As a Clovis investor, it is vital to keep your cash flow moving in the right direction. To do as such, most investors try to keep most of their business funds engaged in as many profitable ways as they can. However, it could also make sense to create an emergency fund for your investing business. The same as a personal emergency fund, this will be a sum of cash set aside to cover unexpected expenses. This fund will be separate from down payment savings, security deposits, and operating capital. Yet how much money should you keep in your emergency fund? The result will depend 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 keeping a sum of money equal to three to six months of expenses, although Suze Orman suggests eight months is much better. The idea behind an emergency fund is to have an amount equal to several months’ expenses on hand to cover against financial disaster. In case 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 everything return to normal.
A similar concept applies to real estate investors as well, with certain exceptions. For example, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? For what? Since any amount of cash sitting in a regular savings account is not helping you grow your business. At the same time, furthermore, it is critical to be ready to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and everything else. The general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
But, at the same time, each investor’s circumstances will be different, so the size of your emergency fund will also be different. In case you are only beginning to invest in single-family rental property, a smaller emergency fund is likely all you would need. If you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Nonetheless, despite your present condition, 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. That’s why 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 Platinum. You can talk to our Clovis property managers at 559-425-8550 or contact us online to learn more about our flexible property management plans.
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