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 on your investment journey,” advises Accountplan’s Mick Doyle.
Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.
“Before calculating a buffer, I ensure my clients have a budget and savings plan in place that identifies their accurate living expenses and ability to save,” Mick says. “I would personally recommend a buffer of 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 and credit cards may cater to urgent funding, but they do attract higher interest rates and fees.
“It’s imperative to have a strategy in place to pay back this debt as soon as possible,” advises Mick. “An example could be to refinance your property and draw down equity to pay back the loan, but ensure that you revisit your buffer strategy as well.”