See below, and I have seen many of these....
What is he not taking into account? and why have I and many others been able to make lots of money from residential rental properties?
from www.fin24.co.za
Mike Immelman - December 4, 2014 at 09:25
If you do your sums correctly you will discover that it is not possible to make a return in excess of inflation on a rental property investment.
From your gross 8% suggested above you have to subtract:
1. 10% agent collection fees
2. 25% building levies
3. 10% for repairs and maintenance
4. 10% interest on the bond
5. 5% defaults by the tenants
40% marginal tax on your income if the rent pushes you into a higher tax bracket.
You can however add back capital appreciation on the property (if the tenants haven't destroyed it). You also have to consider the political risks if this is a South African property (the government and legislation is very pro-tenant).
Work it all out and you will probably be showing a net loss, certainly you will not be making as much as inflation. Cash is the worst investment one can make but at least it is more liquid than rental property.
Investing in a rental property is useful as a means of diversification , where one already has a share portfolio, an education, a pension, no debts and a money investment. It should come about last on this list.
From your gross 8% suggested above you have to subtract:
1. 10% agent collection fees
2. 25% building levies
3. 10% for repairs and maintenance
4. 10% interest on the bond
5. 5% defaults by the tenants
40% marginal tax on your income if the rent pushes you into a higher tax bracket.
You can however add back capital appreciation on the property (if the tenants haven't destroyed it). You also have to consider the political risks if this is a South African property (the government and legislation is very pro-tenant).
Work it all out and you will probably be showing a net loss, certainly you will not be making as much as inflation. Cash is the worst investment one can make but at least it is more liquid than rental property.
Investing in a rental property is useful as a means of diversification , where one already has a share portfolio, an education, a pension, no debts and a money investment. It should come about last on this list.
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