As a Woodland Hills investor, it is significant to keep your cash flow moving in the right direction. To achieve this, most investors try to keep most of their business funds engaged in as many profitable ways as they can. But it could also make sense to create an emergency fund for your investing business. Much like a personal emergency fund, this will be a sum of cash set aside to cover unexpected expenses. This fund needs to be separate from down payment savings, security deposits, and operating capital. But how much money should you keep in your emergency fund? The answer 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 having a sum of money equal to three to six months of expenses, while on the other side, Suze Orman suggests eight months is more significant. The idea behind an emergency fund is to have a sum equal to several months’ expenses on hand to defend against financial disaster. In case 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 the unexpected crisis gets back to normal.
A similar concept applies to real estate investors as well, with a few disparities. Let’s just say having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because any sum of cash sitting in a regular savings account is not helping you grow your business. At the same moment, but, it is critical to be able to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and some other matters. A general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
However, each investor’s circumstances will be different, so the size of your emergency fund can even vary. In case you are just beginning in single-family rental property investing, a smaller emergency fund might be all you will need. But when you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Therefore, whatever your current situation is, 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 may be no way to anticipate every costly repair or market downturn. Because of this, 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 West San Fernando Valley. Call our Woodland Hills property managers at 818-727-0100 or contact us online to acquire more about our flexible property management plans.
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