You have some spare cash – should you pay a deposit on a property to let or invest it?
ACCESS TO YOUR MONEY
First consider your personal circumstances, experts advise. If this is your emergency fund, how quickly can you access the money? If you were to invest in shares through a unit trust, you could usually access the money within 48 hours. This is called a liquid investment as you can access your funds relatively quickly. But if you invest in property, you’d first have to sell it to get your money out – which might take many months.
CHOOSE WISELY
First do research and get professional advice. Whichever option you choose, there are long-term concerns. If you decide on property, the location is important to ensure the value will increase and that you won’t struggle to find tenants or to resell. The mortgage interest rate must also be favourable. If you go for a unit trust, choose one that will beat inflation in the long term and that charges low fees as this will ensure optimal growth, Abri du Plessis of Gryphon Asset Management says.
EXPENSES
Rental income might cover your bond repayments, but consider expenses such as maintenance. And rental income could be taxable – the tax might even be more than on the interest and dividends from an investment. Capital gains on the sale of shares and property are both taxable. With a tax-free savings plan you aren’t taxed on dividends, income or capital gains – as long as it’s within the tax limit, Jan Vlok at Glacier by Sanlam says. But beware of high fees.
WITHOUT A BOND
Statistically shares grow more over the long term than residential property. Few people can afford it, but if you buy a property without a mortgage, the rental income can in the long term put you on the same level as a return on shares, Vlok says. The average total earnings you can expect, taking rental income and capital appreciation into account, is 14,65 percent*. But you still have to factor in things such as access to your money and unforeseen expenses such as tenants who don’t pay.
It doesn’t matter about money; having it, not having it. You’re still left alone with yourself in the end – BRITISH MUSICIAN BILLY IDOL