Property Investment: Capital growth or income?

Investment experts have recently again advised investors to avoid an exclusive focus on capital growth, which further complicates the already stressful endeavour of investing in the current investment environment, characterised by economic uncertainty and volatile markets.

These experts recommend that investors adopt an income-focused approach to simplify investment decision-making, given that they are faced with a choice of over 1000 unit trusts and a plethora of different investment products.

"For the last 10 years, the P3 Investment Group has encouraged investors to focus on investing in property assets that generate a passive, ongoing, inflation-linked income," comments Dr Koos du Toit, CEO of P3 Investment Group. "This is not only one of the most powerful secrets of the wealthy, but also one of the most compelling benefits of investing in buy-to-let property, which does exactly that: produce a passive income, which also keeps pace with inflation, for as long as the property is held - and that could be for generations is the property asset is acquired in a correctly-structured trust."

However, notes Dr du Toit, investors in buy-to-let property do not have sacrifice capital growth for this income. "With buy-to-let property investment, investors can essentially have their cake and eat it, because while a buy-to-let property produces a passive, ongoing, inflation-linked income, it also generates steady capital growth over the long term, which also keeps pace with inflation."

Dr du Toit explains that a well-chosen buy-to-let property in the right area with a high and sustainable rental demand 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. 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," adds Dr du Toit. "Of course, the property itself is also an asset that grows in value each year. While property price inflation has been muted for a few years, over the long-term, property price growth continues to keep pace with and even outstrip inflation."

Many investors are pleasantly surprised to find that investing in a buy-to-let property is much easier and far less risky than many believe. "If investors implement a tried-and-tested system and put in place the risk management practices that minimise, if not eliminate, the risks, they can look forward to an investment that will deliver both income and capital growth. In essence, an investor uses a mortgage bond to acquire a buy-to-let property asset and then rents 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 as long as the property
 is held, while enjoying steady capital growth."

"For those investors who want to both have their cake and eat it - in the sense of investing in an asset that produces both a passive, ongoing, inflation-linked income and capital growth - will find the ideal investment alternative in buy-to-let property," concludes Dr du Toit. "The P3 Investment Group has helped thousands of ordinary South Africans to invest in income-generating and capital growth-producing assets, moving them beyond reliance on capital growth only as 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, but ensure you select an investment that will also deliver steady long-term capital growth - and that investment is a buy-to-let property. 

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