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Why property investors need savings - Jessica Arabia, Finance Prospects

Why property investors need savings - Jessica Arabia, Finance Prospects

October 18, 2018

Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.


When renting out an investment property, having access to extra cash is vital for two reasons:


-        To cover the costs of maintaining the property, giving it the best chance of remaining tenanted; and


-        To cover the cost of the mortgage should you lose your employment or rental income.


A buffer ensures that you are not stretched to your financial limits, but rather comfortable while you are on your investment journey.


Ideally, your buffer would sit in an offset or redraw account, so that you have immediate access to the money while at the same time reducing your principal, and therefore the total interest payable on your loan.


Before calculating a buffer, you should have a budget and savings plan in place that identifies your accurate living expenses and the ability to save. You should aim to have three to six months’ worth of loan repayments and living expenses.


For those who find themselves needing to improve a property without a buffer, there are short-term options available. Personal loans may cater for urgent funding, but they do attract higher interest rate and fees. This is not the desired option.


It is imperative to have a strategy in place to pay back this debt as soon as possible. An example could be to refinance your property and draw down equity to pay back, but ensure that you revisit your buffer strategy as well.


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