select
|

Retirees: The benefits of owning buy-to-let property

The 2014 Sanlam Benchmark Survey indicates that only 29% of retirees who have formal retirement plans are able to maintain their standard of living in retirement.

The survey notes that a growing concern is the percentage of average pensioners with a shortfall between their monthly income and expenses that continues to rise (59.2% in 2014, 51.0% in 2013 and 33.3% in 2011). In essence, people have less money to live on at retirement, but are living longer and have significantly greater financial burdens. When asked how this shortfall was dealt with, the pensioners in the core sample mentioned reducing non-essential expenses and cancelling private medical aid to rely on state healthcare.

In an attempt to avoid such a scenario, traditional retirement plans use the Replacement Ratio to evaluate the extent to which individuals can replace their pre-retirement earnings with other sources of income in retirement. For mere survival, the survey recommends a Net Replacement Ratio of around 60%, and around 75% to maintain current lifestyles. However, Average Net Replacement Ratios achieved with traditional retirement plans are currently around a woeful 40% of final remuneration.

"Given this unfortunate situation, it is time to look for alternatives to traditional retirement savings vehicles and discover an option that allows ordinary salary-earning South Africans to create a retirement fund that will ensure they can maintain their standard of living throughout retirement," comments Dr Koos du Toit, CEO of P3 Investment Group. "This alternative retirement saving plan - buy-to-let property investment - has already worked for thousand of South Africans."

Buy-to-let property investment allows South Africans to define, without complex calculations, their Net Replacement Ratio at retirement. It then enables them to build up a portfolio of buy-to-let properties, affordably, steadily and responsibly, to achieve this.

"For example, let’s say you want to retire with a monthly passive income equivalent to R25,000 today," explains Dr du Toit. "To achieve this through buy-to-let property, you would need to acquire just seven buy-to-let properties, each property valued at around R500,000 and each rented out for R5,000 per month. In 20 years' time, each property - by then fully paid and bond-free - will generate a net monthly income of R10,500 at the standard 8% per annum rental escalation, providing the investor with a total monthly net income of R73,500 per month (the equivalent of around R25,900 in today’s terms).

As an added "bonus", by 2034, each property will be worth R2.3 million at a conservative capital growth of 8% per annum, and the investor would own a property portfolio with a combined value of R16 million. Furthermore, both the monthly income and the capital value of this portfolio of seven properties will continue to grow year after year, keeping pace with inflation.

But how can ordinary, salary-earning South Africans acquire seven properties in a few years? "Following a tried-and-tested system with built-in risk management strategies, it is actually extremely affordable and quite easy to build a portfolio of buy-to-let properties that will maintain your lifestyle in retirement," notes Dr du Toit.

Investors do not need a lump sum to invest, because they can obtain a mortgage bond to acquire the buy-to-let investment property. They also do not need a significant monthly investment, because if they have chosen the right property in the right area, the rental income from the property should cover most - if not all - of the monthly property expenses. As the rental increases each year, the property generates an ever-growing monthly profit, which can be used to pay off the bond faster or to fund any shortfall on the next buy-to-let property acquired. In this way, steadily and sensibly, the investor simply duplicates the system to acquire more buy-to-let properties, securing a defined inflation-linked income for retirement, while also earning capital growth on the value of the properties.

"Over the last 10 years, the P3 Investment Group has helped thousands of ordinary South Africans to avoid joining the growing numbers of pensioners who struggle to make ends meet, instead creating certainty of maintaining their lifestyle in retirement. We have done so by enabling them to acquire - steadily and responsibly - a manageable but very profitable portfolio of buy-to-let properties that will produce an inflation-linked income for retirement, as well as capital growth on the value of the properties year after year," concludes Dr du Toit. "


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK