1. Selecting the CORRECT investment structure Anton Breytenbach Founder & CEO (for professional property investors)

2. What is the correct structure?
“There is not a one-size-fits-all structure and YOUR correct structure will depend on your short, medium and long term investment objectives”. - Anton Breytenbach
That is why you must consult with an investment expert!

3. As a professional property investor, you want to -
Pay as little as possible tax.
Minimize your estate costs during life and death, for the benefit of yourself, your beneficiaries and heirs.
Ringfence your assets and liabilities from creditor risk.
Maximize your property financing potential.

4. Here is the correct generic structure for early stage investors -

5. How does it work? … and we’ll get to the why.
Your Investment Company (Pty) Ltd
This is where you build your property portfolio (buy, sell, hold and lease).
You are the director and control the company, it’s assets and liabilities.
You stand personal surety for property finance, initially.
Your Property trust owns 100% of the company shares - to keep the shares out of your personal estate.
You can have multiple companies under your property trust, to serve different purposes.

6. How does it work? … and we’ll get to the why. Your Property Trust
Your wealth creation trust.
The sole purpose of your property trust is to hold shares in your property investment company and other property interests.
Your property trust will never purchase immovable property.
You are the trustee and control the trust, it’s assets and liabilities.
The beneficiaries will be you, your family trust and your investment company – never your family in their personal capacity.

7. How does it work? … and we’ll get to the why. Your Family Trust
Your wealth protection trust.
Your assets of value not under debt, personal use investments, all other investments and cash will vest in the family trust, through donation and sale.
Your family trust will never enter into any debt or sign surety – no creditor risk.
You are the trustee (and your spouse if you “really” want to) and you control the trust assets to the benefit of the beneficiaries.
The beneficiaries will be you, your family in their personal capacity and your property trust.

8. How does it work? … and we’ll get to the why.
You in your Personal Capacity
The decision maker as trustee and director.
But you only own a bicycle.
Items to be kept in your personal name and not moved to the family trust:
Any assets under finance, including your primary home and vehicles.
Items of smaller value, usually under R5,000 per item unless it has sentimental value.
Your bicycle, except if it’s a carbon fibre MTB.

9. Why? 1. You want to pay as little as possible tax. Considerations
Personal
Trust
Company
Income Tax
41% max.
45%
28%
CGT
16,4%
36%
22,4%
Estate Duty
20% 0%
Loan interest 8%
Considerations
For buy-to-let, the largest consideration is income tax.
It’s lowest in the company for all entities.
You can deduct all expenses incurred “to bring forward rent” from tax and build up a tax loss.

10. Why? 1. You want to pay as little as possible tax.
Considerations continued…
Money into your investment portfolio will be by making a personal and interest free loan to the company.
To get net investment proceeds out of the company, the loan will be repaid to you tax free.
Once your loan is depleted, net proceeds will be loaned to the property trust on the same basis, with a non taxable capital distribution to the family trust.
The property trust could in future repay this loan, from a capital distribution back from the family trust, to get money back into the company for e.g. future investment deposits.

11. Why? 1. You want to pay as little as possible tax.
Considerations continued…
For buy-to-sell, the largest consideration is CGT.
CGT is highest in a trust at 36%, lowest in your personal name at 16,4% at your max scale (with a R2m exemption on primary residences) and slightly higher in the company at 22,4%.
The effective difference between your personal and company CGT liability is 1,68%, far outweighed by the savings in income tax.
Income tax in the company is usually less than in your personal name, versus using the conduit principle in a trust.

12. Why? 2. You want to minimize your estate costs. Considerations
Only a natural person pays estate duty at death at a rate of 20% calculated on your estate value.
Other costs include executors fees and CGT on assets transferred to heirs, the effective cost rate being around 41% on your estate.
Thus, on a personal estate of R13m and after the R3m exemption, namely R10m, your costs will be R4,1m.
If there is no cash in the estate, the executor will first sell the assets to pay the costs before the heirs inherit.
This is also one of the reason why your property trust owns the shareholding.

13. Why? 2. You want to minimize your estate costs.
Considerations continued…
Should you decide to only later setup your structure, it will become more expensive to transfer your assets and liabilities to your structure, as there are costs involved that are calculated on the value of the assets.
These costs will eat into your cash and investment profits.
The cost of maintaining the structure during your life far outweighs the costs associated with death.
The largest cost involved in retaining everything in your personal name is losing assets and your good name should something go wrong.

14. Why? 3. You want to ringfence your assets & liabilities from risk.
Considerations
Trusts have separate legal persona and you thus create a risk firewall between:
Your personal estate
Your wealth protection vehicle (family trust)
Your wealth creation vehicle (property trust)
Should you thus for example default on your primary residence home loan, the sheriff can’t get to your investment properties in your company or to your paid up Ferrari in your family trust, they can only get to your bicycle.
As director, you are standing personal surety for finance on your investment properties in your company, so should the company default, the same applies.

15. Why? 4. You want to maximize your property financing potential.
“This structure holds substantial property finance advantages. It gives you the ability to secure multiple property finance at the same time, in 2 ways. This is the key to building a large, income generating and profitable property investment empire in a short space of time”. - Anton Breytenbach

16. Why? 4. You want to maximize your property financing potential.
The company owns the debt
When you purchase investment property in your investment holding company and apply for finance, all the directors will stand personal surety (pay the bond if the company can’t).
The banks will thus look at the personal financial footprint of the directors when assessing the application, as if you were applying in your own name:
Your affordability.
Your disposable income.

17. Why? 4. You want to maximize your property financing potential.
However, even though the directors stand personal surety, the company owns the asset and the debt, plus the bond expense!
For this reason, your personal financial footprint is not influenced and you can thus secure multiple bonds from the respective banks, simultaneously.
This complies with the National Credit Act.
Qualifications -
The company always owns the asset so your exposure is only maxed per bank, as surety.
As long as your tenant is paying back the bond, your disposable income is not influenced, or marginally on a shortfall.

18. Footnote: there are over 100 registered banks in SA.
Why?
4. You want to maximize your property financing potential.
Caution:
You never want to expose yourself to finance to the extent that you cannot repay all the bond obligations if you have multiple bonds. However, there are rental insurance and other strategies available to protect you from this risk, but most importantly, you need to have the right financing strategy and investment plan. We can help.
Footnote: there are over 100 registered banks in SA.

19. Why? 4. You want to maximize your property financing potential.
SOME NOTES ON THE BANKS
The different banks provide different loan to value’s (LTV’s) in a company, depending on your personal banking relationship. For example, if you hold a person cheque account with Standard Bank, you can get a 100% bond up to R2,5m in your company.
The different banks view current and future rental income in different ways in their affordability calculation when applying for finance. For example, ABSA will take into account 80% of rental income on a new bond application, if the lease is older than 6 months.

20. Why? 4. You want to maximize your property financing potential.
Cancel your sureties and start fresh
After having your investment company for about 3 – 5 years, you will have financial statements and can cancel your sureties.
Two fold effect:
Your first company can continue to secure finance on its own, without the directors needing to stand surety.
By cancelling your sureties, you free up your exposure with the banks.
The result, you can start a second company and repeat, while your first company continues to grow by securing its own finance.

21. TIP FOR FIRST TIME HOME BUYERS
Why?
4. You want to maximize your property financing potential.
TIP FOR FIRST TIME HOME BUYERS
If you do not yet own a property, i.e. you are a tenant, first buy and finance invest property in this structure before buying and financing your own home, keeping one bank open for a bond in your personal name. Once you take up a bond in your personal name, you close your affordability and disposable income to secure more bonds.
Footnote: having a detailed long term financing strategy is the key to having both your personal home and multiple investment properties.

22. TIP FOR BUSINESS OWNERS AND ENTREPRENEURS
Why?
4. You want to maximize your property financing potential.
TIP FOR BUSINESS OWNERS AND ENTREPRENEURS
If you hold more than 10% shares in your trading business in your personal name, you are viewed by the banks as self employed. Set up a third “business trust” to hold your shares in your trading business, on the same principles, pay yourself a consistent monthly salary as director and you will then be viewed by the bank as a salary earner!

23. Personal Investment Plan
Your success as a property investor is largely dependent on having a Personal Investment Plan.
What is a Personal Investment Plan?
Your short, medium and long term property investment strategies to ensure you achieve your financial and lifestyle goals.
What strategies must be in my plan?
Your investment focus.
Your investment structure.
Your financing and funding strategy.
Your buying, selling and holding strategy.

24. Personal Investment Plan
Your investment focus?
Based on your financial goals, risk profile, existing portfolio, investment ability and investment focus, in which property categories you should invest and at what point in time. Especially if you are a fist time investor with little to no capital.
Example. How do you get from putting no money down on a single affordable residential unit to developing multiple residential and commercial properties in only 3 years?

25. Personal Investment Plan
Your investment structure?
Based on your growth plan, your optimal investment structure for tax, succession, risk and property finance planning.
This was covered fairly well on high level.

26. Personal Investment Plan
Your financing and funding strategy?
Based on your structure, financial footprint, investment focus and risk profile, how do you leverage the finance and funding that you have to your exposal to grow your portfolio in the shortest possible amount of time?
We only scraped the surface. There are also multiple funding models available.

27. Personal Investment Plan
Your buying, selling and holding strategy?
Based on all of the above, how do you buy, sell and hold the properties in your portfolio to get from where you are to where you want to be in the shortest possible amount of time, by maximizing your income and capital growth?
Example. Through gearing, you can start of buying 1 property in the first year to buying 3, 5, 8, 10, 15 per year, all paid by your tenants and capital profits. With a details step-by-step investment plan, you can.

28. Thank you and successful investing!
Anton Breytenbach Founder & CEO
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