How to turn your property Investment into a Reliable pension
Category Property Investment
When it comes to retirement planning it is crucial to make the most prudent decision possible. Whether you have spent the last thirty plus years as a teacher or employee of a government department; perhaps your career in one or other industry is drawing towards retirement; alternately, you might be a successful businessperson seeking an intelligent pension platform – in any of these scenarios residential properties in South Africa are proving increasingly to offer excellent returns and long term stability.
You can choose to invest in a property that commands a desirable rental income which effectively subsidises your retirement needs and lifestyle. In some cases occupants may move into a retirement establishment or even live with family, while transforming the former main residence or new acquisition into an income generating asset. In either instance rental returns are proving reliable and healthy in SA, and often rival some of the reputable financial investment platforms – while offering lower risk and a virtual certainty that the asset or ‘capital’ will accrue wealth year-on-year.
Greg Harris CEO of CEPR offered further insight, stating that “Securing a sound pension plan is important as it ensures that you can enjoy a comfortable retirement and maintain the lifestyle you always hoped for beyond a certain age. Property rental income is an excellent revenue source and is also considered more viable than the returns expected of typical savings accounts. This income is also more reliable than foreign investment, especially given our financially tricky times. These and other contributory factors are making rental properties and rental income the ideal path for many who are concerned about their wellbeing after retirement.”
The Problems with Typical Investments and Pension Funds
Whilst exploring the various benefits of a rental revenue stream, it is also vital to briefly contrast this against some of the major shortcomings of typical pension schemes and alternatives. There have been different cases in the recent past relating to lump-sum and annuity payout disputes where pensioners claim they are being paid less than they qualify for, with some instances of non-payment. Now, while there are some established schemes that have credible track records, the restrictions that come with many of today’s options are leaving a number of retirees and their families disgruntled. Restrictions include, cash-out limitations, fund transfer restrictions and other fine prints that influence what you earn, how your money is invested and so forth.
Whether you are investing directly in mixed-assets or via a broker into various classes of diversified funds including financial and non-financial instruments – property normally features strongly and continues to be the preferred asset of many successful investors. Nonetheless, even in a portfolio that is spread, large chunks of your funds will be placed at risk whether the investment component is in equities, mutual funds, bonds or deposits. As healthy as the return can be on these financial instruments, history has proven that even some of these low risk investment vehicles can prove very perilous in volatile times.
With government challenges and instances of economic, political and other issues that can emerge, even deposits in supposedly safe nests can be shaken. Foreign investments can be dangerous due to currency risk and various other market dynamics. Furthermore, when it comes to pension the notion of risk is viewed – quite sensibly – from a more averse rather than aggressive perspective for most individuals. Hence risky alternatives are simply unwise for any retiree.
So, the unfortunate truth is many pension plans often fail to keep up with basic costs of living and inflation, and pensioners subsequently don’t enjoy their optimum retirement income. At the same time simply keeping your money under your mattress is impractical. Barry Davies, Franchising Director of CEIPG reinforced this issue, stating that, “This is why property investments are becoming the gateway to financial freedom for so many broad-minded retirees. A property becomes a fantastic vehicle that yields growing annuity income while increasing in value - and should it need to be disposed at a later stage one can expect a healthy profit which can be further reinvested or spent as required.”
Property Investment – An Ever-Growing Pension
One of the greatest benefits of property investments as pensions is that individuals can choose to grow the value of their tangible assets without too much difficulty. With whatever money one can spare, the property can be refurbished entirely or in stages, the building can be extended or upgraded in terms of certain amenities or enhanced with aesthetic improvements. The great advantage is that all these mini-investments are never wasted and always contribute to increasing the marketable value of the property as well as the rental amount that can be commanded.
Furthermore, the growing property prices, which is a broad trend noted almost throughout the country, on its own also translates to increasingly higher rental income – meaning the worth of the asset goes up as well as the regular income that one receives. Julie Pillay, Manager of CEPRs Long Term Letting Division in Umhlanga added that, “This is a winning formula for those seeking the ideal pension and retirement strategy and is excellent from an estate planning point of view.” Traditional pension funds cater to the lifestyle of the retiree as best as possible but depending on the lifespan of the individual the capital can diminish rapidly beyond a certain age to the point of complete depletion.
Summing up in the words of Paula Rowntree, Client Service Manager of CEPR: “More retirees are starting to recognise the benefits associated with properties as a source of rental income. It is becoming the preferred investment vehicle for many retirees.” Finally, we would like to leave you with a few valuable industry tips on how to make the most of your pension property investment:
Be patient: Do not make a hasty decision and rather consult with an experienced agent who will ensure that you enjoy maximum value for money, based on the rental return you are aiming for.
Spread your investments: If your retirement yields a reasonable payout you can invest in various flats or houses. Diversification is advisable regardless of which investment vehicle you choose, as it mitigates risk in the very unlikely event that one of the properties should lose value due to extenuating circumstances.
Always try to find ways in which you can add value to your properties: By doing so, you can increase the amount that you can command for rent, consequently increasing your pension and adding long term value to the asset.
Learn how to become tax-efficient: This enables one to maximise his or her savings and income, while reducing redundant costs.
Speak with industry professionals: Local experts will be able to offer invaluable insight when it comes to identifying and acquiring the ideal property rental opportunities.
Don’t be too picky: Do not unnecessarily restrict yourself when it comes to neighbourhoods or suburbs. From an investment and rental income generation point of view, prime rental opportunities can be found in some of the most unexpected places.
Watch for developing and growing suburbs: These are ideal for purchasing properties that will grow in value and one is likely to enjoy excellent returns over a short period of time.
If investing for your future is what you have in mind, simply contact our knowledgeable agents today. Chas Everitt Property Rentals is committed to service excellence and we can help you achieve your property investment and rental objectives – be it for retirement and pension purposes or if you’re on the market for savvy investment prospects, you can rely on our expertise to help you all the way.
Author: Paula Rowntree