As a Glastonbury investor, it is essential 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 might also make sense to create an emergency fund for your investing business. Like a personal emergency fund, that will be a sum of cash set aside to cover unexpected expenses. This fund must be separate from down payment savings, security deposits, and operating capital. But how much money should you keep in your emergency fund? The response to this question is that it relies upon 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 a pretty good idea. The idea behind an emergency fund is to make you save cash equal to several months’ expenses on hand to secure against financial disaster. When the problem happens, such as medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid before things get back on track.
The related concept applies to real estate investors as well, with a few exceptions. For example, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because cash sitting in a regular savings account is not helping you grow your business. However, it is critical to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and many others. A general rule of thumb for real estate investors is to have between three and six months of operating capital put aside.
Simultaneously, though each investor’s circumstances will be different, so should the size of your emergency fund be different as well. When you’re just beginning in single-family rental property investing, a smaller emergency fund is practically all you’re going to need. If you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. However, without considering your condition at the moment, 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. Although no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. In this end, 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 Hartford Metro/Greater New London. Speak to our Glastonbury property managers at 860-436-9955, or you can email and contact us online to learn more about our flexible property management plans.
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