Real Estate Investor Magazine South Africa Dec/January 2020 | Page 61

A
ccording to Michelle Dickens, the Managing Director
of TPN, 75.29% of properties are purchased in the in-
vestor’s name. She says, “This is a very high and sta-
ble percentage of investors choosing to own property in
their name. Over the last three years there has been a shift
favoring company structures (17.80%) over trust structures
(6.91%).”
When you purchase an investment property in your own
name, it’s like running a business out of your personal savings
account. It is certainly cheaper, but it comes with repercussions.
Imagine you are experiencing good growth in your business,
and you would like to get financing from the bank or funding
from an investor.
In which instance will banks and investors take you more
seriously? — Where you are running the business through your
savings account with all your personal income or expenses, ¬
or where the business is a registered entity with its own bank
account and financial statements? I believe your chances of
getting financing or funding are significantly higher in the
second scenario.
It’s the same with property… When you are building a
property portfolio, you are building a business, and you want
to run your business in such a way that banks and investors
take you seriously. According to Marléze Moller, the Managing
Director of My Home Loans, the requirements to obtain
financing in an entity are different than when investing in
your own name. And because you have to adhere to different
requirements when you buy in an entity as when you buy
property in your personal name, Marléze says that “this enables
you to build a significantly larger property portfolio in a legal
structure”.
When you build your property portfolio in an entity such
as a trust or a company, you have a separate bank account
and financial statements that need to be prepared. This is a
great advantage as it is significantly easier to have all your
transactions and expenses recorded in one place (for tax
deduction purposes) to reduce taxes to a minimum. There are
also other significant tax advantages in using legal structures in
your property portfolio. We will consider the tax advantages of
trusts and companies later in this series.
PROPERTY
TRUST
Some investors prefer to put one property in an entity.
Although this does offer better asset protection, other benefits
and tax advantages, it does make the structuring costs and
administration more expensive. However, if you are buying
expensive properties or commercial properties, the below
approach makes sense.

HOLDINGS
TRUST
HOLDING
COMPANY
COMPANY 1
COMPANY 2
COMPANY 3
Whichever structuring option you prefer, the important
thing is that you have a plan and structure for your property
investments. For we all know, if you fail to plan, you plan to fail!
Steyn Strauss, a director in the Commercial Practice Group
of Phatshoane Henney Attorneys, says “It is imperative, from
an estate-planning and wealth-protection point of view, that
a trust is the final owner of your assets.” In other words, you
can either purchase your properties directly in a trust, or a
company with the shares held in a trust. Both approaches have
their advantages and disadvantages which we will discuss in
this series.
So, how exactly should your property structure look? Have a
look at the below property structure examples:
HOLDINGS
TRUST
PROPERTY
COMPANY
JACO GROBBELAAR is a property investor,
structuring specialist and international speaker.
He founded Prosperity Enterprises to help equip
individuals in building their property portfolios
through education, structuring and support.
SA Real Estate Investor Magazine DECEMBER/JANUARY 2020
59