really interesting post... can someone detail the tax benefits / issues with investing in property? And why would one operate at a small loss? Does this make sense even for a cash purchase. My thinking is to look for a property closer to the coast for a few reasons - kids education, kids accommodation during their university years (or using the rent to fund it), and a most importantly, a home I can retire in... this forms part of my "life plan".
AP and Limitless indicate totally contrasting approaches. AP unlike many actually has a plan - and in their case a multi use approach to property - which can go further than - buy to let and justify a more long term approach- although owning property remotely sited is no better than owing property next door. Limitless is the major risk taker - and seems to believe that a tax loss is an investment objective? (I think this debate is more about "emotion" and security blankets than most would care to admit. But Mrs Yellin will cure you all of this when she eventually gets her act together and the goldilocks phase becomes an odd part of economic history - in due course - please do hurry up!)
another way to look at this is if you've already got a primary residence with an access bond and you've got an investment property with an access bond, you would want to move as much cash out of your investment property's access bond to take advantage of the tax benefit on the interest, as possible.
so you could calibrate your investment properties bond such that for tax purposes you break even.
this is assuming you're in the fortunate enough position to be cash flow positive on the property in the first place.
BC01 i think you're missing the point though on the "risk free" asset. the point is that you have to consider what your return on the R1m would be because by utilising a bond you've now got R1m to invest. put it into a 8% government bond if needs be, but this has to be included in your analysis to be of any relevance.
These are my last thoughts as I look at the insurance claim on a house we own - R18000.00 worth of damage caused by half witted tenants (did you know that its possible to explode a cast iron woodburner ?). NO one seems to be acknowledging the fact that asset bubbles exist - and property is numero uno on this front as things stand - well joint first or second? If you buy under valued asset classes ( houses , flats whatever -and yes in the early 2000's this stuff was cheap and by cheap I mean trading at below replacement cost( this is key ) ) then the kicker/ PRIMARY DRIVER OF VALUE - AS IN REAL GROWTH over inflation - which makes all this stress and strain ( owning property to let ) is that fact almost to the exclusion of anything else - once you have deducted inflation/depreciation etc it all just looks over valued and I suspect that most people DON'T ) Asset valuations are always in a cycle around fair value - we all know this and property is not an exception to this rule. For example if you had bought SA art in 2000 -some names not pot boilers you would be laughing - and the best thing is you could have enjoyed it along the way - without stress. And Art does not have a replacement value and does not generate an income - ignoring synthetic funds. -
To me the "unknown" could become a problem and that is Property taxes and utilities. (though tenants pay for latter - but could chase them away) Towns and cities are so behind in maintaining the infrastructure and if one day catching up might require capitol++ by these councils. Property owners at risk to bear the brunt again.
It is important to remember all investments carry risks. The success to for the buy to let property is to do proper tenant screening (which can be done). 95% success lies in this. I have 3 flats now (2 is managed by agent and last 1 I manage myself - no problem). I have a full time demanding job and managing the property on the sideline is no major issue and not time consuming (but it starts with doing proper tenant screening). For the past 5+ year I had no major damage and received 100% rental). Tax benefits also help. Reason for running at small loss and not big loss is that i don't want my property to be burden in terms of cash flow. If one makes a profit then you are taxed so better to run at small loss and use excess cash for purchasing more property of investing in shares... Hope this help. Very interesting comments. Agree of previous comment that use excess cash in investment property to pay-off your primary residence. This way is much more cash & tax efficient!