As a Patchogue investor, always remember to keep your cash flow moving in the right direction. To provide it, most investors try to keep most of their business funds engaged in as many profitable ways as they can. Yet it might also make sense to create an emergency fund for your investing business. Like a personal emergency fund, that will be a sum of cash set aside to cover unexpected expenses. That 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 to that question is it will be base 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 maintaining a sum of money equal to three to six months of expenses, although Suze Orman suggests eight months is a good idea. The idea behind an emergency fund is to have an amount of cash equal to several months’ expenses on hand to secure against financial disaster. When the crisis comes like 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 the situations get back on track.
The following concept applies to real estate investors as well, with a few discrepancies. For example, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because no matter how much cash you have, as long as it is sitting in a regular savings account it is not helping you grow your business. Although, it is necessary to be ready to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and many more. A general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
Simultaneously, however, each investor’s circumstances will be different, so the size of your emergency fund will also be different. If you’re just starting in single-family rental property investing, a smaller emergency fund is all you’ll need. If you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Without considering your situation at the moment, 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. Even though no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. For this factor, 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 Landmark. Speak to our Patchogue property managers at 516-522-2859 or contact us online to learn more about our flexible property management plans.
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