Rental Property vs Property Unit Trusts: Which one pays off?
In the end, the best option depends on your risk tolerance, available capital, and how involved you want to be.
A house for rent. Picture: © Andy Dean /123rf
702's Gugs Mhlungu spoke to resident Certified Financial Advisor, Paul Roelofse.
Listen to their conversation in the audio clip below.
"Property is certainly one of the options on your pathway to creating wealth, but there are many roads to that."
- Paul Roelofse, Certified Financial Advisor
Owning a rental property in South Africa gives you hands-on control, steady cash flow, and tax benefits, but it also comes with high upfront costs, ongoing maintenance, and tenant hassles.
For those willing to put in the work, it can be a rewarding long-term investment.
Property Unit Trusts, on the other hand, offer a hands-off alternative.
With built-in diversification, professional management, and greater liquidity, they’re ideal for investors seeking property exposure without the landlord headaches.
Roelofse provides the pros and cons:
Rental property
Pros:
- Steady Cash Flow: Rental properties can provide a reliable monthly income, contributing to financial stability.
- Tax Benefits: Property owners in South Africa can benefit from tax deductions on mortgage interest, rates, and depreciation, which can enhance profitability.
- Appreciation Potential: Real estate in South Africa has historically appreciated over time, increasing the overall value of your investment.
- Control: Owners have direct control over property management and can make improvements to boost rental income.
Cons:
- High Initial Costs: Purchasing a rental property often requires a substantial upfront investment, including a deposit and transfer costs.
- Ongoing Expenses: Maintenance, property management, and unexpected repairs can significantly impact profits.
- Tenant Risks: Managing tenants can be challenging; issues such as late payments or property damage can lead to vacancies and added costs.
- Illiquidity: Real estate is not as liquid as other investments, making it more difficult to sell quickly if needed.
Property Unit Trusts
Pros:
- Diversification: Investors can gain exposure to multiple properties, which helps spread risk.
- Liquidity: Units in a trust can often be sold more easily than physical properties.
- Professional Management: Managed by professionals, which reduces the burden of day-to-day management on investors.
Cons:
- Fees: Management fees can eat into overall returns.
- Less Control: Investors have no say in how properties are managed.
- Variable Returns: Returns can be less predictable.
According to Roelofse, the best option depends on your risk tolerance, available capital, and how involved you want to be.
Scroll up to listen to the full conversation