As a Frederick investor, it is critical to keep your cash flow moving in the right direction. To do that, most investors try to keep most of their business funds engaged in as many profitable ways as they can. But it may also make sense to create an emergency fund for your investing business. It will be much like a personal emergency fund, which would 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 response 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 conserving a sum of money equal to three to six months of expenses, while Suze Orman suggests eight months is much better. The idea behind an emergency fund is to have a sum equal to several months’ expenses on hand to guard against financial disaster. When the time comes for a medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid while waiting for everything to get back to normal.
A similar concept applies to real estate investors as well, with some variations. For instance, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because every sum of cash sitting in a regular savings account is not helping you grow your business. However though, it is required to be prepared to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and so forth. A general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
All at once, in any case, each investor’s circumstances will be different, so the size of your emergency fund will also change. If you are just beginning in single-family rental property investing, a smaller emergency fund is typically all you would need. If you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Nevertheless, irrespective of your current circumstances, 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. Whereas no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. For this purpose, 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 Metro. Call our Frederick property managers at 410-290-3285 or contact us online to know more about our flexible property management plans.
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