Many South Africans might NOT having enough money for retirement. Even if they have saved their entire lives, they may later find out it is not enough.
In fact according to statistics from The 10X South African Reality Report, more than half of the people they surveyed had NO RETIREMENT PLAN at all.
According to the report:
“The second annual Retirement Reality Report reveals that even fewer people are preparing for retirement than previously thought and those who say they do have some sort of a plan know dangerously little about it.
This year, a total of 67% of respondents in the Brand Atlas survey indicated they had no retirement plan, or just a vague idea of one, 8% more than the number reported in 2018.
Almost half the respondents (46,2%) said they were not saving for retirement at all, with the overwhelming majority (91%) blaming insufficient means or other priorities.”
So considering all this, not being able to generate enough income from retirement savings is one of the biggest causes of financial stress for South African investors. Nobody wants to be dependent on the government or become a burden to their children.
So, can real estate really make a good retirement investment?
It certainly can.
And many people have secured a comfortable lifestyle by building a profitable portfolio of real estate properties.
Really by far, property investment for retirement purposes is beginning to overtake other forms of pension saving.
Because real estate can be a great asset class and diversification tool. It’s typically not directly correlated to the (other financial) markets and can provide income from rentals or refinancing. Plus hold period is around 4 to 10 years, so it can be seen as a long-term, retirement-friendly game plan.
So in this post, you will discover 7 major ways to tap into property investment for retirement planning:
1. Real Estate Investment Trusts (REITs): A Real Estate Investment Trust (REIT) is an investment in a collection of properties. They are like a mutual fund but instead of a collection of company stocks, it is a collection of properties. REITs allow investors to enjoy the gains of owning property as an asset class without directly owning or managing property. Hence they are an excellent strategy for retirement planning.
REITs are structured to be lower risk investments, plus most have clearly defined investment strategies designed to reduce risk and optimise investor value.
Most South African REITs are diversified across various types of commercial property, like offices, malls, warehouses, factories, hotels and others. These properties are often spread across different cities and provinces.
Moreover, their income comes from various leases with “good credit” tenants that expire at different times.
This means that if one sector, region or lease performs below expectations, its effect will not be felt because the other investments in the portfolio can compensate and bring returns.
REIT shares will fluctuate in price. But, capital growth is only one of the benefits to a REIT investment. The total return that REITs create for investors comes from both the capital growth of its properties and regular dividends which REITs pay out from their profits. And, both generally keep pace with inflation.
In South Africa, REITs must pay at least 75% of their taxable earnings available to investors as dividends each year, giving investors assurance that net income will be distributed. Many pay out even more; most pay almost 100%.
A REIT’s growth in dividends comes from the growth in rental from its property assets, thanks to leases that escalate. These leases make it relatively easy to predict future earnings for investors and provide a relatively stable income stream, which adjusts upwards annually thanks to built-in escalations – currently around 8% on average for commercial property.
For investors, risk is managed by being able to trade out of listed REIT shares quickly. Investors can also spread risk by investing in multiple REIT companies, rather than holding a single direct property asset.
Risk is further mitigated because listed REITs are regulated by legislation which requires excellent governance and reporting. REIT directors are accountable to the JSE or FSB, depending on how each REIT is structured, as well as auditors and other external verifiers of performance.
2. Buy, Improve and Flip: Flipping, also called wholesale real estate investing, is when you purchase a property not to use, but with the intention of selling it for a financial gain.
Flipping can certainly be a profitable venture. It can also be a very good way to lose money, especially if you don’t have the right assets, skills and know how. You need real estate knowledge, home improvement skills, access to cash, some financial expertise and maybe a bit of luck to successfully flip properties. There is a resource at the end of this post that can help you in this area.
3. Purchase Residential Property and Rent it Out to Long Term Renters: This is what most people think of when they think of real estate investing — buying a property and renting it out.
The trick is that you need to consistently have tenants who are willing to pay enough for you to cover any mortgage you have on the property plus: insurance, taxes and maintenance.
4. Own Your Own Home: For most people, their home is their most valuable asset — worth more than their savings.
However, this asset is not always thought of as a way to help fund retirement.
There are so many different ways to utilize your home equity to generate retirement income or hedge against unknown risks — from downsizing to leveraging equity to fund a long term care need and more.
One such service is Rent2Buy, a South African company that assists people to buy and own homes so they can move from tenants to owners.
According to stats from Rent2Buy, in June 2020, over 9000 new subscribers made use of this online service.
This is the highest number of online subscribers ever recorded since the platform was launched over 4 years ago.
The most notable improvement was 31% of all subscribers (an increase from 22% from the annual average) completed the entire home loan pre-qualification process.
This means 2790 new potential home loan applications.
Over 90% of these online buyers achieved success in obtaining a final home loan approval, meaning that in June alone, the online process generated over 2511 potential new home loans.
5. Purchase Commercial Property and Rent it Out: Experts suggest that owning commercial property can be more profitable than residential real estate.
If you have money to spare, consider buying your office building instead of renting it, or snapping up other properties. Becoming your own landlord can help you manage your company's expenses--no negotiating leases or sudden rent hikes--and your tax bills.
And it's not just about reducing taxes; if you buy your office building and start paying down the mortgage, you'll turn it into a cash machine for your retirement, when you can collect monthly payments even if you've sold your business. Or, if the buyer of your company wants the building as well, you can sell it for a profit.
6. Purchase Commercial Property and Run Your Own Business: Whether you have ideas about a bookstore in your hometown or some other retirement business, the real value of your venture can often be in the real estate itself.
The biggest expense of most brick and mortar businesses is real estate. So, owning the property could increase your long term wealth and monthly income.
Or you can also just buy the property, optimize the rental and find a good tenant for your property.
Also note for now, restaurants might not be a good idea because of COVID-19 regulations.
7. Buy a Vacation Home and Rent it Out Part Time: Owning a vacation property as an investment usually means that you rent it out to tenants for shorter time periods (think AirBnB for instance). If you have the right house in a desirable location, you might be able to make as much money from a few vacation renters as you could from a year round tenant elsewhere.
And, maybe you can enjoy some time there yourself!
However as you may in real estate, nothing is 100% guaranteed and some unfortunate people lose their investment, and their hopes along with it. It takes a certain amount of knowledge, skill, intuition, and guts to invest in real estate. If you have these characteristics, and you do it right, real estate can be a great investment for your retirement.
Do you want to be the retiree who leaves their children nothing, while struggling to live their desired lifestyle in retirement? Or do you want to invest to produce life-changing income, using other people’s money, while leaving a life-changing legacy to your loved ones?
Well if you’re ready to take the next step in your real estate investment journey, I would love to help. I have created a no-nonsense course that can help you go from beginner to profitable real estate investor in the next 90 days. Click HERE to find out more!
Interested in learning about how to invest in real estate with no money down? Grab your copy of my ebook How to Invest in Real Estate with No Money HERE! I am giving it away for FREE! In it, I reveal my proven strategy to building wealth through real estate investment without spending my own money. This strategy includes several of the income streams I created without paying any money down.
And don’t forget to Register for this Thursday’s Livestream, so you can get your Real Estate questions answered.
So- are you ready to start building wealth through real estate? If the answer is “yes,” then it’s time you followed these steps:
1. Register for my upcoming live stream
2. Download my ebook
3. Join our Program
4. Watch our previous Live Stream on the YouTube Channel.
5. Join our Facebook Community to plug into a mastermind of like-minded individuals.