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 32 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 www.reimag.co.za