Real Estate Investor Magazine South Africa June/ July 2019 | Page 54

OFFSHORE Unpacking passive income misconceptions BY COSTAS SOURIS Most people misunderstand what is passive income. Simply one has two choices in earning income: 1. Earn “Active Income” the local Pick and Pay; and then you must drive to buy bread from the retailer. Protection not only against local inflation is required but most importantly against imported inflation because of local currency depreciation. As an employee or business owner work to get paid i.e. Exchange Time for Money 2. Earn “Passive Income” Earn money while reading a book or sitting on the beach i.e. Income is earned while you are not present. The harsh reality is that there is no direct route to earning passive income unless one is fortunate to inherit or be given a large lump sum of cash. One must follow the active road to passive income by either working hard, and when income exceeds expenses, saving and investing the difference or build assets that earn passive income. For example, write a book or create a Youtube video that people will pay for. Over time, with either route you can build sustainable passive income streams. The mainstream passive income generators are real estate, equities and bonds. We shall focus on real estate as this is the most popular form of passive income and the foundation of “serious wealth.” Rental from property provides protection against inflation, is taxman friendly, has a low risk profile and often one can use the banks money (loans) to reach your passive income goals “quicker”. “However, the Emerging Country Passive Income Trap catches many” says Costas Souris of Quality Group Since 1970 the rand has depreciated by more than 7% per annum when compared to the US Dollar. In 1970 R1- million was worth $1,4-million. Today the sad reality is that R1-million is now worth $69 000! Emerging market economies import various goods and services. Cars, mobiles etc including fuel which is priced in US dollars. Every time petrol goes up it sets off a chain reaction of price increases. “The farmer must transport his wheat to the flour mill; from there transport to the bakery; from there to 52 JUNE/JULY 2019 SA Real Estate Investor Magazine Can a soft currency like the rand appreciate? Of course, but sustained economic growth, coupled with clean government and low unemployment begins the foundation! Invest in hard currency with Passive Income generated by property. Property generates rentals and rentals are the preferred passive income route (versus other passive income vehicles) See attachment. With low inflation in hard currency and let’s assume that Euro rentals remain level. Illustrating 5% per annum depreciation in the rand, your standard of living and retirement is assured. (View example based on €300 000) There is also the threat of an emerging country meltdown. One can combine Investment, Golden VISA PR and Protection for the Family and Preservation of Wealth by investing in EU Cyprus. Explore EU Cyprus and why it is rated the 5th Best Relocation Destination in the World by Knight Frank. View our HOT Properties designed for producing hard currency passive income www.qualitygroupsa.com/property/ These properties provide freehold title, guaranteed rentals in Euro, with long term lease backs and the best and most value for money Golden VISA PR for life program evolving into EU Citizenship or immediate EU Citizenship and passports for life, the only European program of its kind in the EU. Enquiries [email protected] RESOURCES Quality Group