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The PROS and CONS of Renting Out A Garden Cottage

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The PROS and CONS of Renting Out A Garden Cottage

Renting out a garden cottage on your property provides a tempting opportunity to earn extra income and make the most of unused space, potentially easing the burden of home loan repayments with high interest rates. However, like any decision, it comes with both advantages and disadvantages.

Here’s a closer look at what you need to consider before becoming a landlord on your own property.

Benefits of Renting Out a Garden Cottage

Extra Income: With high interest rates, the additional income from renting out a part of your property can make it easier to afford home loan repayments.

Utilising Unused Space: Renting out a garden cottage helps you make the most of your property.

Enhanced Security: Having someone else living on your property can deter burglars, especially if you frequently travel or leave the property unoccupied for extended periods.

Tax Deductions for your Rental: You can reduce your taxable income with the expenses incurred for renting out. This does not include any capital and/or non-business-related costs – these cannot be utilized as deductions according to SARS regulations. However, qualifying purchases of assets at over R7 000 have wear and tear deduction potential; contact your tax consultant to find out if this applies in your situation. 

Drawbacks to Consider

Privacy Concerns: Sharing your property means sacrificing some privacy. Using the same garden space can be challenging, especially if the tenant is intrusive or disruptive. Adding fences and shrubbery can help create greater separation.

Dealing with Problematic Tenants: Issues like late rent payments, property damage, or conflicts over late-night parties create tension in your relationship with the tenant. Working with a rental agent can help manage these situations, as they can mediate between you and the tenant.

Maintenance and Repairs: Regular maintenance and inspections are crucial. A big repair bill can quickly erode profit margins, so being proactive is essential.

Registering for Provisional Taxpayer: If your taxable profit on your rental income (rent less expenses)  is more than R30 000 a year, you may have to register as a Provisional Taxpayer and pay tax twice a year via the provisional tax system.

Capital Gains Tax – cottage income affects primary residence exclusion: Because of the primary residence exclusion, the taxable capital gain when selling your is zero if your profit is not over R2 million. If the profit had been anything over R2 million, CGT would be calculated at 18% for individuals or at 36% for a property purchased through a trust (as at 2023).

However, income received from renting out your garden cottage, will affect your capital gains calculations and “taint” your primary residence exclusion, in the same way you run a home office and you claim some of your office costs.

Tips for Prospective Tenants

Maintain a Good Credit Record: Ensure your credit record is in good shape and demonstrate a history of on-time payments. Landlords want reliable tenants who pay rent promptly.

Prepare References and Documentation: Provide good references from previous landlords and have all necessary paperwork ready, including previous addresses, bank details, ID, employer information, and recent payslips.

Have Funds Ready: Be prepared to pay a deposit, usually equivalent to a month’s rent, and any additional fees for utilities. Delays in securing these funds can result in losing out on rental opportunities.

Be Flexible: While knowing your must-haves and deal-breakers is important, being flexible on other criteria can help you make quick decisions when needed.

Rising Municipal Charges

In some municipalities, rising service costs accompanied by inadequate service delivery can make renting and ownership unaffordable. For example, the City of Johannesburg charges a blanket sewer tariff of R600, which can be a significant percentage of total rental costs for lower-income tenants. Landlords and agents need to strategize how to handle these costs, as they can impact tenants’ ability to pay rent and landlords’ profit margins.

Final Thoughts

Renting out a garden cottage can be a lucrative venture, but it comes with its challenges. Homeowners must weigh the pros and cons carefully and consider the lifestyle changes it might bring. Consulting with a rental agent can provide valuable advice and guidance.

For landlords and agents, staying informed about market trends and understanding the local area are crucial. Regular maintenance, ongoing inspections, and a proactive approach to tenant relations are key to a successful rental experience.

Author Source - ESI Attorneys
Published 02 Jul 2024 / Views -
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