Real Estate Investor Magazine South Africa October 2015 | Page 31

the viability of each and every investment property they
consider and their calculations are based on a long-term
scenario. Built into these long-term cash flow projects
are a buffer against the risk of interest rate increases, to
ensure that when the interest rates do increase, it does
not place their cash flow under severe strain or make
the investment less viable.
Professional investors using the P3 Wealth Manager
do so by calculating their cash flow projection on the
long-term average interest rate of 12% - not on the
current interest rate. This means that the viability of
the investment and the cash flow position is based on
a realistic long-term average, providing a buffer against

upwards, as is happening right now, the monthly bond
repayments increase and start placing strain on an
investor’s cash flow.
Depending on the extent and the timing of the
interest rate increases, the impact could be disastrous.
The last upward trend in the interest rate cycle
provided a vivid example: between June 2006 and June
2008 - just 24 months, interest rates rose from 10.5%
to 15.5%, increasing bond repayments by around 30%.
The effect on property investors with a number of
investment properties was severe.
Managing the risk
Professional property investors, given their longterm perspective and their focus on minimising risk,
understand that the interest rate cycle is an inescapable
reality and a significant risk that must be managed
proactively.
For this reason, these investors use custom-designed
software, such as the P3 Wealth Manager, to evaluate
www.reimag.co.za

Professional property investors,
given their long-term perspective
and their focus on minimising
risk, understand that the interest
rate cycle is an inescapable
reality and a significant risk that
must be managed proactively.
inevitable future interest rate increases.
By paying the difference between the bond
repayments calculated by the bank on the current
interest rate and their own projections of what the
interest rate may be in future, these investors not only
ensure their cash flow can absorb a number of interest
rate hikes, they are also building a cash reserve in the
bond by paying a little extra each month. While this
provides a financial buffer should the interest rates rise
even higher than expected, it also shaves thousands of
rands and off the bond repayment amount and years off
the repayment term.

RESOURCES
P3 Investment Group
www.hope.co.za
OCTOBER 2015 SA Real Estate Investor

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