Bikelife finance

[BigDL]

It took me the better part of a year, and even now, it is tricky to understand. Interest is a HUGE thing that not even some educated folk get.

 

That couch costs R2000. If you borrow the money to buy it they will charge you delivery fee, initiation fees (and I still cant figure out what the hell these are), a little insurance add on by the wayside, and the monthly installment is R250 for 12 months. WOW easy peasy and I have a couch, just supply 3 months payslips, dont even need bank statements.

 

SO you whip out the sompompie and do the maths with them. It costs R2000. You paying R250 for 12 months, so that is, R3000. And then you get the 1000 yard look and a HAAIBO!! Why they charging me so much ! Then you try explain that if they can afford R250 a month, rather save it (which is another discussion all together), and in 8 months you can go buy the couch cash, AND if I come with you, we will get a discount for you. All this makes total sense to you and I. But to the MAJORITY of south africans, these are foreign concepts.

 

And just like you say Thor, the big companies know how to market to the masses and milk them clean.

We had a problem with an unscrupulous furniture sales guy in Howick some years ago promising staff the world and misrepresenting their salaries to get them credit that they could patently not afford. He didn't respond to reason so eventually a couple of guys took into the plantation to chat about morals and values. Stopped immediately

[DIPSLICK]

We had a problem with an unscrupulous furniture sales guy in Howick some years ago promising staff the world and misrepresenting their salaries to get them credit that they could patently not afford. He didn't respond to reason so eventually a couple of guys took into the plantation to chat about morals and values. Stopped immediately

AHHH THE GOOD OLD DAYS of action/consequence 

[LazyTrailRider]

You should keep doing this until your primary residence bond is paid off. There's no tax break for interest on the debt on your primary residence, so you really want to keep that bond on your rental property for as long as possible.

 

Agreed, I plan on maximising this scenario fully. Unfortunately, the rental bond has 12 years remaining and is only 30% of the value of the primary which has 24.5 years remaining, so there is only so much which can be squeezed out...

[andydude]

Most people don't pay attention to interest differentials, but there are plenty of savings to be had if you're smart about it. For example, I've been continually maxing out the bond on a house that I rent out and ploughing this cash into the bond for our primary residence, because the primary's lending rate is 0.5% higher than the rented one. This maxing out results in an increasing bond payment on the rented house each month, but my rental income is still a fair bit ahead of it, and by maximising the interest I pay on this bond I'm decreasing the taxable portion of the rental income. I'll keep doing this until my bond payment plus rates equals the rental amount.

 

Sounds smart   How do you "max" out the bond on your letting property? I'm asking because I understand that you have to pay a bond over 20 years for example and there's a minimum payment each month. Therefore you can only "max" out if you have built up an access on the letting bond?

[LazyTrailRider]

Sounds smart   How do you "max" out the bond on your letting property? I'm asking because I understand that you have to pay a bond over 20 years for example and there's a minimum payment each month. Therefore you can only "max" out if you have built up an access on the letting bond?

 

The bond is set up with an access facility and fixed term. After each repayment, I withdraw the full available access balance (effectively borrowing all the money paid off back again). Because the term is fixed, this increases my repayment each month. At this point in the term, the repayment is roughly 25% higher than it originally was, but it's still only roughly 80% of the rental so cashflow positive.

[Slowbee]

The bond is set up with an access facility and fixed term. After each repayment, I withdraw the full available access balance (effectively borrowing all the money paid off back again). Because the term is fixed, this increases my repayment each month. At this point in the term, the repayment is roughly 25% higher than it originally was, but it's still only roughly 80% of the rental so cashflow positive.

BOOM!

 

The minority, using the system. Education at work. Nice one Martin!

[ChrisF]

Sounds smart   How do you "max" out the bond on your letting property? I'm asking because I understand that you have to pay a bond over 20 years for example and there's a minimum payment each month. Therefore you can only "max" out if you have built up an access on the letting bond?

 

Alternatively use it as a "savings account".  Putting extra money into the bond, saving tax free at a decent interest rate.

 

When you need money for that new bike, transfer from the ACCESS BOND.  I dont touch the lending amount, as this can result in long term interest seriously eroding the perceived savings.

[LazyTrailRider]

Alternatively use it as a "savings account".  Putting extra money into the bond, saving tax free at a decent interest rate.

 

When you need money for that new bike, transfer from the ACCESS BOND.  I dont touch the lending amount, as this can result in long term interest seriously eroding the perceived savings.

 

If you read my first post which lead to Andydude's question, you'll see that we're specifically discussing a bond on an investment property (which is let to someone). For such bonds, in the scenario we discussed, you want to pay as much interest as possible because interest paid reduces the taxable portion of the rental income.

[ChrisF]

If you read my first post which lead to Andydude's question, you'll see that we're specifically discussing a bond on an investment property (which is let to someone). For such bonds, in the scenario we discussed, you want to pay as much interest as possible because interest paid reduces the taxable portion of the rental income.

 

But you only save R1 tax out of every R3 you spend on interest ....

 

YES, move money about to get the best tax break for as long as possible !!

 

 

But if the interest on the bond repayment is stretched out too long then it is bad maths ,,,,

 

Makes sense if you borrow there, then pay it back in a similar time frame as for an HP, thus short term, decent interest rate, AND a tax break.

 

 

 

Been doing this for the last 20 years.  

[BSG]

And I'm still waiting on Bikelife for my request to be handled, phoned them again today.

 

Sent from my D5803 using Tapatalk

[LazyTrailRider]

ChrisF, I think we're still talking past each other.

 

Two points:

• The math of "stretching the interest out as far as possible" works for one simple reason: I'm not paying the interest, my tenants are.
• In the scenario I mentioned, even if I didn't have tenants and lived in both properties, it would still make sense to continue transferring cash from the bond with the lower interest rate to the one with the higher rate. That is the differential I referred to initially. Naturally, it's implied that I don't *increase* my lending on the bond with the lower rate, I simply keep the debt open for the full term of the loan (assuming also that the bond with the higher rate also remains open for that term, which will be true in this case).

[andydude]

Just be careful from a tax perspective. I am no expert, but I don't think you can draw money from your investment property loan and use it for purposes other than the investment property, e.g. for paying down living property loan or personal use.

 

Any tax people here to confirm or help?

[ChrisF]

Just be careful from a tax perspective. I am no expert, but I don't think you can draw money from your investment property loan and use it for purposes other than the investment property, e.g. for paying down living property loan or personal use.

 

Any tax people here to confirm or help?

 

As soon as it becomes a "second bond" you must show that it is for home improvements.

 

As long as it is part of the access bond it does not attract attention

 

 

 

at least, that is what my accountant told me .....

[Patchelicious]

The Hub in 3 lines.

 

Day1: Hey guys, I need a contact number.

Day2: Thanks guys, got a contact.

Day3: Access bonds and CGT

 

Love it.

[ChrisF]

The Hub in 3 lines.

 

Day1: Hey guys, I need a contact number.

Day2: Thanks guys, got a contact.

Day3: Access bonds and CGT

 

Love it.

 

and tomorrow is FRIDAY .... then the thread goes sideways ....   

[Patchelicious]

and tomorrow is FRIDAY .... then the thread goes sideways .... :devil:

Things only go sideways if you finance toys, or use bonds to offset taxes.

 

Such idiotic things to try and justify!