 I need to have a good evening and welcome to episode 358 of the Private Property Podcast. I'm your host, Ulza Mantouma-Milo. It's a Friday edition. It actually even feels weird seeing that because in my head today's Thursday and we're still going to have another episode tomorrow, but it's a Friday edition of the Private Property Podcast. And if you join us for the first time, you are tuned in to the leading property podcast in South Africa catering to your property needs. And of course, make sure you certainly be able to get us there. And all our regular viewers on Facebook, on Instagram, on Twitter, as well as on YouTube, welcome to it. You know how we do every single weekday. You and I have an appointment accident game where I'm always in conversation with the property expert who helps us make better property decisions. Doesn't matter where you are in the property journey, this is a show that helps you along your property journey. And of course, you can also catch a whole host of other shows that Private Property has every single weekday at 8 p.m. As it's a Friday, Chad will be closing off the week with us with the Home Shoppers show. And that comes to your screens every Monday's and Friday's at 8 p.m. And every Tuesdays and Thursdays in Balinoa, God brings you the farming podcast touching all things agriculture there on the farming podcast. And of course, on Wednesdays, you've got SD class and bringing you the first time home buyer show, which is always in conversation with people who've not only walked that first time home buyer journey, but have gone on to grow their property portfolios from strength to strength. And then of course, as myself, as I'm going to welcome my love on your screens every single weekday at 7 p.m. And always talking all things relating to property. So do keep the love coming. I absolutely love hearing from you on social media pages, especially on Facebook. I want to see all those green hearts. And of course, welcoming some of the new members of the family. And this evening, we're going to be talking about something that absolutely, absolutely, you know, always emphasize and always say, I made some rookie mistakes in the early days of my own property investment journey and want to make sure that other people don't do the same. This evening, we're going to be looking at structuring portfolios. And I'm joined by Yako Khorabela, who's the managing director at Prosperity Enterprise. Yako, good evening. And thank you so much for joining us. Great. Good evening, ladies and gentlemen, it is absolutely great to join you on a Friday evening. And I'm really looking excited for what we are going to discuss tonight, talking about structuring. And you know, Yako, you and I have had this conversation about structuring at different levels and how important it is to structure your property portfolio well. I think let's talk within a high level. When we talk about structuring our portfolios, what exactly are we referring to? So ladies and gents, when we talk about structuring, we are really talking about the entities that we are using to acquire property in. Now, I always say that your structuring or the entities that you are purchasing property in is like the foundation of a bold property. If you have a weak foundation, everything that's going to be built on top of that is weak and is at risk. Whereas if you have a strong foundation, everything that you build on top of it is strong. And I think, you know, before we even look at what makes the foundation strong or let's perhaps start with what are some of the things that we do that makes that foundation weak? You know, I like getting the stakes out of the way because many of us, unfortunately, have made them. So it's a price that we've paid. What are some of the things that potentially make that foundation weak when it comes to structuring our portfolios and ensuring that, of course, we're able to grow and scale our respective property portfolios? Ladies and gents, one of the worst things that you can do when you want to build a property portfolio is to acquire property in your own name. And as I must say, you know, that is a mistake that many of us has made. And fortunately, it's a mistake that can be rectified as well. So it's not the end of the world. If you started your property portfolio like that, in fact, most people start their property portfolio by buying properties in their own name. But you want to make sure that you've got a strong structure, that you've got trust in place, that you've got companies in place, and that you've got a great structure for what you want to achieve with your property portfolio. And that is indeed such an important one. I want to find out from you at home when it comes to, you know, structuring your portfolio, what were some of the things you did wrong in the beginning? I mean, I would share about some of the mistakes that I made in the early days of my own property journey and building my own portfolio. And I think one of the great things is being able to obviously learn from which others are community and to make sure that other people don't make some of the mistakes that we've made. They always say that sometimes we pay the school fees with a very, very high school fees, so that other people do not have to. So do share with us down below some of the mistakes that you made when it comes to structuring your portfolio very early on your property journey. I want to find out all about it right here on the show. Now, Yaku, I think weak foundation aside, and that's of course something that none of us want. We want to make sure that we've got a strong foundation. We want to make sure that we're going to build something that's going to last and stand the test of time as much as possible. What are some of the basic fundamentals, you know, before we even look at the nuts and bolts, but at a high level, what are some of the basic fundamentals when it comes to building a foundation when it comes to our property portfolios? I think it is critical that you see your property portfolio as a business because in effect, that is really what it is. And to then start asking yourself, what are the basic principles that you need to apply when you run a business? So firstly, you want to have an entity of its own for your properties. Secondly, you will obviously want the bank account of its own. And thirdly, you want financials for that entity. I always use the example to say, imagine you've got a cook and baking business and you are running this business through your savings account in between your personal incomes and expenses. And you are getting to a place where you need financing or funding for this business. Is anybody going to take you seriously? Of course not, because there's no structure to your business. But if this business wasn't an entity of its own, with its own bank account and with its own financials, suddenly the picture starts becoming clear. And that enables you then to build a significantly bigger property portfolio than what you would be able to build if it was in your own name or a significantly bigger business in this example, because there's structure to your business. And ladies and gents, the exact same thing applies when it comes to property investment. You want to make sure that you are running your property portfolio like a business. And of course, that is a big sentiment that's been shared across the board on this show. They're different guests from people who run their own property businesses to real estate agents, property brokers, different property practitioners of all that. If you're going to go down the property investment journey and looking at, of course, adding different properties, you want to make sure that you're running it from, you're running it as a business from the get go. And I think this is something that so many people unfortunately do not do. And when they do, they sometimes catch on to it slightly too late. So as much as possible, going to make sure that you do that early on. And of course, how am I to find out from you, Yaku? Then when we look at structure in portfolios, and I was saying to you, actually, I want us to look at people who already have some properties in their books, right? And let's assume that they've got them in their personal capacity. We know that so many of us start our property portfolios by hitting our personal capacities. What are some of the best ways to look at which entity to choose to either buy future properties in or to move the current properties that you have? How do we stress text, which entity we should be using, and what we should be doing with the properties that we currently have now? Thanks, Zama. I always tell my clients when I consult with them, when we are looking at structuring, we are putting out ideals or the ideal structure or the ideal place for a person to be. But life is not ideal. And often we have to work with what we have and where we are at, and make the best out of that. So for a moment, I just want to speak about the ideal two ways in which you can own property. Either you can own property directly in the property trust, or alternatively, you can own property in a company. But then it's very important that a trust is the shareholder of the company. And the reason why that is so important is that you don't want to be the owner of those assets directly or indirectly. So in other words, if you own property in your own name, you own that property directly. If you own property in a company, but you are the shareholder of that company, then you still own that property indirectly because you are the shareholder. And from an asset protection perspective, that is not where you want to be. Also from an estate planning perspective, a lot of people or a lot of wealth is wiped out when people pass away when proper estate planning was not done. So you want to either have your property in a property trust or in a company with a shareholder then being a holding stress. Now, what do you do if you already have property and it is in your own name and you now need to restruct? And this is where it's very, very important to get good advice and to get good guidance and to make sure everything is considered. Because in some instances, it would make sense to restructure. Whereas in other instances, it would make sense to things that you said that is so important is even if your structure weren't right in the beginning, you need to make sure from now going forward. Now, a lot of people think a property trust is inefficient from a tax perspective. But because of the conduit principle and the distributions that you can make to beneficiaries, you can often pay less tax in a property trust than in any other entity. As your property portfolio grows, companies automatically become more important to your structure. And that is where you would have a company or multiple companies even being held in a holding stress. Now, with properties that you already own, the things that are expensive when it comes to restructuring is your capital gains tax and your transfer duty. So a property that is worth less than a million is often much more affordable to restructure than a property that's worth far over a million. So that is one thing that one can look at. Your more affordable properties are often more affordable to restructure as well. And then from a capital gains perspective, if it is your primary residence or alternatively if there has not been a lot of capital gain, it's also much more affordable to restructure. And in those instances, ladies and gents, I would usually recommend that one looks at moving those properties over to a property trust or alternatively to a company. We are taking your questions and comments this evening as we're looking at structuring our portfolios. I'm joined by Jacob Corbola, who's a managing director at Prosperity Enterprises. We've got Mathesha Lange on Facebook commenting there saying buying an investment property in my own name, biggest boo boo. And a question coming through that's actually linked to what Matha has just said. This question is coming through from our Instagram page from Lifa underscore Zark asking, why is it a mistake to buy a property in your name? So yeah, why do we keep saying it's a boo boo to buy an investment property in our personal capacities? Maybe one thing that I can say before we get there is that the bigger mistake to make is to never start, is never to never put your foot in the water and to never get going. I often compliment my clients that have started even though, but the reason why you don't want to own property in your own name is two-fold or two primary reasons that I want to focus on. The first one is on the asset side and the second one is on the debt side. Now on the asset side, you don't want to have assets on your name because if you have assets on your name, it is not as well protected as if it is not in your name. In other words, if something happens to you financially and remember, ladies and gents, sometimes things go wrong even if it is not your fault. And I've seen a lot of people lose everything that they bolt up because they didn't have proper structuring in place. So from an asset perspective, you want to protect your asset and when property is in your own name, it is not that well protected. But then, secondly, and almost more important for me, ladies and gents, is I don't want to have the debt in my name because when the debt is in my own name and when I'm acquiring property in my own capacity, I immediately fall under the National Credit Act, which means that a certain set of rules apply and which makes it very difficult to grow beyond a certain size. So you might be able to buy your first or your second or your third property, but then you are overexposed and then portfolio further, even if you start using structures there. And that is why ideally, you would like to have even your first property already in an entity such as a property trust or a company where the holding stress is to share all that, because there's no assets and no debt in your name. And that makes it significantly easier to build your property portfolio beyond a certain size. I am this evening in conversation with Yaquo Puebla, I was looking at structuring portfolios and I think one of the big things is you want to make sure that you don't make certain rookie mistakes when, especially if your aim is to build a property portfolio. I think it's one thing if you want to obviously just buy your primary residence, maybe only have one investment property, although Yaquo probably say even if you're going to have one investment property, try to use a different entity to earn it in. But you can probably get away with having that one or maybe two in your personal capacity, but the moment you know that you're looking at growing and scanning your property portfolio, then you realize that it's probably not a great idea to have those respective properties in your personal capacity. And Yaquo, I think you've highlighted so well the benefits or why we would look at owning the property in different structures as one of our viewers had asked, because it is one of those things that we keep commenting on that you really do want to use different creative methods of ownership when it comes to your property portfolio and not to use your personal capacity. And I think the other big one, Yaquo, of course, is the reality that we often reach a ceiling when we're buying in our individual capacity and unable to leverage as well as we typically would be if we're using other entities because, of course, of the National Credit Act and the ability for banks to not overextend credit to us in our personal capacities. And that's a very big one that I think we often don't think about when we are starting off in the beginning, wouldn't you say? And that is so, so, so important is that ceiling that you reach when you start buying property in your own name, it can become expensive to restructure. So if you can do it right from the start, then that is the ideal. I'm sure as soon we'll start talking about when you start restructuring a property portfolio, what are the things that you need to look out for and also what are the advantages of restructuring. But as I said previously, for me personally, I don't even, if I know I'm going to be a property investor, I don't even want to have one property in my own name because I'm probably going to have to restructure it later and incur unnecessary expenses. And I think that's one of the things that I almost want to say. Some people in the beginning don't know that they're going to walk down the path until, of course, the property buys you and you realize that, look, this is actually something that I want to do and want to explore and of course grow your respective property portfolio. And when we look at the restructuring, Yaku, what would you say are just some mistakes that we must try and avoid when we restructure? Because we now know that there are certainly viewers at home who have already properties that they bought in their personal capacity and perhaps are now exploring the different ways of moving them because they're realizing that perhaps this isn't the best way for me to earn the particular property. What are some mistakes should we be careful of or certainly avoid when it comes to then restructuring the portfolio? It's so, so important that you do your homework beforehand and that you understand what the costs are going to be to restructure. Now, I'd like to talk about the advantages and disadvantages of restructuring and then also about the mistakes that one should avoid. Now, for me, there are three advantages to restructuring, which are phenomenal advantages. Number one, you get the asset out of your name, which means what better asset protection? Now, sorry, when we speak about restructuring, we are talking about selling properties that are in your name, properties that are in your name to your property trust or to your property company. So reason one is you get the asset out of your name, which means better asset protection and better estate planning. Reason number two or advantage number two is you get a debt out of your name. And when that happens, it enables you to, in the medium to long term, build a significantly bigger property portfolio and be able to get further financing to build that property portfolio. And then advantage number three, which a lot of people forget or miss, is the fact that you make a lot of cash potentially available by restructuring. And what I mean by that is if you have equity in your property, you can, and when we speak about it having equity in your property, it means that the value of the property is more than the outstanding bond or the outstanding debt. Now, if you have equity in your property, you can sell that property to your property entity at market price. Your property trust to your property company is the buyer, you are the seller, you finance it at 100% at market value in the property trust with the property company. The equity that is made available through that transaction gets paid out to you and you make a lot of cash available now that you can use as a reserve fund and to further expand your property portfolio. And all of those are great advantages ladies and gents of restructuring. The disadvantages of restructuring however, is the fact that it obviously comes at a cost. And that is where one of the biggest mistakes are made is there's not proper homework done on what are those costs going to be because there are transfer fees, there's transfer duties, if the property is worth more than a million grand, there's new bond registration costs because remember you can't transfer a bond, the bond is going, a new bond is going to be registered in the entity and then there's potential capital gains tax as well. And you want to speak to someone that can give you clear guidance on what those costs are going to be in order to ensure that you understand those costs and that it makes sense for you to do the restructuring. More of your questions and comments at home as we look at structuring our portfolios, we've got a comment here on Facebook coming through from one senior saying, Yaku's explanations are so easy to understand. Wow, thank you. And we've got a comment coming through from Howard McEsinney saying, this is the one day where someone came onto the show and alluded to my exact structure, holding trust, a holding company and two subsidiaries, Kudos, sir. And that's not a big one. I think many people look at having a prop co, a hold co, and sometimes of course even a trust. And sometimes you just start with prop co and hold co before you get a trust involved because it might be the very early stages. And then we've got a question on our Facebook page coming through from asking how does one establish a trust and how much does it cost? That's a question that we get very often. Our trust is a little bit different than a company. You don't just quickly register at CIPC and it's generic and you fill in a form and the trust is registered. The trust is actually a contract, which means that that contract needs to be set up very well. Now there's three elements that you need to keep in consideration when you are choosing a service provider to assist you with your structuring. Number one, you need somebody that understands obviously the legal side because it is a legal activity taking place and the legal aspect of structuring is extremely important. But then just as important, you need somebody that understands the accounting and the tax side of what you want to do because you want to structure your beneficiaries correctly so that you can take advantage of the many tax advantages that they are. And then thirdly, and just as important as the legal and the accounting side, you need somebody that understands property, preferably somebody that invests in property themselves because there are so many practical things that you need to take into consideration when you are setting up a trust and you need somebody that understands property investment to assist you with that. Now the costs of setting up a trust is not as much as people think as long as you do your homework properly and you make sure that you speak to the right service providers. And trust can be, it will differ from service provider to service providers. Certain service providers would ask up to 10,000 grand plus for a trust registration, other service providers would ask as little as less than 5,000 grand to set up a trust. But in the same way, make sure that whichever service provider you use is reputable and actually understands property investment because that is what you want to achieve with your structurally. And that's such an important one, Yankhamun. We talk about having a power team and the importance of that power team. And of course,