Choosing to invest in property in order to fund retirement continues to be a prevalent decision in South Africa, but one that requires serious consideration and groundwork. According to Ricardo Teixeira, strategy consultant at acsis, how retirees choose to invest in property is crucial in determining the rewards that can be reaped as well in determining the type of lifestyle led whilst in retirement.
He explains that investors looking to fund retirement with property could consider two options, either investing in a property unit trust listed on the JSE, or by actively purchasing property directly and leasing it out to tenants in order to accumulate retirement funding.
"Choosing to take an active ownership role by managing a tangible asset requires substantial time and energy whereas taking a more passive part ownership approach by investing in a property unit trust requires less input and effort from the investor."
Teixeira says that the key to successfully investing in property is to understand what to invest in, when it is appropriate to invest and the decisions that will impact that investment.
"However, the most important aspect to consider is how investors see themselves managing these investments whilst in retirement."
He says that investors considering direct property retirement investments for retirement funding need to consider how the property and the maintenance of the property will be managed, as well as how the invoicing and financial aspects will be handled.
"Purchasing and owning property directly as an investment enables the investor to have 100 percent control over all property management decisions. Taking on such an active management role is akin to being a property business owner who will navigate and control the success of the business.
"Many investors don’t realise that a property portfolio is essentially a business that needs to be run effectively in order to generate capital return. Although the management of a property can be outsourced, it is important to consider who you partner with to manage your property as those decisions will materially impact the future value of your property as well as your tenant’s experience of renting your property. Acquisition and operating expenses such as transfer duties, legal costs, levies and taxes are important to consider when evaluating the viability of a property-related investment."
Teixeira cautions that owning and managing a property is therefore decidedly complex and needs careful consideration when compared with investing in a listed property unit trust fund which invests in a large range of properties.
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