Part 1: Why use property to save for the future
I was recently asked how to use property to save for your child’s varsity fees. Aside from the fact that I don’t believe tertiary education will be relevant, or even exist in 10 years (for more information go check out Suits & Sneakers and the incredible work they’re doing to make education free), the principle of investing for something in the future is so important, I thought it deserved its own miniseries.
The first of a 2-part series
Five reasons why, in my humble opinion, property is the best way to invest for the future:
1. There ain’t no more of it
Prospects of colonizing Mars aside, there ain’t no more land! And in a world where everything around us is changing, our requirement for land, is not going anywhere.
You can apply this concept one step further by looking at investments in areas where there is literally no more land to develop. In Gauteng, we’re seeing huge development between Johannesburg and Pretoria, with yet more to come. But in Cape Town… you literally can’t go any further than the Atlantic Seaboard.
Tip: when buying for income, make sure your investment metrics stack up. The Atlantic Seaboard can yield great capital growth, but often require a big cash from you to get them cash flow positive. It might be worth it, just go in with your eyes open.
2. Take it up a gear
Because of the nature of property as security for debt, you’re able to gear your investment: meaning you can use debt to increase your ROI (Return on Investment).
A R1M property for example, could cost you R150,000 (deposit plus acquisition fees). And if you do it right, that’s it.
3. Love inflation
Inflation in property is your friend, as both income and capital rise with inflation.
This means, if your property pays your child’s school fees with its income today (bond repayments aside), in 10 or 20 years when you bond is paid off, the income should pretty much cover those future fees.
Education has historically inflated about 3% above CPI. If you buy right, your property should too, but if it doesn’t, remember you’ve also got capital to liquidate.
Tip: If you don’t have the cash to buy the full income now, you can always start smaller, buying up a few assets over time until you reach your income goal.
4. Piggy in the bank
A rental property is like a magic savings account, where someone else puts money in your piggybank each month!
5. The power of two
As your income rises, so does the value of your capital. That’s the beauty of property. You get growth to the power of two.
Tip: I believe the most important part about investing for the future is income. If you’re able to secure an asset where the interest, or income on that asset gives you the money you need each month without depreciating capital, you’ll always have the ability to earn income.
So that’s why I love property. Keep an eye out for part 2, where I’ll share my 10-step plan to securing your very own magical piggybank.
For assistance with investing for a goal or professional property services, contact Kat.