Contrary to popular belief, things can and will go wrong as a property owner. There are just too many variables at play for things not to go wrong. And one of the unfortunate truths is that far too many investors go into a situation with no emergency fund.
An emergency fund is just that; it is there to help you through emergencies that are not regular occurrences.
An Emergency Fund Is a Must
As a property owner, there are things that can go wrong at any given time. Repairs to appliances, damage to the property itself, and a litany of other problems can pop up. And ignoring these things can not only lead to further complications, but it can mean the difference between keeping and losing tenants.
Of course, we all have different capabilities when it comes to having emergency funds. Not all of us have infinite resources to fall back on at a moment’s notice. So what is the proper amount to have as an emergency fund?
Knowing How Much of an Emergency Fund to Have
This can really depend on a few things, such as your variable income and expenses. Landlords generally have irregular expenses, so they would need larger emergency funds. For someone with a steady paycheck, having six months of funds to cover expenses is a rule of thumb.
But for real estate investors, it could be even longer between paychecks. Understanding that a considerable payday after flipping a house may not come for a much longer time means that you need to have more expenses to cover you in the meantime.
Layering your fund can be important. Not everyone has huge amounts of cash on hand. So try having some in cash, some in a high-interest savings account, and some in a short-term investment. This way, you are able to get those liquid funds should you need them, but they continue to accrue and make you money.
It isn’t fool-proof, but it is a safer way to approach your emergency fund than just stockpiling cash for a rainy day.