The key to financial freedom: ongoing, inflation-linked passive income

Recently, investment managers have been advising investors to focus on income instead of capital growth when it comes to their investments.

The reason for this is that during 2011 capital growth was virtually non-existent across all four the traditional asset classes - cash, bonds, listed property and equities - as well as directly-owned property. And, given the current global economic conditions, these asset classes are not expected to produce much capital growth over the next few years either.

"For the average hard-working South African, who has been relying on the capital growth of their investments to create a retirement nest egg, the advice from the investment experts to focus on income may seem like quite a challenge!" comments Dr Koos du Toit, CEO of P3 Investment Group. "Yet, we know that it is quite simple to do - and that this investment approach delivers excellent results, regardless of the economic circumstances. For almost a decade, we have been advising ordinary South Africans to shift their focus from capital growth, which can fluctuate wildly due to circumstances beyond an investor's control, and to focus on creating ongoing, inflation-linked passive income."

Dr du Toit explains that the ideal investment vehicle for creating a reliable income stream is a buy-to-let property. This is because a well-chosen buy-to-let property in the right area with a high and sustainable demand for rental properties will deliver to the investor a monthly rental income, regardless of stock market fluctuations or economic conditions. The reason for this is simple: during the good times and the tough times, and even during a stock market crash or an economic recession, people still need a place to live. "The monthly rental income from a well-chosen buy-to-let investment property is not only ongoing for as long as the investors owns and rents out the property, it is also a passive income, since whether the investor is working or not, this income is earned every month," adds Dr du Toit. "In addition, and perhaps most importantly, this ongoing, passive income is inflation-linked, which means it increases each year in line with inflation or by a percentage
stipulated in the lease agreement."

Investing in a buy-to-let property is also much easier and far less risky than most investors think.  "In essence, you obtain a mortgage bond to buy the property and then rent the property out to a tenant. The tenant's rental should cover most - if not all of the property expenses, such as the bond repayments, rates and taxes, maintenance and rental management fees," says Dr du Toit. "As the tenant's rental increases each year, the property starts producing a profit, which also increases each year. And once the bond, the biggest expense, is paid off - and this can be done is as little as 11 years - the investor has an ongoing, passive, inflation-linked income for life - and beyond if the property was acquired in a trust. Of course, the property itself is an asset that grows in value each year, but this capital growth is not the main objective of the investment - rather, we consider this an additional perk, but one the investor is not dependent on."

Buy-to-let property investment - like any other investment - is not without risks. However, unlike most investments, the risks inherent in property investment can be managed - if not eliminated - by implementing a tried-and-tested system with built-in risk management strategies. Using a tried-and-tested system ensures that an investor buys the right property in the right area where there is high and sustainable rental demand. The investor's cash flow projections will provide for contingencies such as interest rate increases, vacancies and maintenance if custom-designed software is used. In addition, a failsafe property investment system demands the appointment of a professional rental management agent that will thoroughly screen and actively manage the tenant, as well as the property, and will act swiftly to address any rental defaults, vacancies or maintenance issues. Rental insurance protects against rentals not being paid on time, or at all, and to ensure evictions are con
cluded swiftly. A reserve fund for contingencies - such as unexpected vacancies, repairs or maintenance - ensures that the investment is protected against the unexpected.

"If investors implement a tried-and-tested system and put in place the risk management practices that minimise, if not eliminate, the risk, they can look forward to an investment that will deliver an ongoing, passive, inflation-linked income for life, and even beyond if the property is acquired in a trust," concludes Dr du Toit. "The P3 Investment Group has helped thousands of ordinary South Africans to do just this and those who already own passive income-producing properties have found that the capital growth on these assets is an added bonus, instead of their only hope for a comfortable retirement. Do follow the advice provided by the investment experts and shift your focus to investments that produce a reliable and inflation-linked income - and that investment is a buy-to-let property.

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