Africans tend to set up a UK-limited company and use that vehicle to build their property portfolio. When it comes to funding, it’ s all about building your credit profile, in this case through a limited company. It’ s key for you to work with the right mortgage broker as they have the contacts in the bank and can choose the right lending product for you. Once you have found the money to purchase the property, you need to determine which investment vehicle you are going to purchase the property in.
Investment alternatives You can invest in UK property in the following ways:
1 Partnering with experienced investors 2 Personal capacity 3 Limited company structure 4 Real Estate Investment Trust( REIT)
We recommend that you seek the advice of your accountant, tax advisor, legal advisor and mortgage broker to decide which alternative suites your funding requirements, tax planning, asset protection and estate planning.
We share some of our thoughts for you to consider in each alternative:
Partnering with experienced investors
• Most partnerships would be structured within a limited company.
• The experienced investors provide the directorship of the business and guarantees on mortgage lending.
• Share capital or loan capital investors leverage the track record, experience, knowledge and time of the directors to enable a hands-off investment.
• Loan capital investors can participate via a loan agreement and receive interest payments over an agreed period.
• Share capital investors can participate in the dividends and share capital growth of the company( for high net worth clients only).
Personal capacity
• Personal and property portfolio liability are combined( not separate).
• Interest cannot be deducted as an expense against rental income.
• Individuals are seen as a non-resident from UK lenders and lending is restricted.
• Lending is mostly limited to international lenders, which is based on income affordability levels.
• Individuals are usually required to have a banking relationship with an international lender.
• Individuals have to invest active time in growing their portfolio.
Limited Company
• Property portfolio liability is limited.
• Interest and other business related expenses can be deducted against rental income.
• Limited company is seen as a resident with nonresident directorship from UK lenders.
• Lending is initially limited to a few UK lenders and will open up as the limited company establishes a trading record.
• Lending is primarily based on the feasibility of the actual property investment. Some lenders still require minimum income levels from the directors.
• The track record of a limited company is initially based on the directors’ track record and then established over time
Real Estate Investment Trust
• Diversification of investment portfolio across multiple properties.
• You can own shared without the management of the actual real estate.
• Share prices can drop when property values fall.
• They are more liquid than physical real estate investments.
• Returns are usually lower than direct investment opportunities.
• Leveraging of capital through mortgage lending is not possible.
• No control and management over investments.
I, together with my partners, have invested in multiple properties in the UK. We have invested in buy-to-lets and houses of multiple occupation, which provides healthy positive cash flow. We have had tremendous success in the UK and that is priceless.
If you want to get your money offshore and into a stable market, it’ s best to go with people who have experience in that market.
South Africa’ s political climate is forcing more and more investors to look outside of South Africa for wealth creation. If the UK is attractive for you, there’ s no better time than the present to get involved.
RESOURCES
United Kingdom Property Partners
www. reimag. co. za FEBRUARY 2017 SA Real Estate Investor 43