INVESTING
Or a small ( manageable ) shortfall can suddenly become a big ( unmanageable ) shortfall .
Let ’ s consider the basics – For example , if you have a R1,200,000 bond and interest rates go up by 1 %, that is an additional R12,000 a year or R1,000 a month that you need to pay ! Now , imagine you have 10 properties . Suddenly , you ’ ll need an extra R10,000 monthly on your shortfall just for interest . And what if interest rates increase by not 1 % but 3 %? That means you ’ ll need R30,000 monthly on your shortfall just for interest ! even easier , access them through refinancing . I recommend always having at least 15 % of the value of your properties in cash as a reserve fund . If you are older , you can increase this percentage .
What happens if you don ’ t have fixed interest rates or don ’ t have insufficient cash reserves ?
Top 5 things you can do to improve your property portfolio ’ s cash flow and hedge against the risk of interest rate hikes .
How do you hedge yourself against this risk ? The two most common ways to do this are to fix your interest rate and ensure you have a sufficient reserve fund ( accessible cash in your access bond / flexi bond ). Unfortunately , fixing your interest rate can be expensive in itself ( you might get a higher fixed interest rate ), and you don ’ t always know when interest rates will increase .
Reserves can at least help you subsidise your property portfolio shortfalls . You can either build these reserves up over time or ,
37 APRIL / MAY 2023 SA Real Estate Investor Magazine