How would you invest R5k a month?
06 Oct 2014
If you have R5 000 to invest, how would you invest it for the best returns? Let's say you invest R5 000 a month for 10 years between the ages of 25 and 35. This total investment of R600 000 over 10 years in a traditional retirement savings plan could yield a return of R7.3 million by the age of 65.
Property acquired in a correctly structured trust can be held well beyond your lifetime, leaving a legacy of growing wealth for your children and grandchildren.This is according to Dr Koos du Toit, CEO of P3 Investment Group, who poses the question: "But what if you invested R5 000 a month, for 10 years from age 25 to 35, in a buy-to-let property?"
Let's say you acquire a R500 000 property with a 100% loan from the bank and rent it out to a tenant at R4 000 per month. The bond repayments are R5 505 (calculated on 12% interest rate to make provision for interest rate fluctuations) and with the other monthly expenses (rates and taxes, levies, rental agent management fees and provision for a maintenance contingency fund and for vacancies) the monthly expenses total R7 000, leaving you with a shortfall of R3 000 (R4 000 rental less R7 000 expenses), he explains. This is comfortably covered by your R5 000 per month investment, and leaves R2 000 per month to pay into the bond each month as an additional payment.
"Should you choose this investment option, you will pay off the property in just 11 years," says du Toit. "By this time, the property will be generating a monthly income of R7 000 per month after expenses, and will be worth R1.16 million rand at a modest 8% average capital growth."
In 30 years' time, at age 65, the property will be worth R5.5 million. It would have also by this time have generated R5 million in income after expenses, pushing the returns of your R600 000 investment up to R10.5 million, he says.
However, that is not the end of the story, as at age 65, the property will still be generating a passive monthly income of R48 000 per month - or R576 000 per year - in rental, increasing each year, while continuing to produce capital growth for as long as you hold the property. And, if the property is acquired in a correctly structured trust, says du Toit, the property can be held well beyond your lifetime, leaving a legacy of growing wealth for your children and grandchildren.
Given the simplicity of this investment and the passive income it produces in addition to capital growth, investors could steadily and responsibly acquire two, three or more buy-to-let properties over a number of years, building a small but highly profitable property portfolio that not only generates ongoing, passive, inflation-linked income, but also steady capital growth throughout retirement and beyond, for as long as the property is held.
"You do not need prior knowledge or qualifications, a lump sum investment or even huge monthly contributions, nor do you need much time or effort to implement this system," says du Toit. "All that is required is the willingness to consider an investment alternative that has been used by the world's wealthiest for hundreds of years to create real wealth."