Property - the favoured asset

The most recent Knight Frank/Citi Bank Wealth Report revealed that there are now 63 000 people worldwide with $100m or more in assets and the number of centa-millionaires has increased by almost 30% since 2006.

Yet again, the report confirmed that for these high net worth individuals property continues to be the most favoured asset class, accounting for approximately 31% of all their assets - an increase of around 3% since last year.

Why would the rich still prefer property as an asset class when the bottom has supposedly fallen out of housing markets everywhere, property price growth is grinding to a halt and some markets are even reportedly declining? Not only do the rich and wealthy know that, over the long-term, property prices always rise, they also know that property is the proverbial golden goose laying a steady stream of golden eggs. While property values do rise steadily over the long-term, the wealthy are less concerned with property's ability to generate capital growth and more interested in property's ability to create an ongoing, inflation-linked, passive income for life - and beyond.

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 monthly rental for the owner for as long as he or she owns the property. This passive monthly income keeps pace with inflation year after year, as the rental increases in line with inflation or the percentage stipulated in the lease agreement. In fact, if a property is acquired in the right structure, such as a trust, a well-chosen rental property can continue to generate income for an investor's family beyond the investor's 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.

However, unlike the golden goose, buy-to-let property investment is not reserved only for the world's richest people. Buy-to-let property is within reach of even ordinary South Africans, because investors do not have to have hard cash in hand to acquire such an income-generating asset. This is because a bank will provide an investor with a mortgage loan to acquire a property and, if the property was well-chosen, the rental should cover most, if not all, of the monthly expenses of the property, including the bond repayments, the rates and taxes and the rental management fees. This means that an investor can acquire an income-generating asset with very little - and in some cases even no - investment out of his or her own pocket.
Investors who are disappointed by the returns generated by traditional investments may want to consider carefully the fact that the world's wealthiest people continue to prefer direct property investment as the cornerstone of their wealth. Investigate a little closer the system employed by the world's wealthy to generate their massive wealth and you may well discover that property is indeed the goose that lays the golden eggs - a passive, inflation-linked monthly income for life and beyond - while also producing steady capital growth over the years.

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