Recognise what is not an investment!

Recognise what is not an investment!

I had a 4 1/2 hour meeting with a guy who had about R50m investments and was worried that taxes on death would wipe out the investment income that he hoped would support his wife and daughters upon his death. He had received all sorts of investment advice and simply couldn't get his head around it until he found us through an internet search.

What he didn't realise was that he did not have any investments!

As part of this wealth management exercise, the first thing we had to do was list his assets :

  1. A residence that a daughter is occupying (producing zero income)
  2. Two small residential properties in rough areas occupied by employees purely to prevent squatters. (producing zero income)
  3. A holiday home on the South coast that he hasn't visited for the last 6 years, which he thought was a good property investment (producing zero income)
  4. Trucks and plant that is in good condition but is no longer in use, because of his illness (producing zero income)
  5. Workshop premises used to store the trucks and plant (producing zero income)

We went through the list and he estimated for how much he could realistically sell each asset. The total was a conservative R50m.

So, what asset value did he hold? R50m. What investment value did he hold? Zero. Why? Because an asset is only an investment to the extent that it produces passive income.

The advice was simple. Sell the assets, pay the CGT, re-structure his affairs so that at the end of the day his wealth could be owned within a trust structure (that was a bit tricky). Buy about fifty 2 bed 2 bath or similar units in a secure estate(s) for about R800 000 each. Gross rental income about R350 000 per month after paying an estate agent to run the rentals.

All it takes is a thorough understanding of tax, a clear head, a creative mind and a passion for helping people. That's what I've got and why all meetings with me a completely free of charge.


Derek Springett, CEO of HArbour & AssociatesNeed help with your Investments?

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