The Number One TAX Secret Of Rich Real Estate Investors
Posted by Jacques Fouché (28 September 2017)
Pay Back The Money – the best kept tax secret of rich real estate investors
By Jacques Fouché, CEO and Founder of the IGrow Group of Companies
Have you ever wondered how some investors are able to get millions back from the Receiver of Revenue and become rich in the process?
Canny real estate investors legally leverage the tax act in their favour, to get the receiver to pay them millions of rand back from their capital invested into their buy-to-let property portfolios.
Most investors see the receiver of revenue as a big great white shark, taking big bites out of their monthly cash flow through taxes. But if you are willing to make SARS an active role player and partner within your property investment business you can get SARS to pay you back millions over your real estate career.
Tax incentives offered to investors by government act as an economic stimulus, to keep the wheels of the economy turning and to create more jobs and opportunities where there is a demand or a shortage of infrastructure and economic activity. The receiver is encouraging certain activities that benefit the economy and promote social policy. It’s our responsibility to take advantage of these tax laws.
The Receiver is actually on your side – the side of the buy-to-let investor. They genuinely want investors to pay less in taxes.
The massive tax advantage that we get from SARS is called Section 13Sex of the income tax act. By putting your time, and investors strategy into activities that produce jobs, housing, and grow the economy, we get tax benefits.
The receiver is effectively saying, “Hey, let’s make a deal: if you are going to help us by providing affordable housing in South Africa which in turn helps us grow the economy, then we will make it worth your while by giving you money back – a lot of money.”
The money back from SARS will help you in these ways:
- Cover the shortfalls on your properties
And that’s where we come in: the buy-to-let real estate investor. These are the tax rules the wealthy real estate investors are playing with and working to their advantage.
Let SARS play the role of your business partner and actively help you build your portfolio. This is when you will start gaining the momentum and the unfair advantage, as SARS will fund and finance your real estate investment business.
So, how can you, as a buy to let property investor, qualify for this allowance?
There are 4 key requirements to qualify for SARS sec 13sex tax incentive:
- The unit must be new or unused (including a self-contained apartment) and mainly used for residential purposes. So no existing or second-hand properties will qualify for the tax incentive.
- The unit must be used solely for the trade of the taxpayer – in other words, the taxpayer may not live in the property as their primary residence. This means it’s ideal for buy-to-let investors to rent it out to tenants.
- The taxpayer must own at least five residential units, all of which must be used for the taxpayer’s trade. (Please note, you don’t need to buy all five simultaneously.)
- The units must be within South Africa.
To illustrate how this incentive works, let’s look at some numbers showing what SARS will effectively give back to you every year and every month.
For every five properties investors buy, SARS allows a minimum of 55% of the purchase price as a tax deduction!
So, if you were to buy 5 properties, for a million rand each:
5 x R1 million rand properties = R5 million x 55% = R2.75 million that SARS will allow you as tax deduction to reduce your tax liability.
This equates to an annual tax allowance (per year for 20 years) of R137 500, taxed at the 45% income marginal tax rate equals R61 875 per year (or effectively R5 156 per month) that SARS will help you to gain every year for 20 years.
As a smart investor, using this incentive you can build your property portfolio effectively tax-free until retirement.
Applying what I call the ‘stackable tax effect’ by using the allowable deductions, concessions, rebates and incentives in a strategic way to reduce your tax you will create a compounding tax effect within your portfolio and build substantial wealth at the same time.
SARS is there to make you rich in real estate, especially if you follow the rules of the rich.
So, go out there invest strategically, invest intelligently, become financially free and leave a legacy.
About Jacques Fouché and IGrow Wealth Investments
(This article is based on a transcript of Jacques’s YouTube video)
Jacques Fouché founded the IGrow group of companies in 2006, and it has grown to become South Africa’s number one real estate investors’ group. IGrow teaches real estate investors, business owners and entrepreneurs how to build a multi-million rand property portfolio so they can retire financially free and leave a legacy to their loved ones.
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