Got a bonus? Think of PUTs

2007-12-27 00:00

When bonus time comes around, there are many articles and commentators giving recommendations about what to do with the extra cash.

One of the more common (and sensible) pieces of advice is to put at least some of the money into your home loan. With interest rates having risen to a four-year peak, any move to lower debt is encouraged.

But what if you do not own a home? Apart from paying off any other debt, one way to save for the future, and perhaps to start investing to generate enough capital to buy a home, would be to invest in Property Unit Trusts (PUTs).

Why would PUTs be a good option for your bonus?

If you do not already own property, this would represent an excellent, low-risk method of gaining access to a property investment in a diversified portfolio.

Because PUTs are collective investment schemes listed on the JSE Limited, you can invest much smaller amounts of money than buying property outright. Depending on your stockbroker, the minimum investment could be as little as one unit. This would not even be a deposit on most direct property investments.

PUTs have a relatively low risk profile: they may only currently borrow up to 30% of the value of the portfolio.

Diversification: PUTs invest in well-diversified portfolios across a range of properties in different geographic regions as well as in different market sectors. This spreads the risk for an investor substantially. The investor is also able to participate in the retail cycle, the commercial cycle and the industrial cycle. Each PUT does, however, have its own unique characteristics, so investors who favour a particular segment of the property market, or a specific region, could select a PUT that is tilted in that direction.

Liquidity: Listed property is traded on the JSE Securities Exchange. As such, the investments are highly liquid. An investor can sell his stock and realise his funds within a few minutes of making the decision to sell.

Maintenance of the properties is handled by professionals and investors are free to focus on other issues.

Rent collection is also handled by professionals.

PUTs offer investors access to opportunities that are otherwise difficult to find.

Most financial institutions will allow a certain level of debt against the value of the units an investor has bought, which allows that investor to gear against the investment. The income component of a PUT will allow an investor to pay down the interest component of the debt, if geared.

Investors should note that at this stage there is no exposure to residential property in PUTs. PUTs invest in commercial real estate and should be evaluated as separate investments in property outside of how the residential market is performing.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.