Property: A savings vehicle for your child's education

Property has formed part of many smart investors’ portfolios over the years, but what if you bought property as a savings vehicle for your child’s education instead of investing in the usual savings plan. With property, you have an asset that appreciates in value (capital gains) annually and your rental income, which increases year on year, beats inflation.

“In a recent article on Fin24, Chris Pretorius, a wealth manager at AlphaWealth, did some research into the cost of educating a child and it was a rude awakening. He discovered that a top rate education in South Africa will cost between R1m and R7.7m, depending on whether your child gets a quality government education or South Africa’s equivalent of Ivy League education,” says Mauritz Robertson, Digital and Marketing Manager at MSP Developments.

Robertson and his team found this very interesting and immediately started working on a yield calculator with respect to property at Buh-Rein Estate, specifically Villa Pierro. “We project that if you purchase a property valued at R1 049 900, with an annual levy escalation of 6% (in line with CPIX), an annual rental escalation of 10%, which is the current norm, and an 8% capital appreciation in the value of the property, a conservative projection as Buh-Rein Estate has delivered an average of 9.1% to date, you will see great returns on your investment over a period of 25 years.”

According to Robertson, bearing factors such as the bond repayment, net rental income, annual shortfall and surplus in mind, your cumulative cash flow by year seven will be R28 773.56, by year 14 R875 509.30, by year 18 R2 023 976.92 and by year 25 R6 118 679.40. “The net yield in year one will be 9.27% with a monthly shortfall of R1 510. By year 25 it will be 87.84%. Assuming the owner takes out all surplus rental income from year four onwards, by the end of 25 years he would have received just more than R6m in cash, settled the bond and own a townhouse worth R6.6m. It is simply astonishing,” adds Robertson.

Robertson continues that if you start early, the plan could assist you in paying for your child’s education over a period of 15 years. “It will be the best investment you’ll ever make. Your asset will pay itself within 20 years, and you can use the cash flow to pay for your kid’s education. Fact is, the buying power of your money doesn’t keep up with inflation, but the prices of homes have outperformed inflation for over 50 years. The longer you wait, the less bang you get for your buck. The best time to buy is today – always,” he concludes. www.finweek.com