Make picket fences part of your portfolio

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 5 January 2009

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As a woman your investment portfolio plays a vital role in establishing your financial independence and creating financial freedom in your later years. With everyone from your personal trainer to your mother in-law giving you advice about how best to spend your money, Di Seccombe, senior tax consultant at BDO Spencer Steward (Cape) Inc., suggests that picket fences not only make good neighbours, but also very shrewd investments – and should definitely be a part of your portfolio…

Owning your own property is both daunting and liberating. Probably the biggest – and potentially most valuable – investment you will ever make, it's important that your decision to buy a property is one that you won't regret two months later or in twenty years' time. Whether you're buying a home for your children to grow old in or a second property for rental income, this type of investment requires you to do your homework both financially and from a personal point of view.

Knowing exactly what you're buying – and why – needs to be the starting point for your decision. Are you wanting to create a home for yourself and your family or merely looking for something that you can rent out? In both instances, you'll probably be able to identify specific suburbs where you'd like to live or own property. This is where the real part of your research begins. Before starting to scout out schools and amenities, make sure that the properties in the area fall into your affordability bracket. (Remember, buying a property is a long-term investment. It should never place you under financial strain.) A great location will go a long way to ensuring the property you choose maintains and hopefully increases its value. So, hard as it is, better to buy a smaller property in a good area than a larger property in a less established area.

As soon as you've found an area where you'd like to and can afford to buy , start looking at the practicalities involved – objectively. Before you identify properties you like, take a long hard realistic look at the area. If you intend to live there, will you feel safe returning home late at night after putting in some overtime at the office, or after dinner with the girls? Looking more long-term, are there schools in the area for your children? If you're going to be renting the property out, is the property in an area that will be attractive to future tenants, for example is the property near a shopping centre, bus routes, schools or a university? Once you're sure your new investment will meet your specific personal objectives, it's time to consider the financial and legal implications.

Before making an offer on a property it's important that you're aware of how this investment will affect you financially, and how it will fit into your budget without upstaging any of your other commitments. Given these uncertain times, when calculating potential bond repayments it is always a good idea to make sure you will still be able to afford your repayments even if the interest rate increases another two percent. Don't panic about the amount of the investment – rather go and see your financial adviser! They will be in the best position to assist you in readjusting your budget. They will also be able to reassure you about the wisdom of buying property.

If your panic doesn't subside after seeing your adviser, remind yourself of the following facts:

  • When buying property as a long-term investment, the profit you make when you sell the property one day will be taxed at a much more favourable rate than on other forms of income
  • while your property is bonded if you rent it out, the interest you pay on the bond can be set off against any rental you receive from the property, meaning you could earn the rental “tax free”. You can then use this rental towards paying off the bond, so that in the end the property is paying for itself.
  • while you receive rent from the property, you will be able to claim back from SARS certain expenses incurred in maintaining your home
  • in times of uncertainty, even though your property may devalue slightly, property in a good location is unlikely to crash to rock-bottom as the markets sometimes do! Over the long term, it should increase in value.

When it comes to expanding your personal portfolio then, don't forget to include property. Whether you invest in a granny cottage or a mansion, owning your own home will give you greater personal security going forward, as well as setting you on a more balanced path to financial freedom. Know why you want to buy. Do your homework. Remain objective. Seek financial advice and…

Happy house-hunting!

Sidebar: how balanced is your investment portfolio?

While property should form part of your investment portfolio, remember to spread your investments. This will help to reduce your risk and also ensure that you benefit from a number of revenue sources. A reputable financial adviser will help you make the right investment portfolio decisions for you…

  • Shares: with many quality shares undervalued at the moment, now is a good time to invest in select companies. Reinvesting the dividends you receive will also help you to build this element of your portfolio.
  • Retirement planning: whether you choose a retirement annuity or a provident fund to see you through your later years, make sure you are saving at least 15% of your salary every month towards this.
  • Endowment policy: by putting something into an endowment policy every month you can build up an excellent source of savings that will see your child through university or take you on a fantasy holiday around the world.
  • Access bond/savings account: this acts as a buffer in times of emergency. Try to work towards having what amounts to two months' salary accessible to you. This will give you the financial freedom to make the choices you need to when you need to.
Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 5 January 2009