And what’s the best choice: Uber, AirBnB or Investment Property?
It’s not difficult to imagine why earning a second income can be attractive. But beyond the obvious advantage of having more cash to spend today, what can be more surprising is what having a bit of extra savings each month can do for you in terms of lifestyle options later on.
An extra R4k to R5k a month can go a long way. Over 5 years, it’s enough to create the startup capital for that dream business that will give you your financial independence. Over 15 years, it’s enough to allow you to have the option of taking it easy from your late 40’s or 50’s as opposed to being required to work full-time past 70.
It can allow you to earn financial freedom sooner, be able to travel a lot more regularly, give your children the kind of start in life you wish you had, or allow you to create the flexibility to live and work overseas.
And there are many options for doing this: investing in a property and renting it out, buying an uber car, or AirBnB.
So, where to begin?
The first thing to know is how much you need to earn extra to achieve the goals you have and over what time frame. This means having a clear set of goals and being able to work back from those goals to figure out how much is needed.
Say you want to travel overseas every year. That’s roughly R2 500 you need to save every month. So if you want to do that, then the investment property may not be the best option because it usually takes time before you start getting money out.
For other goals, say you want to be able to take a year off to spend more time at home raising a child, studying further or taking a longer trip, then it’s worthwhile having a holistic plan that can cover this and your other goals and let you know what all this will cost.
Once you know your number, the next two things to figure out are:
- How much of your current savings (if you have these) can you put into your side gig, and how much do you have left at the end of each month that you could put into this. It’s important for example to make sure you have savings set aside for emergencies and to not eat into these savings
- How much time do you have to put in?
If you buy an uber car, depending on what other debt you have, you can get a loan for the vehicle and hire a driver. You’ll need your driver to work hard enough, so you can expect to generate around a decent profit per month after paying for gas, insurance, Uber and the driver.
But you have to spend a lot of time managing the driver - it could easily be 6-8 hours a week - almost an extra day’s work a week. Not very passive, as far as passive income goes.
With AirBnB, if you happen to have a spare room, you can AirBnB it out for some spare cash. But it’s very seasonal - you’re likely to only see income in the peak summer months, and then quiet in the winter. What you earn will depend a lot on where exactly you’re based - tourist hotspots like the Cape Town City Bowl earn a lot more than places further out.
And be sure to check that you’re even allowed to do this at your apartment in the first place.
For longer term goals a property with the right rental yield and property growth prospects can be a rewarding investment if you are able to wait for it to bear fruit. But finding the right property and doing the upfront work to get that right is critical.
But you need to compare the investment against really passive options - like investing more into your RA or a unit trust. How well do these investments need to do to beat these alternatives? If they don’t look great on this score, you might find yourself working long hours for less R50 an hour.
In all of this, make sure you also think about registering for provisional tax.
Depending on your goal, either of these could get you a lot close to the target you need, but it’s important that you’ve done that homework and also have had good research on what you’re likely to get out once you’ve factored in your time and the money you’ll have to put in.