Emergency money per IP

Discussion in 'Investment Strategy' started by Seby643, 17th Feb, 2018.

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  1. Seby643

    Seby643 Well-Known Member

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    Hi guys.
    Just curious to find out from the people on here with 4 or more investment properties, if you have a
    cash buffer per property to cover emergency repairs and brief periods when 1 or more of your properties is untenanted. And if so what is that cash amount you have put away per property?
     
  2. kierank

    kierank Well-Known Member

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    I think it depends on the quality of your assets.

    If you have $hitboxes, then you will need $hitloads.

    If you have quality assets, you will need less.
     
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  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    As a rough rule of thumb I generally allow $1K per property for emergency repairs. (Things like HWS etc). Sometimes a property will have nothing to be spent on it in a whole year while another will need a lot more than $1K. But this has seemed to work for my portfolio over the last decade or so.
    I tend not to worry about vacancies as the rate has been 1-2% only for some time now. And my properties are at or below the median for the areas they’re in, with strong rental and sales demand as well as being to the taste of the market renovation-wise.
     
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  4. D.T.

    D.T. Specialist Property Manager Business Member

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    Yep, was about to say budget 1000-1500 per year to cover repairs. If there's none one year there might be lots the next.

    A couple of summers ago i had airconds in 3 places go simultaneously :(
     
  5. Seby643

    Seby643 Well-Known Member

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    In my head i always have the worst case scenario planned out lol . And that would be 1 of them.
     
  6. Pentanol

    Pentanol Well-Known Member

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    For my portfolio cashflow calculations I assume $1.5k/property incl. PPOR so that I always have a conservative estimate of my gearing. I think $1-2k as a guide would be helpful. Although I'm not sure about the buffer for emergency repairs only as I aim for one year worth of property and living expenses as a whole and I do account for potential repair costs as well!
     
  7. JDM

    JDM Well-Known Member

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    It will depend on the age and condition of the property really. If your portfolio is newer property without any foreseeable maintenance issues, I think around $1k per property is fine. If you've got an older style property, I would want to up that budget a bit.
     
  8. JK200SX

    JK200SX Well-Known Member

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    Wouldn't you just consider the amount you have in offsets as safety money (thats if you have any in the offset?
     
  9. Seby643

    Seby643 Well-Known Member

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    No offsets at the moment
     
  10. icic

    icic Well-Known Member

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    you are saying you have no buffer for your 4 ips atm?
     
  11. Seby643

    Seby643 Well-Known Member

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    No i dont have 4 properties, im only currently building my 2nd still new to the game. Just getting an outlook from other members once i eventually hit the 4 mark
     
  12. icic

    icic Well-Known Member

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    Sorry i misread your post. I dont have dedicated buffer for repairs as its unpredictable as a few members has already mentioned. I do however have a decent buffer setting in my offset that will see me and my family through a long period of unemployment, which to me, is the biggest risk. But in general I think 6 months of unemployment buffer is a minimum if you have a decent social safety net such as the option of moving back to your forks home when things gets difficult. This amount should be more than sufficient to cover any non major structural repairs or temporary rental loss.
     
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  13. Air_Bender

    Air_Bender Well-Known Member

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    Spot on. I also don't keep a 'dedicated' emergency fund for repairs but have a substantial buffer in my offset, currently about 2½ years worth of repayments for all loans. Although I'm in a relatively safe occupation you never really know what tomorrow will bring and job loss is the biggest risk if you ask me.

    @Seby643 I'd consider getting an offset and parking your savings/income there. You can draw out funds for when repairs are needed whilst saving on interest.
     
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  14. jins13

    jins13 Well-Known Member

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    I would like to say as much as possible because it's not just the emergency repairs, but also to cover for non-paying tenants and changes in your employment circumstances. I've had my own misfortune of HWS going out systematically like a domino effect and it wasn't a nice position to be but had the buffer in place to pay for it all and still have funds.

    Also, with more properties you need to account for increased payments in council rates, insurance, strata levy (if you purchased in a strata complex) and land tax (if you're over the threshold for the respective state or territory)

    The other day, I read that Salim Mehajar owes around $18,000 in rent for his place down in Vaucluse NSW.
     
    Last edited: 23rd Feb, 2018
  15. icic

    icic Well-Known Member

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    Good times never lasts for that kind of people. He got lucky too early and spend like no tomorrow. His sloppy and dodgy past has caught up to him and he is now in a world of pain.
     
  16. jins13

    jins13 Well-Known Member

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    Agreed and so far had two bail applications refused. He wants to go for a third bail application when there were no changes to his circumstances, maybe more charges against him....
     
  17. Pentanol

    Pentanol Well-Known Member

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    Yep like what the others said. It's absolute INSANE not to keep any buffers whatsoever. I thought it was bad when I was down to $19k after my last purchase (unexpected but opportunity was ripe although I would not had bought it if I was single or if my wife was not working!). Now I'm back up to almost a year worth of property expenses only - would like this to be inclusive of annual living expenses in the next few months. I also agree that unemployment is the biggest risk.
     
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  18. BKRinvesting

    BKRinvesting Well-Known Member

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    I have a dedicated IP cash buffer of 20k to support 3 IPs.
    This is what I'll draw down on for unexpected expenses, vacancies, etc.
    It's sitting in offset, so it's nice safety money.
    When it gets used, all net investment income is diverted back into it to fill it back up.
     
  19. Seby643

    Seby643 Well-Known Member

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    Think thats my next step after IP 2 is built, save 20k put away, then cash after that 20k saved will go towards IP 3
     
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  20. Alex P Keaton

    Alex P Keaton Well-Known Member

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    I don’t have enough this time. Next time I plan to have at least $60,000 cash savings when I buy ip # 2.