This report will assist you in understanding the risk/reward matrix and help you on your way to passive income. Let's look at the risks and rewards of property investment.
LANDLORD OBLIGATIONS
• Reward Someone else pays your bond on your property. Great! So all I do is rent out my new property and the tenant will pay for everything? Not quite.
• Risk As a landlord, you will have an obligation to ensure that the property is maintained. This maintenance can take the shape of simple repairs or could be as expensive as replacing a burst geyser or fixing damp caused by a leaky roof.
• Risk Getting rid of a bad tenant can be extremely difficult, especially if you do not have the correct paperwork in place. To mitigate this risk, make sure you seek legal counsel when drawing up the lease agreement and make sure to take a deposit on the rental that can be used to pay for damages that a tenant may cause.
• Risk Tenants often have difficult months and will sometimes miss a payment or two. Include a clause in the lease agreement that specifically handles lack of payment.
DEFINE PROFIT
• Reward After a few years, I can sell the property and all the profit will be mine. This is mostly true (barring a prenuptial agreement or some other such document), once Capital Gain's Tax has been paid.
• Risk In South Africa, SARS takes their cut in the form of Capital Gains Tax. There are several ways to ensure that, while still complying fully with the law, you pay only the minimal amount of tax. Talk to us about purchase options.
LEGACY
• Reward A property investment will survive you. In essence, you can bequeath the property to the next generation, leaving it as part of your legacy to them.
• Risk Your property may not go to those you want it to! The risk here can be lowered by talking to your attorney and ensuring that your will is set out with clear instructions that leave no room for misinterpretation for the disposal of your investment properties.
PERSONAL GAIN
• Reward The stability created by owning an investment property often provides a sense of comfort to owners.
• Reward Pure ego. Let's be honest here. Owning a house is, in itself, a great accomplishment. Owning 2 or 3 houses is even more so. There are no huge risks associated with ego!
“An investment in knowledge always pays the best interest” - Benjamin Franklin