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. KayTea

    KayTea Well-Known Member

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    I've never been game enough to look at investing in the overseas markets - to be honest, I wouldn't even know where to start :confused:. Maybe it's time to do some (more) reading……

    Once I get through the however many dozen podcasts I need to watch/listen to, forums and blogs I need to catch up on, books to read, magazine subscriptions to open…….oh, and work, yep - I need to go there too! ;)
     
  2. KayTea

    KayTea Well-Known Member

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    Yeah, I know that they may be more volatile, but I can jump out (usually) if/when I need to. It's finding the balance between liquidity and risk/volatility, I know …...
     
  3. Sonamic

    Sonamic Well-Known Member

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    2% of the Loan Value for each IP sitting in your PPOR offset is enough no?
    If you have a property that's vacant for over 6 months that is "rent ready" and not Let out, you're in the wrong game. :D
     
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  4. Waterboy

    Waterboy Well-Known Member

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    Imagine if all the Kiwis and other foreigners went home, and youngsters went back to live with parents, because of a weak economy. How many vacant properties can you keep without doing a fire sale with a small buffer?

    Maybe an extreme example but we've seen what's happening in Perth. If you're heavily invested in one area/sector/asset class it's a scary situation not having a comfortable buffer.
     
  5. HUGH72

    HUGH72 Well-Known Member

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    All the more reason not to hold all your property in one city or even state.
     
  6. Redom

    Redom Mortgage Broker Business Plus Member

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    Some reasons for a buffer:

    1. Change in circumstances (job, etc) - your stability in employment should impact the level of buffers you hold here. If your self employed you'll likely need to hold a bit more than a public servant.

    2. Property related risks - insurance can cover most of this, so its a bridging cover for shorter term vacancies etc. More properties, more buffer.

    3. Finance risk associated with a portfolio - insurance is one thing, but the lending market could do a big flip and credit could crunch at the time you need to extend your I/O periods. Some may already know what this means or will find out in course with APRA changes. Cover 6-12 months of going to P/I on your portfolio loan value to hold you over. Again, the bigger your portfolio the bigger the buffer required.

    I definitely consider shares or any form of relatively liquid investing as an adequate buffer. Releasing equity out is a great buffer tool - its just using the banks money as your buffer.
     
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  7. devank

    devank Well-Known Member

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    One more benefit of having a large buffer.
    You can make low offers without finance conditions!
     
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  8. bez23

    bez23 Well-Known Member

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    Have 300+ sitting in offset account now (usually keep $100k as buffer for SANF). It sucks when you hit servicing wall due to new baby. At least I do not have bad debt now.. but wife is eyeing at PPoR upgrades -_-
     
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  9. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    $10k buffer per property. A separate buffer for your living expenses.

    Keep in mind you can't insure against every kind of unfortunate event... thus the need for buffers.
     
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  10. jaybean

    jaybean Well-Known Member

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    About 10% of my portfolio value.

    Enough to make me feel comfortable, not enough to make me feel like it's burning a hole in my pocket. If there's too much I'd be wondering...why on earth don't I buy another property with this?
     
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  11. Waterboy

    Waterboy Well-Known Member

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    Well the key thing is you should be living within your means so your buffer (and opportunities) keep growing each month.

    Just because you exceeded your buffer target doesn't mean you should be splurging in new cars etc.
     
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  12. Perthguy

    Perthguy Well-Known Member

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    Relatively, but it depends on your interest rate ;)

    It also depends on your alternatives. If you put the cash in a "high interest" savings account at 3.5% but at the same time you are paying 4.5% interest, you cash would be better off in the offset account. To move your funds, you would probably be wanting at return of over 5%. But then the investment becomes relatively more risky. So you have to balance up risk and return. You can lose a lot of money chasing a higher return.
     
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  13. EN710

    EN710 Well-Known Member

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    Depends on how you see it and whether that gives you a good sleep at night.
    With offset, given there is no non-deductible debt, it'll be offsetting almost one full IP for me. i.e. I see it as cashflow, and that in itself is a buffer covering costs for other properties.
     
  14. larrylarry

    larrylarry Well-Known Member

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    Thanks guys. Much appreciated. Hope to get one before the year ends.
     
  15. jins13

    jins13 Well-Known Member

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    You definitely will achieve your goal Larry because unlike a certain poster here who allegedly goes all over NSW 'buying' and 'renovating', you are putting in the work and effort.
     
  16. larrylarry

    larrylarry Well-Known Member

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    Thanks @jins13 I was happy with the first IP so working towards my second IP.
     
  17. Waterboy

    Waterboy Well-Known Member

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    And don't forget the tax advantage. Bank interest on deposit is taxable. Interest saved on PPoR offset is not taxable. You need around 6% gross interest in your high interest savings account to net you 3.5% which is still lower than a PPoR interest of 4-5% saved.
     
  18. Steven Ryan

    Steven Ryan Well-Known Member

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    I just have x months of living costs which are to cover any surprises in life which include my portfolio.

    3-6 months is enough for me. Less s recurring income increases.
     
  19. Waterboy

    Waterboy Well-Known Member

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    I'm more comfortable with 1 year living expenses as minimum buffer. Remember how long it took for the GFC to calm down.
     
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  20. KJB

    KJB Well-Known Member

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    +1 .. I create a cashflow projection at a higher int rate (7.5) allow for roughly double current vacancies (8-12%) assume 10% less then current rent ,repairs and such ($1500 ) and if the balance of my loc can cover that figure for approx 2 years (before tax advantages - in case im jobless) im comfortable with it, but then i still have appropriate insurances and savings as well.. everyone's different. You have to find ur comfort level..

    I try use are what I think are conservative figures so in reality theres still abit of emergency cash in the Loc without screwing my holding time too much. I use Somersoft PIA by the way.. Which is sick
     

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