Buy-to-let a great re­tire­ment in­vest­ment

George Herald - Private Property - - Property News -

One of the big­gest chal­lenges fac­ing South Africans at present is how to ad­e­quately pre­pare for re­tire­ment in our volatile and un­pre­dictable econ­omy.

As a re­sult, many peo­ple are opt­ing for more flex­i­ble in­vest­ments that adapt to the ebbs and flows of the econ­omy in or­der to fu­ture-proof their fi­nances. One of the more pop­u­lar of these op­tions is buy-to-let prop­erty. Bill Raw­son, chair­man of the Raw­son Prop­erty Group, shares his top five rea­sons why.

It's in­fla­tion-proof

"There are a lot of gen­eral ben­e­fits to in­vest­ing in prop­erty," says Raw­son, "but when it comes to re­tire­ment, I think the most im­por­tant fac­tor is its abil­ity to gen­er­ate rental in­come that keeps pace with in­fla­tion."

This, he ex­plains, al­lows in­vestors to plan a rental port­fo­lio that pro­vides suf­fi­cient in­come to sup­port them at to­day's rates and know that it will con­tinue to sup­port them at the same level in 10, 15 or 50 years' time.

"It takes the guess­work out of things," he says, "be­cause you don't need to ac­cu­rately pre­dict the ex­act amount of money you'll need each month when you even­tu­ally re­tire. Your rental in­come should grow at the same rate (or higher) than in­fla­tion, and sup­port the same life­style down the line as it does to­day."

It's self-fund­ing

While it may take a few years for a buy-to-let prop­erty to be­come prof­itable, be­tween bank fi­nanc­ing and rental re­turns it's en­tirely pos­si­ble to fund your in­vest­ment pre­dom­i­nantly with some­one else's cash. "You're very un­likely to be able to con­vince some­one else to pay your re­tire­ment an­nu­ity or buy your shares," says Raw­son, "but you can get a bond for a prop­erty, and the rental in­come can help pay off that bond. That means you can lit­er­ally fi­nance a large por­tion of your re­tire­ment us­ing rental cap­i­tal - an op­tion that's sim­ply not avail­able with any other in­vest­ment type."

It's an ac­ces­si­ble nest egg

"Apart from rental in­come, prop­er­ties also ap­pre­ci­ate when they're prop­erly looked af­ter," says Raw­son, "and this cap­i­tal growth can cre­ate a very use­ful emer­gency nest-egg." While most re­tire­ment an­nu­ities have lim­its to how much cap­i­tal you can with­draw as cash on re­tire­ment, prop­er­ties can be sold at any time to liq­ui­date their full value. "The sale process may take a few months, depend­ing on the mar­ket," says Raw­son, "but it's still often far eas­ier than ac­cess­ing cap­i­tal tied up in other long-term or reg­u­lated in­vest­ments. It's bet­ter, of course, to live off rental in­come if pos­si­ble, but hav­ing that cap­i­tal avail­able in an emer­gency can be a very com­fort­ing thing."

It has tax ben­e­fits

Tax de­duc­tions are the num­ber one sell­ing point for re­tire­ment an­nu­ities, but prop­erty in­vest­ments have tax ben­e­fits too. "The in­ter­est on a mort­gage is tax de­ductible," says Raw­son, "and that amount can be quite sig­nif­i­cant early on. This ben­e­fit does de­crease as you pay off your bond over the years, but is a great way to re­duce your tax bur­den while you're still work­ing and earn­ing - and there­fore pay­ing a higher tax rate - and be­comes less im­por­tant when you re­tire and your tax bracket drops."

It leaves a legacy

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