Urgent maintenance is an unavoidable part of being a landlord, so having a buffer set aside will assist 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 property maintenance, giving it the best chance of remaining tenanted; and
to cover the cost of the mortgage should you lose your employment or rental income
Buffers ensure that you are not stretched to your financial limits, but rather comfortable while on any financial journey.
Ideally a buffer for an investment property 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 it’s recommended you have a budget and savings plan in place that identifies their accurate living expenses and ability to save. A recommend a buffer of three to six months’ worth of loan repayments and living expenses is a helpful guide but you need to take your own personal circumstances into account.
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. A medium term strategy would be to look into tapping into the equity in the property for a lower interest rate versus a credit card or personal loan.
It’s vital to have a strategy in place to pay back credit cards or personal loans as soon as possible if they are required. It is also recommended that you revisit your buffer strategy 1-2 times a year to ensure that the correct funding levels are maintained.
Do you need advice? Call Chris today on 0490 075 039 or send an email to info@chardon.com.au