Any investor know that it is important to manage investment property cash flow. Cash flow is always important, but becomes more and more important if the property is negatively geared. This usually means that property generates less cash than the cash needed to be paid as a result of holding this investment property.
Build a cash buffer
We think it is very important that property investors think ahead and build a cash buffer. Why do we think having a cash buffer is important for property investors? Cash buffer is a versatile tool, it can act as an emergency fund. For example, if surprise maintenance request is received, cash buffer should help with covering the costs. It also can act as an emergency fund if the investor is out of regular income for whatever reason, like a job loss or illness.
It is very important to plan ahead, and have proper risk mitigation strategies in place. This becomes even more important during property investment journey. Property investment can produce lumpy cash flows, so don’t underestimate the risk and seek professional advice when needed.
How big of a cash buffer do I need?
The size of emergency fund or cash buffer for each investor is different. Some investors who have cash flow positive properties might not need a large buffer set aside. Others would need much bigger emergency fund if they hold negatively geared properties. Also the size and value of the property portfolio matters. We generally think that at least 4 months’ worth of rental income is a good guideline. Why? This should provide some buffer if the property becomes vacant. It also can help with mortgage repayments, maintenance costs, any rates, water costs, insurance and others. Handy tips here.
Manage investment property costs carefully
Be careful with property costs. As a property investor it is important to understand which costs you need to pay right away for your own security (like insurance) and which costs could wait. Even requests from renters are not all the same. Some maintenance requests would be needed to be attended to immediately, others can wait or be rejected. If you are not sure, seek professional advice and/or ask your property manager. After all, you are paying them to manage and they should be able to help with figuring out which maintenance requests need to be attended to and which could wait. A good guide on property investment holding costs can be found here.
Get professional advice
Having a good team on your side is always a good strategy. Property investing (and saving money) is not for everyone. Some people could be uncomfortable with parts of this process, or could not know where to start. Sometimes the best strategy is to seek professional and tailored advice where specifics of each person are taken into the consideration.