The first thing to consider when deciding if you should purchase a property is to view it with an investment mindset and run the numbers. Calculate what you are currently paying in rental and compare this against what it is going to cost you to own the property. When looking at the costs to own the property, remember to take into account that your landlord is currently paying additional costs such as rates, levies, accounting fees, bank charges and insurance that you will now need to pay when you own the property. Do this analysis to see whether the property will make or cost you money monthly. And if it costs you money, how long will it take before you starting making a profit.
If you are going to bond the purchase of your property the banks will generally ask for a 20-30% deposit. The key question all business owners need to consider when making the decision to buy their property is whether this capital can deliver a better return deployed somewhere else e.g. buying more stock. If your business is mature and the capital is not required in your business itself, this could support and motivate your decision to own a property.
In most cases business owners set the rental to cover the bond and other expenses the property company would have e.g. levies, accounting fees etc. When repaying a bond you need to be aware that the interest is all you can claim for tax. The capital repayments are not written off as an expense. This generally results in the property company reporting a profit and having to pay tax but there is no cash in the account as it was used to pay all the bills. If this is not taken into account when purchasing a property it can result in an unplanned tax expense for business owners.
You can have the transfer zero-rated if the entity selling the property and the entity purchasing the property are both vat registered. This means that vat is charged on the transaction but not at 15% but rather at 0%. If the purchaser pays vat on the transfer of the property, even though it is at 0%, no transfer duty will be charged on the property and on the transaction. This could save you a significant amount of cashflow. It can be a little more complicated than this so for assistance contact My Finance Partner for support with this.
The last thing to note is that tenants deposits should be stored in a separate account from the general business account. If SARS sees that the deposits are included in the general business account and being used in the day to day running of the business, you are at risk that SARS will tax the deposit as income.
For more support contact My Finance Partner today. www.mfpartner.co.za info@mfpartner.co.za
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