Here’s why residential property makes a great retirement investment




One of the biggest challenges facing South Africans at present is how to adequately prepare for retirement in our volatile and unpredictable economy. 

As a result, many people are opting for more flexible investments that adapt to the ebbs and flows of the economy to future-proof their finances. One of the more popular of these options is buy-to-let property. Here are the top five reasons why.

It’s inflation-proof

There are a lot of general benefits of investing in property, but when it comes to retirement, the most important factor is its ability to generate rental income that keeps pace with inflation.

This allows investors to plan a rental portfolio that provides enough income to support them at today’s rates and know that it will continue to support them at the same level in 10, 15 or 50 years' time.

It takes the guesswork out of things because you don’t need to accurately predict the amount of money you’ll need each month when you eventually retire. Your rental income should grow at the same rate (or higher) than inflation, and support the same lifestyle down the line as it does today.

2. It’s self-funding

While it may take a few years for a buy-to-let property to become profitable, between bank financing and rental returns it’s entirely possible to fund your investment predominantly with someone else’s cash.

You’re very unlikely to be able to convince someone else to pay your retirement annuity or buy your shares, but you can get a bond for a property, and the rental income can help pay off that bond. That means you can finance a large portion of your retirement using rental capital – an option that’s simply not available with any other investment type.

3. It’s an accessible nest egg

Apart from rental income, properties also appreciate when they’re properly looked after. This capital growth can create a very useful emergency nest-egg.

While most retirement annuities have limits to how much capital you can withdraw as cash on retirement, properties can be sold at any time to liquidate their full value.

The sale process may take a few months, depending on the market,but it’s often far easier than accessing capital tied up in other long-term or regulated investments. It’s better, of course, to live off rental income if possible, but having that capital available in an emergency can be a very comforting thing.

  1. It has tax benefits

Tax deductions are the number one selling point for retirement annuities, but property investments have tax benefits too.

The interest on a mortgage is tax-deductible and that amount can be quite significant early on. This benefit does decrease as you pay off your bond over the years, but it is a great way to reduce your tax burden while you’re still working and earning. This will be beneficial when you retire and your tax bracket drops. 

5. It leaves a legacy

By living off the income generated by a property portfolio without selling the properties themselves, investors can also build a valuable legacy for their families and loved ones.

A good property portfolio can provide financial stability for your heirs, and allows you to ensure your loved ones are taken care of long after you’re gone. It does, however, require some forethought and planning to minimise taxes and duties on the closing of your estate. It’s a good idea to speak to a financial advisor about your options if this is something you’d like to set up.

…but remember!

Property makes an excellent retirement investment, but – like any other retirement vehicle – the earlier you get started, the greater the rewards. That said, it’s never too late to start looking into a property portfolio. Just make sure you get sound advice from an experienced real estate expert who understands your particular situation and needs.


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