposite of a s42 asset for share swap?

Should I buy off plan?

Derek Springett – Cut and Paste idiot!

Market value for connected transactions

Can I buy property from a developer with no VAT and no Transfer Duty?

Why invest in property if renting is cheaper than owning?

The seller wants to sell!

What is the difference between an s42 company and an ordinary company?

Tax on s7C interest

Is Velocity Banking a good idea?

A different model for investment property

Rent? Buy? or Buy to Rent?

Where can I find a property investment calculator?

How can I calculate my expected net rental income?

How should I value my investment properties?

The Double CGT Trap

Should I be buying property now?

Do you want to leave your cart?