Yoh, So How Did Pretoria Work Out? Company or Own Name
Okay, so should you buy property in a company or in your own name?
It depends, and anyone who says one is always better isn't being straight with you. Your own name can be simpler and cheaper for a single property or one flip. A company tends to win when you plan to own several properties: the bank ceiling, the liability wall and keeping profit inside to buy the next one. A company isn't automatically cheaper on tax. Ask your tax practitioner to run your numbers.
Most people selling company structures won't tell you this. I will: there are situations where I'd buy in my own name. I pay the bank a bit more inside my company, on purpose, and I still think it's worth it. But it's a decision, not a religion.
When does buying in your own name make sense?
One flip, when you own nothing else. If you're doing a single buy-and-sell and won't buy again for a while, your own name can be simpler and cheaper. I've done it myself, and I say so in the course.
The home you live in. Your home is a separate decision from your investments, with its own rules and considerations. Don't confuse the two. (For what it's worth, I rent where I live in Cape Town. That's a whole other blog.)
If you'll only ever own one property. The company's main advantages, the ceiling and scale, may never come into play.
Ja, but is a company cheaper on tax?
Not automatically.
Money earned inside a company is taxed in the company. Taking money out of the company (as a dividend, for example) is taxed again. Whether that works out better or worse than owning in your own name depends on your income, how long you hold, whether you reinvest the profit, and what you do with the money.
That's a calculation for your tax practitioner, with your numbers. Any blog post that promises a company always pays less tax is skipping half the picture. I hear that one at braais all the time. It's kak.
Want to see the structure I actually use? The Directors Fortress walks you through it. R99 once off. Start here
Learning to flip your first property? Decide the container first
One flip in your own name can be the right call. Five flips in your own name almost never is.
Once buying to sell becomes what you do, SARS looks at your intention, and regular flipping can be treated as income from a trade rather than a capital gain. At that point you're running a business, and a business generally belongs in a business structure, with its costs, risks and records in one place.
There's a second cost people miss, and it isn't tax. When I was buying in my own name, I could only do one deal at a time: fix it up, sell it, wait for my bond affordability to free up, then go again. Sequential, not parallel. In a company I could have fixed one up, rented it out and gone straight on to the next.
Where does a company win, no asterisk?
These three have nothing to do with tax rates:
The ceiling. In your own name, every bond sits on your personal affordability. In a company, the bank also weighs what the property earns. You still sign surety, but the next deal isn't decided only by your payslip.
The wall. Claims from tenants, contractors and disputes generally land on the company, not on your personal assets.
Scale. Profit can stay inside the company to fund the next purchase instead of being spent.
If those three matter to you, a company is probably the answer. If they don't, your own name may be fine.
Four questions to ask your accountant
Am I holding this long-term or selling soon?
If I sell one day, how is the gain taxed in my name versus a company?
What happens to the profit if I reinvest it instead of spending it?
What will the structure cost to run each year?
Take them to your accountant before you sign anything. Mine takes my calls, which is half the reason I use them.
What I'd watch for
Running costs. A company has annual CIPC returns, a tax return, books and possibly accounting fees.
Moving later is harder. Moving a property from your name into a company later involves the bank, transfer costs and tax advice. Decide first if you can.
Bigger portfolios need proper structuring advice. One company may not be the whole answer.
Where the company fits
The point isn't to win the tax argument. It's to make the decision on purpose, before you sign, instead of defaulting into your own name because nobody asked.
FAQ
Should I buy my first investment property in a company?
If you plan to buy more than one, a company is often worth it for the ceiling, liability and scale benefits. If it's one property or one flip, your own name may be simpler. Get advice on your numbers.
Is it cheaper to buy property in your own name?
Sometimes, especially for a single property or a one-off flip. A company isn't automatically cheaper on tax.
Is the transfer duty different for a company?
No. Companies and individuals pay transfer duty on the same scale.
Can I move my property into a company later?
Often yes, but it can involve a new transfer, the bank's consent and tax considerations. Speak to a practitioner first.
Decide on purpose
The Directors Fortress shows you how to set up the company and buy in it, for when the company is the right answer. R99 once off.
Education only. This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
SARS, Transfer Duty: sars.gov.za · SARS, Corporate Income Tax: sars.gov.za
About the author
Michael Bowen co-founded ZAHomes. He bought his first property in 2003 on the outskirts of Amsterdam, with a 100% mortgage, at the wrong point in the cycle, and lost over €14,000 on it while sanding the floors himself in a heatwave. Twenty-odd years, 40-odd countries and a lot of property school fees later, he lives in Cape Town and teaches South Africans to buy and hold property inside a company. His view hasn't changed: an investor's greatest assets are the lessons from their failed deals.
