Everybody knows that as a Plano investor, it is crucial to be able to keep your cash flow moving in the right direction. To do so, most investors try to keep most of their business funds engaged in as many profitable ways as they can. Nevertheless, it may also make sense to create an emergency fund for your investing business. Just like a personal emergency fund, this would be a sum of cash set aside to cover unexpected expenses. This fund must be separate from down payment savings, security deposits, and operating capital. But how much money should you keep in your emergency fund? The answer will rely on your current circumstances and future investment goals.
Most financial experts agree that individuals should have an emergency fund saved up. Personal finance guru Dave Ramsey recommends having a sum of money equal to three to six months of expenses, while Suze Orman suggests eight months is desirable. The idea behind an emergency fund is to have a sum equal to several months’ expenses on hand to hedge against financial disaster. In the event of a medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid until things get back to normal.
The same concept applies to real estate investors as well, with a certain amount of differences. For example, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because any amount of cash sitting in a regular savings account is not helping you grow your business. At the same time, however, it is crucial to be able to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and so on. A general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
Nevertheless, each investor’s circumstances will be different, so the size of your emergency fund will also be different. In case you are just starting in single-family rental property investing, a smaller emergency fund is probably all you will need. If you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Regardless of your current situation, however, an amount equal to at least three months of operating capital is a good goal to keep in mind.
Having an emergency fund is an essential part of long-term real estate investing success. While no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. For this reason, the most successful investors prepare for the unexpected with an emergency fund.
You can save an emergency fund more efficiently if your investment property revenue is optimized by Real Property Management Lonestar. Please contact us online or call our Austin office at 512-520-9060 or our Dallas office at 972-949-2000 for more information.
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