☔️ rainy day fund

I think there's been a misunderstanding.

I'm saying repayments for a $400k loan at 4-ish% is $20k.

Not $400k of repayments.

And yes, $15M portfolios I imagine would not be at 80% LVR.

 

I imagine that very few Australians have $15m portfolios of residential investment property.

We need to set our buffer with what we are comfortable with, not what others want us to do. I am only really starting out but I still like a $100k minimum buffer. When it drops below that I get nervous. I hold a buffer to cover the following :

- vacancies
- damage
- interest rate increases
- repairs

 

I find a lot of investors get a little over excited by 'cashflow positive'. You need to put aside money aside for renovations, replacements, general maintenance.

Things that have come up on all properties, hot water, stove, extractor, aircon, tap replacements. Gutter maintenance, repainting every few years is also very common.

When you have a few properties, this is yearly. I've painted 5 properties in the last 12 months. Each between $3k and $9k each.

Then setting up a couple of trusts, insurances, that's another $20k+. That's in the next 2 months.

Now throw in 2 properties missing rent payments (common for Christmas), same month as a interest rate rise, and you've just booked flights to Japan...

 

Then we are back to the beginning of 400k Loan @ 4% = 16k which then means 400k loan @ 4.5% (0.5% increase) is 18k or 2k increase not 20k increase.

This was what @Lacrim had originally said it was a 20k increase but I quoted you as you said it was 400k repayments - this isn't a personal thing just trying to provide clarity to readers who might read 0.5% increase is a 20k increase and get scared.

 

4% interest would be quite impressive.

Most would be on 4.5% and above as they've moved to 2nd tier lenders.
So an additional 0.5% takes it to 5%.
On $400k, that is $20k.

No offense taken, this is a public forum, we are all here to learn. Some for entertainment.

I've become a keyboard warrior these last 2 weeks due to a slow work-load. *yawn*. PC has been my savior from boredom. Enjoy my antics whilst they last, will be flat-chat again in 2 weeks or so.

 

Yes at 5% it is 20k interest but it is still a 2k increase.

Even with losing a job the property isn’t costing 20k p.a. As there is still rent so you would be likely out by 5-7k for the year even accounting for the 0.5% interest increase.

If the property became vacant during this time then you would be very aggressive on rent or drop the rent a lot quicker to meet the market.

I do however agree that 10k buffer wouldn’t be suffice in my eyes if that was the only accessible cash I had. However if it was 10k per property and I had 5+ then I think I would be okay.

 

What if you do have a tenant, and they don't pay rent.

Your looking at say 3-6 months.

Agree. More is better.

 

Insurance and PM - I think the 100k is an overkill for 1 property or 400k in IP loan.

My investing money offset is just less than 10k but our accessible cash is a lot more.

 

Not necessarily, it depends on how much equity you have. Whether you build equity as you grow or if you're being stretched like a rubber band. My need for a buffer is reducing because the rents will still cover repayments if I have a prolonged vacancy or lose my job. I'd have to lose my job and my tenants before there would be a problem.

Willy