Real Estate Investor Magazine South Africa September 2014 | Page 28

SMART MOVES

BY KOOS DU DOIT

Why Invest
In Property?
The multiple return investment

C

ertain investments provide a high level of
income, but less scope for capital growth.
Other investments offer good prospects for
capital growth, but only produce a low level of income.
As a result, many investors perceive that they have only
two options. The first is allowing the capital investment
amount to appreciate, to maximise the power of
compounding interest on the investment, but sacrificing
any income. The second option is maintaining the
principle investment amount at its original level and
withdrawing the interest as an income, but running the
risk of achieving negative real returns as the effect of
inflation erodes the capital.
Complex decision-making
This presents a significant challenge for investors who
may need current income, but also need to prevent
capital erosion (drawing more income than that
produced by the investment) which reduces future
income. As a result, many investors try to address the
dilemma by mixing different asset classes to achieve a
reasonable balance between inflation-hedged income
and capital growth. This involves fairly complex and
high level decision-making, inevitably accompanied
by high fees that decimate investment returns, as
investors attempt to combine the right high yielding
investments, such as bonds, and the right investments
that have the ability to grow their income, such as
equities, in an optimal mix.
Simpler alternative
Few investors realise that there is an investment
alternative that allows them to enjoy the best of
both worlds. This investment alternative is buy-to-let
property investment which, thanks to its unique ability
to create multiple streams of return, has been used by
financial services giants and the world’s wealthiest for
time immemorial to create wealth.

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September 2014 SA Real Estate Investor

With a buy-to-let property investment, investors do
not have to choose between – or even try to balance
– income and capital growth. This is because with a
buy-to-let property investment, investors get both:
immediate and ongoing inflation-linked income and
capital growth.
Get capital growth...
Buy-to-let property investors enjoy capital appreciation
on the property itself, as the value of the property
increases over time. While the current house price
inflation is recovering from a lull, the long-term data
shows that property values in South Africa over the
past 20 years have produced solid capital growth
of 10.5% on average a year. On a property valued at
R500,000, that is equivalent to R52,500 just in the first
year, and this capital growth compounds year after year,
providing solid returns.
...and ongoing income
While an investor is enjoying this solid capital growth,
the property is also producing a monthly income in the
form of rental. Not only is this monthly rental income
passive, it is also linked to inflation, ensuring that the
real returns produced by this monthly income remains
positive – in other words, it keeps up with or outpaces
inflation. And, provided that the property is properly
maintained over time, the investor will continue to
enjoy this passive income, as it increases year after year
in line with inflation, for life - and even beyond if the
property is acquired in a correctly structured trust.
Buy-to-let property investment is a simple, straightforward and proven way to ensure your capital grows
and to secure an inflation-linked annuity income for
life.

RESOURCES
P3 Investment Group
www.reimag.co.za