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To property or not to property?

Is your property a lifestyle, retirement, or surplus asset? Often, people take a lifestyle asset and think it will be a retirement asset, only to find the opposite to be true. When planning for retirement, many people believe that a property they own, whether a primary or secondary property, is a guaranteed part of their retirement plan which will provide them with an income or be converted to excess cash. However, this is not necessarily the case. There are numerous factors to consider that should be discussed with your planner and regularly reviewed regarding your properties.

Before 2001 there were no significant tax consequences when it came to owning property; now, there is a Capital Gains Tax implication. This is often a substantial outflow out of the retirement pot, even if the property is sold for a profit and some expenses are defrayed against the capital gain.

There is an important emotional aspect to owning property which is often overlooked in the planning process. As people get older, they have less energy, and a resounding challenge that clients express is the time, energy, and responsibility of being a property owner. Chasing rent, fixing property, or even having an empty property can become onerous and requires endless time and energy. For a rental property to be profitable, rent needs to be increased yearly at a rate above inflation; given the current economic state and the high unemployment rate, this is not always the case, and your property could end up costing you money. Sadly, too often, we are hearing stories from clients of rental properties remaining empty or the abysmal state that some tenants leave properties in, costing the owners thousands of rands to repair.

When selling one’s primary property, many factors are overlooked in the planning process, a significant one being the cost of moving. People often believe that downscaling to a smaller property will result in a profit, but after paying the agent’s commission, transfer duty and conveyancing costs, and sometimes having to buy new furniture to fit into a smaller space, there is no profit at all, in fact, people often land up using other investments to fund some of these costs.

We encourage you to continue to have conversations about your properties with your Retiremeant™ Specialist, no matter what stage of life you are in. Discussions around whether your properties are still working for you, and whether they are tax efficient and risk efficient are essential. It is vital to do a What-If analysis and consider the worst-case scenario in your financial plan.

Season 1 Episode 2: Part Two

How does property fit into your retirement plan

I had a lovely conversation with Retiremeant™ Specialist James Carvalho about where property fits into your financial plan. James explains how people often get it wrong by mixing asset classes into the wrong part of their portfolio. When you build a financial plan, you need to break up all your assets and investments into lifestyle, retirement and surplus. Once you have that in place, it’s easier to understand what to expect from your property as an investment. While property can be a valuable asset, James talks us through the many considerations, pitfalls, risks, and the types of property investments available.