You can also listen to this podcast on iono.fm here. ADVERTISEMENT CONTINUE READING BELOW BOITUMELO NTSOKO: Today we’re tackling a common dilemma, choosing between two popular investment options: unit trusts or real estate. Both have their merits and drawbacks, but which one is the better choice for you? Joining us to discuss this further is Devon Card, who is a certified financial planner at Crue Invest. Welcome to the show, Devon.
So with a unit trust you have what we call complete discretion where investors can invest either by a monthly debit order or do ad hoc contributions. Just as easy as it is to get money into the investment, it’s as easy to get money out. You can either set a regular withdrawal, where it pays you out on a monthly basis, or you can just do an ad hoc withdrawal where it’s obviously not instantaneous but has a couple of days’ turnaround time.
DEVON CARD: As I mentioned earlier, when it comes to unit trusts investors have a whole range of options. You can go quite specialised. You can invest in a 100% property fund, for example, where it’s all listed retail property or commercial property. But even in those funds focused on one specific asset you’re going to have diversification because that fund’s not going to invest in one property, for example.
DEVON CARD: Like with anything, these are the taxes to be paid in various situations regarding what investment you make.So if we use the real estate investment option first, tax is applicable there. Your rental income, your rental yield, is obviously seen as taxable income. So that’s income that you’re going to have to report to Sars and pay income tax on.
And then the final fee. If you have a financial advisor, the most common practice is that financial advisors will have an advice fee that they disclose with you upfront, which you agree with, and that will be on the investment as well.Investment management fees and ‘double dipping’ You need to change the carpeting or put new windows in, or give it a new coat of paint. That’s not necessarily going to add value to the property, but that’s going to be an expense that you’re going to have to outlay that is often not taken into consideration when looking at the value of the investment and what that yield’s going to be from that investment.
Something that’s also important when you’re forecasting those long-term yields is you need to take tenant risk into consideration. It’s very difficult to assume that someone 12 months’ rental income on a property in perpetuity.