The pros and cons of property to generate income in retirement

Relying on property to fund retirement may be a necessity, but it is not without risk.
It is important to have diversification and to have other income-generating assets if possible, says Mark Lapedus of Liberty Investments. Picture: Shutterstock

By choice or necessity, some retirees are relying on property to generate income in retirement.

According to the Guardian newspaper, one in three people are relying on property to help provide an income in retirement from one or more buy-to-let properties, and more than half said they would sell their own home and use the proceeds to pay for retirement.

But is property a good asset in terms of generating income in retirement?

“With any investment that you may have, whether a retirement fund, unit trust, share portfolio or property, there are benefits and risks, says Mark Lapedus, head of product development at Liberty Investments.

“An important goal for retirement is that you should not only have one source of savings. You should have diversification so that you have different options.” If, for example, you have 100% of your savings in equity markets, you could lose a large chunk of your money if share prices collapse. “Similarly with property, it is important to have diversification and to have other income-generating assets if possible,” says Lapedus.

With investments largely in property, however, diversification is more difficult to achieve because of the high cost of property. “If I have R5 million to invest, and only invest in the equity market, I can afford to buy a large number of companies – from financial to retail, or mining,” says Lapedus. “But if I am choosing to go into the property market, and if a property costs R1 million, I can only have five properties and I have less ability to diversify unless I have lots of money.”

Another issue is liquidity. Using the same example, shares can be sold quickly, should you need to do so. Property may be difficult to sell, even over an extended time, if property markets are weak or interest rates unfavourable.

However, property is generally a good asset in terms of one’s ability to derive recurring income and many people rely on property to supplement their income in retirement.

If retirees bought their home when they were younger and have paid it off and then rent it out, they have the ability to generate an income and benefit from capital growth. “But there is a diversification risk and illiquidity, and a lot to do in order to manage the property, which may be increasingly difficult as one gets older.

“While a managing agent could be appointed, there is definitely more hands-on involvement required than if you invested in unit trusts or shares, where you can sit back and earn dividends and capital growth,” says Lapedus.

If a retiree still has a bond on a property, and is able to get decent rental income to cover the bond, or if they decide to take out a bond to acquire the property to rent out and the rental is more than the bond repayment, the property investment can be financially lucrative. A few years down the line, income will exceed the bond repayments. Property investors must, however, ensure they can meet cashflow requirements on the property.

Property investment may create inheritance issues, as heirs will need to take over management of the property or have to sell it in order to distribute the proceeds. If they keep holding the asset, there may be liquidity issues as all of your capital may be tied up in the asset, with no funds available to pay estate duties.

“You should also be aware of the tax implications, as you will not get tax deductions as you would for a retirement annuity, pension or provident fund, and it could be a significant disadvantage to lose out on a retirement fund tax benefit.

“The big disadvantage of property, while it may generate income, is limited access to funds and illiquidity,” says Lapedus.

There are, however, many people who have property as one of a few income options in retirement and have done well out of their investment.

“There is nothing wrong with it,” says Lapedus, “but it should not, if possible, be the only savings option. Retirees with a good spread of traditional and non-traditional savings are more able to maximise their impacts than those with all their eggs in one basket.”

Brought to you by Liberty.


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Yeah right. With the present political culture towards land and law and order in SA today, BTL property is the kiss of death for any investment. That is apart from high acquisition costs and bad tenants.And hostile SARS.

My portfolio has index funds and property with a sprinkling of shares.

I have learnt my lesson and say far, far, far, far, far away from any of these investment houses like Liberty, Glacier, PSG, Investec, etc.

My indices have given me a 24% return so far this year. My property keeps bringing in the cash that I put into indices.

I’m happy.

just to show that I am not a total “naysayer” – this is actually a very good article and offers advice that I myself have taken leading into retirement from my full time job over the next few years. having diverse sources of income is excellent advice(I will have 4 – uk and aus pensions, rental income from my principal residence and draw downs from my retirement fund). of course the key issue in retirement is access to health care and the latest (and very expensive) treatments coming on the market. quite how this is achieved in my erstwhile country I do not know. (hint – emigrate to countries that offer excellent free medical cover!). anyway the problems of retirement are “boredom/health/depression/loneliness/money and feeling of self worth

A surprisingly well balanced view on property investments for a retiree. Another aspect that should be factored in is the dependency of say a husband to run and maintain a couple’s investment properties during his retirement. On average women live longer than men and if one was to assume that a spouse was left with 2-3 properties to manage after the death of her husband then the likelihood of that spouse needing to sell the properties and cause a capital gains tax implication is quite high. One must also not assume that all properties carry the same degree of upkeep. Some may be easily manageable such as offices rentals while others may consume more time and money.

End of comments.



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