Sunday, 8/12/2019 | 5:33
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Flaws in current retirement thinking and the real estate solution

The biggest mistake most people make is to completely outsource their retirement planning and savings to investment advisors. They have the perception, often promoted by investment companies, that as long as they are saving a little bit every month and investing it somewhere, they will be fine when it comes time to retire.

There are two problems with this approach:
  1. You are giving away the control over your investing to someone who you hope will do a good job, but if you look back on the 2008 financial crises it becomes very clear that the advisors and investors were not doing a very good job.
  2. If you are in your 30’s or 40’s and you are only able to put away R500 or even R1000 a month after expenses, if you are fortunate enough to have that type of cash flow, at R1000 per month for 10 years you have only saved R120 000. Even with compound interest and all that maybe the investment is worth double that being R240 000, and after another 10 years it is worth R750 000 to R1 000 000, that is still not enough money for most people to retire on.
So, who can retire through property and how many properties do you need to retire:

Property is the one asset class that is open to anyone as it requires much less cash than other investment classes to get a good return. By leveraging bank finance you are able to buy an asset by only paying 10% to 20% of the assets value upfront. By renting out the property the rental income is used to pay down the bank financing on the property. It is not easy, and certainly not advisable, to borrow money to buy shares on the stock exchange. This means that if you buy shares you are using your own cash without any bank leverage – and hence why returns on cash invested in property are typically higher than most investment classes.
Investors need to get away from the perception that you need loads of properties to make a success of property investing. People always want to know how many properties other people own, like it is some type of badge of honour, but they are really asking the wrong question. They should be asking how many properties do you own where the income is equal to or more than the expenses and the value of the property is worth more than the mortgage over it.

Some of the most successful, happily retired property investors, are the ones that live in mortgage free homes, and have maybe 2 or 3 investment properties with little to no mortgages, and they are collecting rental income every month and getting continued capital growth. Less is more can often be a very wise investment strategy in the property game.

Happy Investing!