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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 Tax and Structuring Lawyer 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
     
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  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.
     
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  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 Premium 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.