How much $$$ do you keep as an 'emergency buffer'?

Discussion in 'Loans & Mortgage Brokers' started by KayTea, 17th Oct, 2015.

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  1. Scott No Mates

    Scott No Mates Well-Known Member

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    @Tranquilo it's a preapproved loan. use it for any purpose you like but if you use it for anything other than investment then it may become contaminated.
     
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  2. euro73

    euro73 Well-Known Member Business Member

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    If they are CF+ pre tax that's true, but if they are CF+ after tax, a buffer is still necessary.

    With NRAS properties, the pre tax cash loss averages 8-10K per annum per dwelling, so I factor in 10K as a standard buffer for myself and for all of my clients, on all deals. This way, even if I ( or they) had no salary income for a year, the cash flow shortfall is covered by the buffer, so savings or salary don't need to fund it.

    The combined ATO + NRAS refund sits around 18-20K typically, so you simply replenish the 10K buffer from that amount , and use the surplus 8-10K to reinvest in debt reduction. It is a completely self contained model making the strategy almost impossible to break. ( save for more than 12 months unemployment, for example - but any property portfolio would suffer far earlier under those circumstances)

    It's a core part of every deal I do. If a client cannot demonstrate they have sufficient available funds to cover deposit + stamps + legals + 10K buffer, and demonstrate borrowing capacity to complete the deal ( based on 7.5% assessment across the board) I wont sell them an NRAS property.
     
    Last edited: 17th Oct, 2015
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  3. Perthguy

    Perthguy Well-Known Member

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    For my circumstances, I like to have over $100k. When I don't have a better return investment for it, I keep it in an offset account.
     
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  4. Greyghost

    Greyghost Well-Known Member

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    Having 100's of k in cash form to me is lazy money. If anything loosing it's value too due to inflation etc.

    We have it in the form of offset and redraw on my PPR that I can take instantly. Always enough to cover 6 months job loss for both of us.. Coupled with that our portfolio is cf+ after tax, I also have passive income elsewhere and out PPR mortgage is cheaper than renting.

    As other members said, the amount depends on multiple facets of your life, strategy, income situation etc.
     
  5. KayTea

    KayTea Well-Known Member

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    It sounds like you're in a great position, @Greyghost - I aspire to reach your standing.
     
  6. Propertunity

    Propertunity Well-Known Member

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    I can't stand having cash around un-leveraged. I keep about 1 month's cash in reserve BUT with the ability to borrow about 2-3 years worth of living expenses if needed. (it has never been needed).
     
  7. Greyghost

    Greyghost Well-Known Member

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    By no means at all....
    But thank you nevertheless..
     
  8. Greyghost

    Greyghost Well-Known Member

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    I feel you on this one..
    We are saving for another PPR ATM and it burns a hole in my pocket.. Mrs doesn't like the idea of staying in this house another 18 months just so we can secure another IP..
     
  9. Propertunity

    Propertunity Well-Known Member

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    Happy wife, happy life ? ;)
     
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  10. Perthguy

    Perthguy Well-Known Member

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    It is lazy money! But I wouldn't invest mine in anything lower than inflation or it really would be losing value... :mad:
     
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  11. Greyghost

    Greyghost Well-Known Member

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    It's an uphill battle ATM..
    I'm saving for the ring while we are saving for the next PPR.. Talk about a covert operation!!

    When you have a portfolio together and working towards another goal together it is difficult to put aside surprise money..

    But I couldn't agree more! Happy wife happy life, hence why we are moving to Brisbane from vic - to be with her family...
     
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  12. KayTea

    KayTea Well-Known Member

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    So, we're soon to get another Brissie 'local' investor then, huh?

    Hope you're prepared for the summer humidity…. :eek:
     
  13. Waterboy

    Waterboy Well-Known Member

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    There's a lot of uncertainty in the global markets affecting share prices. The US Federal Reserve is making everyone nervous with its moves. And when China devalued its currency the global markets dropped nervously. It's quite scary these days.

    If you can stomach the roller coaster of daily share gyrations, it may be worth it if you choose the good ones that give high dividend yields and franking tax credits.
     
  14. KayTea

    KayTea Well-Known Member

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    Thanks, @Waterboy. I've got a nice (but tiny) parcel of shares that have gone up 35% in the past 12 months, so I'm pretty happy (just wish I had more in there………).

    But it is a daily yo-yo, isn't it?!
     
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  15. larrylarry

    larrylarry Well-Known Member

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    I have quite a bit in offset account so that's lazy money? :(
     
  16. EN710

    EN710 Well-Known Member

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    At least 6 months interest payment on each loan. Ideally 12 months, which is becoming harder to do as I add the # of loan :confused:

    The above plus 12 months minimum living fees. I'm savings for the planned portfolio so say $2m target with 90% lvr = 1.8m loan

    Target buffer for the loan $126k for one year on 7% interest
    Living fees for 2 ppl $3000 per month = $36k

    So target $162k at least.

    Then there's buffer of buffer, I.e. I am not digging into the above unless I really in pinch. $200k would be a lot better :D
     
  17. Waterboy

    Waterboy Well-Known Member

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    Depends on your risk appetite etc. it's not necessarily a lazy money cause it's effectively earning tax free interest. There's only so much risk a person can tolerate. Some are aggressive. I'm more balanced. After all I'm single in my 20s and if something happens to me I have no spouse/kids to provide for me.
     
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  18. Waterboy

    Waterboy Well-Known Member

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    LoL i know what you mean. The best share investments I made were the US shares I bought when the AUD was above parity. It's very very tempting to sell them now but they're giving me good dividends in USD as well!
     
  19. larrylarry

    larrylarry Well-Known Member

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    Good buffer for me for the future. I will have to pay attention to the market.
     
  20. JDP1

    JDP1 Well-Known Member

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    Shares are quite liquid. Much more liquid than RE. The volatility and risk in shares on average is more than average RE...
     

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