You must have known that there is no certainty of the future no matter how expert a person in certain field. Even a forecast often missed their prediction of the weather. In business and life in general, everything could go wrong. However, that is not the concern you need to focus on.
What you need to pay attention to is how to be prepared for the unexpected turns that could happen during your journey in your business. It is said that property investment is one of the least risky businesses. However, it still has its own risks as well as the unexpected you need to anticipate if you want your investment to survive in the long run.
One of the most important thing property investors should have to anticipate the future is building up cash buffer.
What is cash buffer for property investors?
Cash buffer is like a saving you have in order to anticipate the unexpected cost. For example, there are times when you receive a sudden call from your tenant telling you that the pipe leaked or the roof broken. If you don’t have cash buffer at that time, where else will you able to pay for the repair?
Cash buffer is very helpful and nobody disagree on that. Most investors are too focused on the cash flow when it comes to property investment. Of course it is not wrong either because it is important so you can pay your loan mortgage as well as other expenses. However, cash flow can only do so much.
What happen to your investment when your property is suddenly untenanted? What should you do? Putting your property on sale?
No, what you need as solution is to build up your cash buffer. You see, when the unexpected happens such as vacancy or late rental payment, your loan mortgage still needs to be paid. The other expenses won’t wait until your cash flow is back to normal condition.
When the unexpected repairs happens, you need quick cash especially when it is emergency that cannot be delayed. That’s when cash buffer will be very helpful.
How much cash buffer you need to have?
Basically, there is no certain rule of how much cash buffer you need to build up. At some points, it may differs from one investor to another depending on various factors including the property itself. However, it is highly advised to have a bare minimum of $5,000 ready for each property you own.
However, it also depends on your rental income as well as the expenses you need to pay in regular basis.
Building up cash buffer is not as hard as you thought it would be. It is just like your regular savings plan. Just make sure that you make calculation of the expenses you might face for emergencies. Thus, your cash buffer will be enough to cover them. By building up cash buffer gradually, you don’t have to worry that you would use your personal savings to cover emergencies regarding to your investment property.