A guide to buying investment property on an estate

Private Property South Africa
Private Property Reporter

Neale Petersen, the founder and editor of Real Estate Investor Magazine discusses the ins and outs of buying property on an estate as an investment.

Search for a home on any device anytime, anywhere. Private Property: A Home for Everyone. Welcome back to Win A Home on Afternoon Express.

Presenter: We're on SABC3. Now there are many things that give me anxiety, but the one that gives the most amount of anxiety is buying property. Now in our property advice series, we're discussing various aspects of residential estates in South Africa. And today, finally in studio, we have Neale Petersen, founder and editor of Real Estate Investor Magazine, who is going to help us all understand the ins and outs of buying property on an estate as that investment. So welcome to our loft.

Neale Petersen: Thank you very much for the opportunity. It's an absolute pleasure to be here.

Presenter: I don't know if I'm excited or really nervous to have you on this couch because property has always been something that you get different pieces of advice from so many different people. Buy, don't buy, market's good, market's bad. It's a buyer's market. It's a seller's market.

Q: Is buying property even an investment today?

Neale Petersen: Absolutely. Hands down. And so let me just start and take you a little bit back. The word invest or investment is used too flippantly out there. And people tend to say, "This property that I just bought was a great investment." They don't really know why it's a good investment. So if we start looking at what does invest mean, invest essentially means that you're investing to achieve a profit. So the second part of it is, of course, endowing yourself with information. In other words, investing in yourself with knowledge. And those two factors, people don't take into consideration. I think that people tend to take the first little bit of advice they get.

Presenter: Okay. So then when it comes to investing itself, what's the difference between the investment and the kind of those mistakes people make?

Q: I mean, is it an investment because I take out a bond, and then I have a now property that's an asset, and I sell that asset, I make money? Is that regarded as an investment? Or does it have to be immediate returns?

Neale Petersen: It's a little bit of both. I think, first of all, you've got to study the market. And I think that's the critical thing because if you speak to any sort of estate agent, property broker, a professional, the first thing they say is, "Location." Yes, location is important. I think specifically when you're looking at an estate-type living, which I don't really call an investment per se, that's more of a capital appreciation-type investment as opposed to one that you're going to rent out. And I mean, there's more than 100 ways that you can actually invest in real estate, and those are just two that I've mentioned. But people tend to say, "Well, I've bought a property and it's going to grow by 10% this year, 10% the following year, and I made a great return." It's not about that. It's a combination of both factors, but more importantly, it's about the cash flow. And that takes a bit of study and it takes a little bit of work to understand that and what all these different terms mean. So you just need to know a few bit of terms. You need to check your references. That's very important to verify and do your own due diligence. And I think in South Africa, a lot of people who are buying property just go and buy on the advice of somebody else instead of actually doing their own homework, their own due diligence, checking out the property, checking out the quality of the property, looking at why the owner wants to sell -

Presenter: The surroundings, what's going up, what's going down.

Neale Petersen: looking at the rental yields. I know you start getting into technical terms. It sounds technical. It's not really that technical. It just means taking a little bit of time and effort.

Presenter: That's something that's exciting about this year's season of Win A Home is that we are buying and building on an estate. And I think estate living seems to be trending quite a lot in the property markets.

Neale Petersen: Absolutely.

Presenter: And we spoke last time a little bit about how the property values are slightly more expensive in estate because of the lifestyle you're buying into.

Q: Is it still worth buying an estate and what should we look into when it comes to renting or perhaps even buying and investing on an estate?

Neale Petersen: So estate living is a massive trend in terms of lifestyle, and I think it will continue to grow. And it's for one simple reason right here in South Africa. It's security. And because of security, people are looking for that kind of peace of mind. However, it does come at a price. It comes at a premium. Sometimes there are some distressed assets within that you can get at better prices. However, you've got to say, "What is the reason?" Why are you buying this property? Why are you renting? And it comes back to your purpose.

Presenter: People want to make money though, Neale. It's obvious. People do want to be able to make money.

Q: So can I buy and rent it out and make money on an estate?

Neale Petersen: Absolutely. So I know people, for example, who have got properties on eco estates. 45,000 rent a day. They want to keep it to a point of not their entire year because they also want to enjoy the property themselves. So there's a combination of that. So yes, you can. You can get these magnificent returns. It tends to be more in the higher end of the market and a little bit more riskier than your normal cash flow-type investment in your sort of bottom end.

Presenter: Good stuff. Thank you so much, Neale.

Now remember that on this season of Win A Home, you stand a chance of winning a beautiful home on the Eye of Africa estate. Your choice of one of the three currently being decorated by our dynamic design duos.

All you have to do is log onto www.privateproperty.co.za and answer a very easy question. It's as simple as that. No need to buy.

Presenter: We'll be right back after the break with more Win A Home excitement. Don't go anywhere.

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