Owning a home can be a great opportunity to generate funds, whether this takes the shape of downsizing and enjoying the profit from the sale or renting out the home.
Particularly in these tough economic times, many homeowners are turning to their largest asset, their homes, in search of extra income.
Apart from the traditional rental arrangements, short-term holiday rentals have also been promoted as a great source of additional income.
However, for homeowners who are considering this option, be sure to factor in the tax calculations. Short-term letting is still classified as rental income and will need to be declared to the South African Revenue Service within that tax year.
The rental income you receive should be added to any other income you may have, but will also be reduced by certain permissible expenses incurred, including rates, bond interest, and property levies.
With short-term rentals, homeowners can only deduct those expenses in proportion to the amount of days the property was rented out, which can in some cases lead to a homeowner paying more in tax for the year than what the short-term rental amount earned them in profit.
If selling or renting is not an option, then homeowners can look at cutting back on certain household expenses to make their money stretch a little further.
While insurance is a necessity for homeowners, it does not have to be a financially draining burden. Shop around and see what options are available from the various insurance providers.
Competition in the market forces insurance companies to launch new products regularly and consistently try to find ways to undercut their competitors.
Another trick homeowners could try is to request that their bank reduce the interest rate on their home loan. However, only a few banks would be willing to provide this service and will only grant it provided that the debtor has shown an impeccable payment record.
It is a bit of a long shot, but if you are successful, you stand the chance to save thousands. You would need to submit a formal request to your bank stating how well you have kept up with your payments and requesting that they re-evaluate the interest rate since you’ve proven to be a low-risk client.
If this does not work, it might be worth exploring which rates you could receive at other financial institutions to use as leverage for your negotiations.
Unfortunately, originators such as BetterBond do not assist with switching home loans, so you would have to do this research yourself.
If cutting back on household expenses is not enough for homeowners who are struggling to make ends meet, then meeting with a reliable real estate professional might prove helpful.
Equipped with the knowledge of the market and the know-how of operating in the industry, real estate professionals can help identify a home’s potential to generate income and can advise on the best option to follow.
Goslett is the regional director and CEO of RE/MAX of Southern Africa
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