Real Estate Investor Magazine South Africa May 2014 | Page 31

RESIDENTIAL
This risk is managed by smart investors, firstly by
ensuring their buy-to-let property investments are
financed with a home loan or mortgage bond at the
lowest interest rate possible, and secondly by doing
their cash flow calculations on a buy-to-let property
not using the current interest rate, but rather the
long-term average of 12% (the default interest rate
setting on the P3 Wealth Manager software). In
this way, they build a buffer against interest rate
increases into their cash flow calculations to ensure
their monthly cash flow can absorb a series of interest
rate hikes.
Smart investors also pay more than the minimum
required bond repayment each month, protecting
their return on investment, which is decimated
by the high interest pay ments on a mor tgage
bond, while also building up a solid reserve fund
t hat rema ins accessible in a n access bond to

cover unexpected expenses, such as a vacancy or
emergency repairs.
Using the Bond Optimiser function on the P3 Wealth
Manager software, investors can calculate the impact
of extra payments into the bond. A payment of just
R200 a month extra into the R450 000 bond can save
R126 000 in interest over the life of the bond, and
reduce the repayment period by three years.
Investors can also calculate the effect of a lump sum,
for example a pension fund payout or an annual bonus,
paid into the bond; the imp