Cost-benefit analysis Monument property
November 7, 2012 | 50,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
I am planning to acquire a listed building property. A profitability calculation over 12 years has been prepared by the broker for this purpose.
Assuming that the input data (rent, income, etc.) are correct, I hereby request a review of the accuracy of the existing calculation.
Thank you in advance.
Sincerely,
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
First and foremost, I would like to issue a warning. In my experience, tax-saving models are just that: models that are designed to make you believe that an investment is great because you can save so much on taxes, but in the end, they only end up destroying your money. What most people tend to overlook is the fact that they have a loan to pay off. In your example, you have to finance TEUR 160, repay the borrowed capital, and pay interest. If you only take half of it and repay it over 20 years with interest of 3.5%, you will end up paying nearly 110,000 EUR during that time. How is that supposed to add up with a tax saving of almost 3,500 EUR per year?
Regarding the calculation itself: It may be correct from a purely mathematical standpoint. However, it will not work out in terms of taxes.
According to page 6, the property is already showing a loss based on the pure cash flows (rental income of 7,700 EUR versus expenses of TEUR 10,600). Even though it is correctly pointed out that only a part of it is deductible, the question arises about the long-term financing of the property. Furthermore, even after taking depreciation into account, the property still shows a loss. If you cannot prove to the tax office that you are making a profit with this property in an overall view, they will deny you the tax deduction because there is a lack of intention to make a profit. Most brokers of such models conveniently overlook this point. If the expected tax savings do not materialize, all these models are useless.
Please also note that no specific profitability guarantees are given to you. So if the property cannot be rented out at all or only at a lower rent, you will be left with all the costs.
I hope this information was helpful to you.
Best regards,
Oliver Burchardt
Tax Advisor
