Real Estate Investor Magazine South Africa April 2015 | Page 34
STRATEGIES
Investor Risk
Risk management in buy-to-let
BY KOOS DU TOIT
O
ne of greatest risks all investors face is their
own human nature. In financial circles, this
is called ‘investor risk’, referring to the fact
that investors are often swayed by emotion - ranging
from wild optimism to blind panic - which results
in buying high, selling low, getting the timing wrong
or abandoning long-term investment strategies in
response to short-term market fluctuations.
While investor risk is a reality in all investments,
a number of unique characteristics of the buy-to-let
property investment game provide excellent protection
against this particular risk.
The property market is far less susceptible to fickle
investor sentiment and market volatility than, for
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April 2015 SA Real Estate Investor
example, the stock markets. Property values and rentals
do not plummet overnight as share prices or markets
do. They do not shield property investors from the
erratic stock price movements, market bubbles and
crashes that often trigger investor euphoria or panic.
While economic conditions and market sentiment do
impact the property market, the effect is lagged and,
over the long term, rentals as well as property prices go
steadily upwards.
Buy-to-let property is an illiquid investment, which
means it cannot be acquired or disposed of in a moment
of panic of euphoria. When acquiring a property,
the process of obtaining finance inherently requires
financial scrutiny and bank valuations, which provides
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