adminmansions as the would-be beneficiaries move on to universities or elsewhere to start their own journey in life leaving the parents alone in the home.
Wealth, according to Buckminster Fuller, “is a person’s ability to survive so many number of day’s forward . . . ”
By this he meant one’s ability to maintain their lifestyle after their main source of income has been removed. The common line of thinking is all real estate is an asset rather than a liability. An asset is that which adds money into your pocket and a liability is something that takes money from your pocket.
For most retirees, a house is the biggest liability. It is difficult to maintain a house without sufficient income. The economic meltdown we experienced post 2000 affected and continue to affect those that were nearing or are retired.
The fall in value of the Zimbabwean dollar against major currencies and its effects is a good enough case study to seriously consider investing in more sustainable investments that to a great extent ensures value retention in the future.
This value retention may be approached with the perspective of its future rental return.
I am inclined to assume that everybody deserves to enjoy life and where possible must live in their dream homes.
It is also critical in investment thinking that plans are made for retirement purposes.
This may be through investing in a retirement property with all the essential personal requirements that may include size, security and proximity to essential services.
At this point I am not referring to a communal retirement home but maybe a cluster or smaller property that is manageable in terms of maintenance.
This frees the dream home to become an income-generating asset that will assist one upon retirement.
If one’s money is locked up in a property that does not generate any residual income because one lives on the property, one is forced to work harder because the property remains an expense.
The property might gain value as one lives on it, however, because it is the actual residence of the investor, there is a possibility that one will not benefit from positive market movements in value as it might include the ordeal of relocating.
It is still better than renting because of the security of tenure, but the expenses which include the gardener, security guard and the housemaids makes it more or less the same as renting.
This is the classic middle class pattern and soon one cannot afford to resign, retire or start a new venture because one has to maintain their supposed assets.
Being the proud owner of an expensive home before starting a profitable investment portfolio is tantamount to financial suicide.
A speedy decision to go big results in future losses of investment money. This is because the home does not recoup rentals because one lives in it and cannot be sold on a whim because consideration has to be made first as to effects of relocation.
This at first is not a problem because one may still be in a position to afford the maintenance of property and lifestyle. Which is well and good while in the productive years?
I believe that buying a dream home is a right that I wish everyone could exercise, however, a similar focus on cash-generating assets like the purchase of smaller houses that can generate rentals to sustain in the non-productive years is just as important.
As an example let us say you have US$500 000 to spend, one option is to buy a home for the total amount. The other would be to buy a house for half the amount plus two or three flats that generate rentals that will meet the expenses to maintain one’s new home.
My advice will always be for the latter if you do not have other properties or investments that can sustain your lifestyle besides one’s job.
This may also provide the retiree with the option of moving into the smaller place when other family members move from the family home freeing the main house to be turned into an income-generating asset.
The key to understanding why the rich get richer is that their asset column on their financial statement generates more money to cover their expenses through residual income.
Whereas for the middle class a new job, paycheque or contract means upgrading the home so that the expenses increase and they maintain the exact same pressure or strain that was there before the opportunity.
So when an opportunity of a lifetime comes along, the single house owner that does not have multiple streams of income is too stretched to take advantage of it because they cannot afford the risk of it failing.
A home that is not supported by other residual investments (properties) for its upkeep is a potential bottleneck for you when you retire, get sick, retrenched or for your children when you die.
Vengai Madzima is a property investment consultant and analyst with Wisdom Properties Real Estate. He can be contacted on 0772468093 email: [email protected]. Follow us on Twitter@wisdomproperties_zw
Online Reporter