Invest in property and beat the odds
Category Cape Town
Most ordinary salary-earning South Africans are investing to achieve the impossible: to accumulate enough capital to secure a comfortable retirement.
This is according to Dr Koos du Toit, CEO of P3 Investment Group, who says the reasons why this is impossible are simple: to secure a reasonably comfortable retirement, you need to start saving at least 14% of your earnings every month from the age of 25, earn at least 5% above inflation on your investments every year, and never withdraw any funds until retirement.
Given the soaring costs of living and the poor investment returns predicted by experts for the foreseeable future, saving 14% of earnings and earning 5% above inflation on investments are all but impossible for most. Furthermore, he says only a few people started saving at age 25, and even fewer never withdrew any funds.
Even if you manage to follow all these rules it may not be enough, because South Africans face another significant challenge, outliving their retirement funds. For each year you live longer than expected, you will need to have accumulated another 5% of your capital. And if you live for another ten years beyond the average life expectancy, Dr du Toit says you will need to accumulate 1.5 times more cash by retirement than the amount projected for the average life expectancy.
It is for this reason that intelligent investing does not focus on accumulating capital or capital growth. Instead, intelligent investors focus on investing in consistent, reliable income streams that will sustain them financially, not only in retirement, regardless how long they may live, but also well before and well after retirement.
So how can ordinary salary-earning South Africans invest in consistent, reliable income streams? He says one of the simplest ways is to invest in income-generating assets, such as a buy-to-let property.
In fact, income-generating property is the asset of choice for the world's wealthiest people because it is an asset that produces a consistent, reliable income stream for as long as the property is held.
Dr du Toit says a small portfolio of buy-to-let properties is the proverbial goose that lays a steady, never-ending stream of golden eggs. While property also produces steady capital growth over the long term, intelligent investors are less concerned with the property's ability to generate capital growth and are more interested in the property's ability to create a consistent, reliable income stream for life and beyond, he says.
Not unlike the golden goose that never stops laying golden eggs at regular intervals, a well-chosen property in a good area with solid rental demand, which is maintained properly over time, will keep generating a rental income month after month, year after year, for as long as the property is owned.
This passive monthly income keeps pace with inflation too, year after year, as the rental increases in line with inflation or the percentage stipulated in the lease agreement.
Dr du Toit says if a property is acquired in the right structure, such as a trust, a well-chosen rental property can continue to generate a never-ending income for an investor's family beyond the investor's retirement and even his or her lifetime.
There are thousands of properties such as these held in trust in the UK, Europe and around the world, and these properties have been generating income for wealthy families for generations, he says.
Many investors are surprised to discover just how simple and affordable it is to invest in income-generating assets such as buy-to-let property.
"You do not need prior knowledge or qualifications, you do not need a lump sum investment or even substantial monthly contributions, nor do you need much time or effort to invest in buy-to-let property if you follow a tried-and-tested system, with built-in risk management strategies.”
Source: Dr Koos du Toit, CEO of P3 Investment Group
Author: Property 24
