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Cash Buffers - What do you consider a safe amount?

Discussion in 'General Property Chat' started by Luke T, 6th Aug, 2016.

  1. Luke T

    Luke T Well-Known Member

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    Hi everybody,

    I was chatting with a client about it recently who said they dont really hold much in cash buffers for safety in their investing .
    I replied I think its madness if you don't.
    I like to carry at least 8%-10%(of the ratio of yr borrowings) in ready cash ,just in case.(and it helps the human mindset and SANF.)
    What are your thoughts guys?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think there is another thread on this topic here somewhere.

    I also like to keep about 6 months repayments for all loans - either cash or access to cash such as a LOC.
     
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  3. euro73

    euro73 Well-Known Member Business Member

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    8-10K per property plus appropriate levels of insurance
     
  4. hobo

    hobo Well-Known Member

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    I think everyone's situation / comfort level will be different depending on their current stage (in life/wealth creation) and risk tolerance.

    We currently have less than 2% of our total borrowings in cash. Most "spare" money is going into paying down debt fairly hard.
     
  5. JacM

    JacM VIC Buyer's Agent Business Member

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    Absolute bare minimum of $5k per property should give you a couple of months breathing room during a vacancy and/or funds to fix an unexpected repair. However as has been mentioned, 6mths mortgage repayment money is preferable. This gives you enough time, if struggling to lease a property, to either drop the rent and get someone in, or decide you need to offload the property, advertise it for sale, sell it, settle and get out of there.
     
  6. Omnidragon

    Omnidragon Well-Known Member

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    I think I've answered this before. I personally hold enough to survive next 15 years at 10% interest rates. Not so much because I'm a doomsdayer - after all the equity/debt I have on hand in real estate is even more - but cash is king, and optionality is king.
     
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  7. Luke T

    Luke T Well-Known Member

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    It definately depends on your risk exposure ,
    ie;
    What LVR s are you running ?
    How much equity do you have?
    How risky are the areas you have bought in?
    How much cashflow have you got coming in -in relation to how much you owe
    Are all your rates variable?
    How stable is your income from other sources?
    etc etc
     
  8. Brady

    Brady Well-Known Member

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    I like to keep 6months of interest only repayments for all loans as a minimum.
     
  9. alexm

    alexm Well-Known Member

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    Maybe slightly off-topic, I read this morning that the average Australian as $44k in cash savings (median). This is across people who own investment properties and those that don't.

    For some reason i'd have thought it would be less.
     
  10. Luke T

    Luke T Well-Known Member

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    Wow that sounds like a lot -if it's across everybody ?! $40k+!!!!
     
  11. Dogrocks

    Dogrocks New Member

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    Source?

    That seems really high!
     
  12. jins13

    jins13 Well-Known Member

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    I don't agree with this figure at all because I have seen a lot of other information which indicates that people are closer to the minus region. Maybe that figure for the PC members.

    But like anything, I am happy to be proven wrong.
     
  13. alexm

    alexm Well-Known Member

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  14. Joynz

    Joynz Well-Known Member

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    To me, that $44,000 is investments not necessarily cash (assuming the site's graphics are consistent).

    According to the site, 30.7% of households have investments.
     
  15. Blacky

    Blacky Well-Known Member

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    As humans we typically underestimate the likely hood of bad things happening.
    Unfortunatly when taking about investments bad things usually happen all at once.

    Think of a market downturn. As people lose jobs their ability to pay rent suffers. And vacancies increase. If this happens on a large scale the following is a perfectly plausible outcome
    1) some tenants vacating
    2) some tenants fail to make rent on time
    3) you lose your job.

    Yes, it's a perfect storm. But it's not unforseeable.

    I am currently in the situation where 3 of my high earning properties are vacant. The market is 'soft' and I'm expecting some vacancy period.
    If I was to lose my job (also possible in the current market) I would be purely reliant on my cash reserves.

    How much is enough?
    More Is never enough.

    Blacky
     
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  16. Beano

    Beano Well-Known Member

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    Are the vacancies in commercial?
     
  17. Blacky

    Blacky Well-Known Member

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    No.
     
  18. Beano

    Beano Well-Known Member

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    Residential generally don't stay vacant long but some commercial vacancies can be for several years
     
  19. Iamnumber5

    Iamnumber5 Well-Known Member

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    That might be the case in Australia, but different story in different country.
     
  20. EN710

    EN710 Well-Known Member

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    This is the other thread what buffer do you keep :)

    I'm working towards 12 months interest buffer at 6% plus 12 months living costs for 2 people. So minimum $100K, then aim for $200K and I'd be sleeping better.