Prop­erty ver­sus RAs

The Citizen (KZN) - - PERSONAL FINANCE - Mine e du Plessis

All South Africans worry about re­tir­ing at some stage in their lives. Where are the funds go­ing to come from? What is the best op­tion: prop­erty or sav­ing money in a re­tire­ment an­nu­ity (RA).

“Both have ad­van­tages,” says Just Prop­erty In­vest’s Minette du Plessis, “but prop­erty still has the best re­turn. You can en­joy the cu­mu­la­tive growth of a prop­erty in­vest­ment, which is the com­bi­na­tion of cap­i­tal and rental growth.”

If you are shop­ping for the per­fect prop­erty in­vest­ment, Du Plessis rec­om­mends do­ing a com­par­a­tive mar­ket­ing anal­y­sis.

“The right area is im­por­tant in terms of growth and rental po­ten­tial. Ameni­ties play a big part too. Make sure that there are malls and schools close by, and easy ac­cess to ma­jor roads,” she says. “Se­cu­rity is an­other im­por­tant con­sid­er­a­tion. Ten­ants look for these as­pects to make their lives eas­ier.”

Du Plessis says rep­utable agents should be able to help would-be in­vestors do a mar­ket anal­y­sis. Al­ter­na­tively, prop­erty por­tals al­low one to eas­ily re­search the rentals in a spe­cific area, as well as the prop­erty prices, and com­pare the two.

“You don’t need to have lumps of cash to buy an in­vest­ment prop­erty,” Du Plessis adds.

“All four ma­jor banks of­fer 100% bonds to first-time buy­ers and good cri­te­ria clients.”

If you earn R30 000 a month and have a good credit record, you will prob­a­bly qual­ify for a R1 million bond, she says.

The large in­vest­ment firms have cal­cu­la­tors that will help you quickly work out what you need to put away for the life­style you want af­ter you re­tire. “If you are 36 years old and you want to re­tire by 60 with an in­come of at least R30 000 a month (which in 24 years’ time will be very low), you would have to save 17% of your in­come ev­ery month to­wards that.

“When the in­vest­ment ma­tures, you can only with­draw 33% of the to­tal. The rest must be in­vested in a pen­sion ve­hi­cle. Will 33% al­low you to buy your dream re­tire­ment home? Will you be able to live off the residue?

“You could in­stead buy a prop­erty for a R1 million and rent it out. If you put the rental in­come, as well as the money that you would have been pay­ing into the re­tire­ment an­nu­ity, into the bond, you could break even on that prop­erty af­ter just three to four years.

“By the time you are re­tired you will have a good, sta­ble in­come and as­sets that have ap­pre­ci­ated over time. You will also be able to leave your port­fo­lio to the ones you love when the time comes.”

It is al­ways ad­vis­able to dis­cuss re­tire­ment pro­vi­sion op­tions with a qual­i­fied, in­de­pen­dent fi­nan­cial ad­vi­sor. Con­sider all fu­ture ex­penses, fac­tor­ing in big-cost items such as ed­u­ca­tion for your chil­dren. Look at your lev­els of short­term debt and con­sider set­tling these be­fore in­vest­ing.

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