AFFORDABLE HOUSING
Practical Example: How it works in real life Let’ s look at a South African example to illustrate the concept of owning a property through a company with shares held in a Holdings Trust. Imagine you purchase a property for R3 million with three units on the premises— one main house and two cottages.
• The Purchase: You buy the property through your investment company, with shares held in your Holdings Trust.
• The Setup: You live in the main house and rent out the two cottages for R8,000 each per month, generating R16,000 in rental income.
• Monthly Costs: Your bond repayment on a 30-year loan at 11.25 % interest is approximately R29,000 per month. Rates, maintenance, and other expenses add another R5,000.
• Your Contribution: After accounting for the rental income, you only need to pay rent of R18,000 to cover the shortfall to live in the main house.
Now compare this to purchasing a single-unit home for R3 million in an upmarket area that generates no rental income. Your monthly bond repayment and costs remain at R34,000, but you’ re solely responsible for covering the entire amount. This approach ties up your capital without providing additional income.
By choosing the multi-let property, you gain a place to live while reducing your financial burden and building a sustainable income stream. Over time, the property appreciates, the rental income increases, and you can reinvest in more properties.
Key Takeaways
1. The Best of Both Worlds Owning a property through a company with shares held in a Holdings Trust and renting it from the entity allows you to benefit from homeownership while keeping your financial options open.
2. Think Strategically If you can purchase a property with multiple units, you can live in one and generate income from the others, making it a smart investment.
3. Run the Numbers Always ensure the financials make sense. Focus on properties that deliver strong rental yields and avoid overextending yourself.
4. Flexibility Matters Renting in premium locations or during transitional phases can provide flexibility and financial freedom.
60 REI MAGAZINE DECEMBER 2024 / JANUARY 2025