Young investors should acquire growing property portfolios

South Africa’s lifestyle, financial and personal finance media have in recent months been hammering home the message that a vast majority of middle class people still come to retirement age with insufficient resources.

Many consequently have to continue to work well into their late sixties and seventies, some until they die.

“The time to start thinking of your retirement funding is when you are still in your twenties or thirties,” said Lanice Steward, MD of Anne Porter Knight Frank, “and in my view, you cannot do better at that stage than start buying into property.

“Bill Rawson, one of those who bought his first property while still in his twenties, has gone so far as to say that you should aim to buy one property per annum.”

A young black agent, Vu Qabaka, working for APKF, said Steward, has just bought his first rental property – in Observatory –for a knockdown price of R275 000.

“Here,” she said, “is a young man who has set himself a goal of owning a significant property portfolio – big enough to retire on by the time he is 50 – and he is prepared to make big sacrifices in comfort and luxuries to achieve that goal. If only others would do the same rather than frittering money away on holidays, entertainment and other transitory pleasures.

On this sort of inexpensive but good area properties this APKF member favours, said Steward, he will be able to achieve a rent of ±R3 500 per month within the first two years and this will escalate annually by 8 to 12%.

His monthly bond payments will, however, be under R3 000, enabling him to invest in another property within a few years. Thereafter he will be able to up the acquisition process.

“The big advantages of this type of investment,” said Steward, “are that

the income stream keeps pace with inflation;
it can be placed in your spouse’s name, thereby reducing your income tax payments; and
it can be passed on intact to your heirs who, if you so wish, can be prevented from selling it.

Asked if the stock exchange might not give a better return to dedicated young investor, Steward said, that it is usually not possible to borrow money to invest in shares – as you can on a mortgage bond – and there is always an unknown factor to be contended with – even the biggest and best companies can find themselves on downward paths.

“Shares are ideal for those in the know. Unfortunately, very few of us are in a position really to know what a company will do.

“Property, on the other hand, is straightforward. By and large, what you see is what you get and you can gather information on the market conditions by talking to agents and reading the advertisements. Recent figures have shown that residential property has fared far better than other categories in the recession.”

Steward reminded potential investors that the latest report from Anne Porter’s UK associates, Knight Frank, has shown that the world’s richest individuals tend to favour property above shares: 36% of their assets are in property and 28% in stocks and shares.

“This,” said Steward, surely tells us all where the safest and securest investments are.”

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