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There isn't much good news for investors in traditional investment vehicles looking ahead to 2013. Given the current global and local economic environment, investors have been warned to moderate their expectations of the returns traditional asset classes can generate. Experts have predicted that many asset classes will struggle to beat inflation over the next few years by much more than a percent or two. Even South African equities, which have produced good returns over the past three years despite the economic conditions are no longer a sure winner, with analysts already warning that this performance cannot continue indefinitely. Some commentators are pessimistic about the ability of cash to deliver inflation-beating returns and others have warned income-investors seeking higher yields against the high risk this entails in a low interest rate environment.
"This is hardly unexpected news," comments Dr Koos du Toit, CEO of P3 Investment Group. "Many investors have already been deeply disappointed by investment returns delivered by traditional investment options over the last few years and many have seen their retirement savings shrink to levels that guarantee they will not be able to retire financially independent. Unless you are willing to lower your investment return expectations for 2013 even more, now is the time to consider alternative investments that offer solid returns but with lower risk."
Dr du Toit believes that an investment in buy-to-let property is one alternative which, for numerous reasons, should be considered by investors who are unwilling or unable to accept the low and uncertain returns predicted for traditional investments.
"The first and most important benefit of investing in a buy-to-let property is the fact that this investment - if done correctly using a tried-and-tested system that ensures proper risk management - delivers an ongoing, passive income that keeps pace with inflation as the rental escalates each year, while also producing capital growth over time," explains Dr du Toit. "This means that investors in buy-to-let property are not only building a guaranteed income stream for the future, but are also protecting their capital in the most solid of asset classes: bricks and mortar. And this is achieved without exposure to volatile and uncertain markets."
Another reason why a buy-to-let property investment makes a great deal of sense is the fact that an investor does not need a lump sum investment or large monthly contributions. "Investors can acquire a buy-to-let property through a mortgage bond which, along with the other property expenses, is covered by the rental income generated by the property, provided the property is well-chosen," comments Dr du Toit.
In addition to the simplicity of this investment option, it is also a lower risk investment alternative, because every risk property investment entails can be managed effectively, if not eliminated entirely. "As just one example, the risk of a tenant defaulting on rental payments can be managed quite effectively by using a professional rental management company to screen and place tenants with water-tight leases and taking out rental income insurance," notes Dr du Toit.
However, the low risk nature of property investment belies the solid returns that such an investment can produce. "Because the investment property is acquired through a mortgage bond and the repayments are covered by the rental income, the actual out-of-pocket investment by an investor is minimal. But the rental income produced by the property grows year after year and once the bond is paid off - which can be done in as little as 11 years - the investors owns a property asset that is not only producing an ongoing passive inflation-linked monthly income but is also producing capital growth," says Dr du Toit. "When the income generated and the capital growth achieved is combined with the minimal out-of-pocket investment by the investor, buy-to-let property produces stellar returns, which increase with each year the property is held."
"If you are not willing to lower your investment return expectations any lower in 2013, consider buy-to-let property investment as a viable alternative to your current investment strategy," concludes Dr du Toit. "Building and managing a portfolio of income-generating property assets requires no qualifications or experience, very little time and effort, and little or no capital or large monthly investments. With the right system - which entails selecting the right properties in the right areas and managing the portfolio and the associated risks professionally - ordinary South African investors can build up a small but very profitable property portfolio that will produce an inflation-linked income for life and - as an added bonus - also generate capital growth over time."