Property investments are still considered to be one of the best performing investments over the longer term. Property investments do not only provide you with an income stream in the form of rental income, but properties also increase in value giving you a capital gain on your investment. Good property investments can provide you with actual passive income and your income is in the form of cash every month.
Property investments are a good option to add to your investment portfolio as part of your retirement savings platform. Earning rental income during retirement is an excellent way to boost your retirement savings. However keep in mind: properties can decrease in value; you might struggle to sell your property and convert your investment into cash; finding good tenants who take good care of your property and pay their rent might be difficult to find and the maintenance on properties might cause for your investment to become less attractive.
Consider these 4 important things before investing in property:
- Tenants can cause havoc in your life. Consider appointing a property rental agency that administers the renting process on your behalf. They will advertise for tenants; screen tenants; negotiate with tenants; do all the paperwork; do property inspections; collect your rental income; and take care of the maintenance. You will have to pay them a monthly commission, but when having a great agency, it is definitely worth it. Just keep in mind the commission will have to be deducted from your rental income. There are also agencies out there who don’t do a proper job and cause you even bigger headaches. Look for an excellent agency when going this route – it will give you the benefit of a hassle-free investment from which you can earn real passive income.
- Investors sometimes make the mistake thinking the rental income should only cover the bond for it to be a good investment; forgetting about the additional costs involved when investing in property: building insurance, security fees, levies, rates and taxes. The owner is responsible for most of these costs. If the rental income doesn’t cover both the bond as well as the additional costs, it can become an expensive monthly cost on top of your living expenses.
- Maintenance on properties can be very expensive and cause for the return on your investment to become a lot less attractive. Remember maintenance is for the owner’s account unless it was damage caused by the tenant. When you buy a property, ensure that it is low in maintenance i.e. painting, wooden features etc.
- Be careful not to over-capitalize on your property. Renovations and adding features like electric fencing and air-conditioner will make your property more attractive for tenants but recovering the costs might be difficult. If you add the money spent on renovations to the purchase price of the property, you might find that the increase in capital value when you want to sell it falls short and you are actually making a loss on your investment.
Definitely do consider adding properties to your investment portfolio, but be money wise and keep these 4 considerations in mind before investing in a property.
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CA(SA), Financial Consultant and Coach, Blogger and Speaker
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