Cash Buffers - What do you consider a safe amount?

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?

 

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.

 

8-10K per property plus appropriate levels of insurance

 

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.

 

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.

 

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.

 

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

 

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

 

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.

 

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

 

Source?

That seems really high!

 

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.

 

That was my first reaction (i.e. it seemed too high).

I read it here under the Mean value of each asset type Wealth and poverty in Australia - www.thebull.com.au

 

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.

 

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

 

Are the vacancies in commercial?

 

No.

 

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

 

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

 

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.