A Fin24 reader asks:
Should I save for retirement, if I can just buy a few properties and live off the rental when I retire?Heather Robertson, a certified financial planner at Blink Consulting, responds:
When it comes to buying property as an investment, there are a number of things to take into consideration. These include:
To what extent will you have to subsidise the bond each month? These days you can expect to cover only 40% of your costs.
Property is a fixed asset which can take time to sell.
As you cannot pick up a house and move it somewhere else, how sure are you that the suburb or town is going to be a desirable area to live in five, 10 or 20 years from now?
It is true that no building will last forever, but you want a property that is low maintenance and well built.
- Fees, levies and unforeseen costs
Find out how much you will be paying towards rates, levies and upkeep and the rate at which these are likely to increase.
You will need to have cash available for maintenance (such as repainting), and to cover the bond if the property is unoccupied or if your tenant skips payment.
Understand that the profit you make when selling a property, as well as the income you earn from rental, could be taxable.
- Asset appreciation and interest rates
The boom in property that occurred at the start of the millennium came after a 20-year slump, during which property prices barely kept pace with inflation. In the past few years property prices fell.
It really only makes sense to borrow money to invest in property if the interest rate is low and the rental income is covering your bond, or if the property is appreciating at a very rapid rate.
There is seldom an easy, get-rich-quick road to retirement. I recommend speaking to a certified financial planner who can assist you in drawing up a financial plan suited to your individual goals and circumstances.