Is it better to own a rental property or invest in unit trusts?

moneyIs buying a house with the intention of renting it out a solid investment decision? Or would it be preferable to buy property unit trusts? Many of us have grown up learning from our parents who owned rental property and have come to believe it is the best investment to make. But is that really the case? We weigh up the pros and cons of this important decision.


Property pros

Perhaps the most important positive of investing in property is that your investment is tangible. You can literally keep an eye on it. You’ll be more involved and aware of your investment. Finding good, responsible tenants is the most important element of property ownership, once you’ve found your ideal tenants, you can sleep easily at night, knowing your bond is being paid off and your investment appreciating while you do little to no legwork. Use a bond repayment calculator to work out what rent you’ll need to charge to ensure all the costs are covered.


Property cons

The risk with buy to let property is renting to tenants who don’t take care of the space, meaning maintenance costs. Buying property comes with costs we often don’t consider. You’ll need to pay transfer costs, bond registration costs, interest on the bond and tax on the rental income earned. Financial planner Grant van Zyl suggests you have a long, hard look at the numbers before investing in a rental property. “Once you have run the numbers, you will be able to see if it’s something wise or not really worth your time in the end. Making money off property is most definitely doable, you just need to make sure you know what you’re doing, as you can you burn your fingers very quickly.”


Unit trust pros

The best advantage of unit trusts is not having to worry about your investment. You can confidently leave them to appreciate in value over the long-term without being involved in their day to day value. “Buying a rental property isn’t solely a financial decision. You need to be prepared to handle all of the admin that comes with it: screening tenants, running credit checks, collecting the rent, negotiating rental increases, fielding complaints and getting the geyser repaired – right now,” says Dale Peckover, wealth manager at AlphaWealth, writing for Maya On Money.


Unit trust cons

The cons of buying unit trusts is they may not grow as steadily as you would like, thereby not giving the return on investment you would like to see. Writing for Property24, Koos du Toit, chief executive officer of P3 Investment Group, makes the case for investing in property for increased returns. He compares investing R1 million in unit trusts versus property. His calculation shows the unit trusts growing to R3m compared to the possible R24m in property over 20 years.

Investing for the long term, for your retirement and financial future, is a big decision, possibly one of the best important decisions you can make. It is essential you have all the information and carefully research your options before deciding on your way forward.