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Why property investors need savings?

Urgent maintenance is always an unavoidable aspect of being a landlord, so having a spare cash buffer set aside will help you deal with any unexpected problems.

When renting out an investment property, having access to extra cash is vital for two reasons:

  1. To cover the costs of maintaining the property, giving it the best chance of remaining tenant

  2. To cover the extra cost of the mortgage if you lose your employment, rental income or interest rate rise

A buffer will make you feel comfortable during your investment journey and not stretched to your financial limits.

Ideally, your buffer would keep it in an offset account to against your mortgage, so that you have immediate access to the money while at the same time reducing the principal and therefore the total interest payable on your loan.

Before calculating a buffer, I always ensure that my clients have a budget and savings plan in place that identifies their actual living expenses and ability to save. I would personally recommend a buffer of three to six months’ worth of loan repayments plus living expenses.

There are always alternative options besides saving a buffer, such as a short-term loan. Personal loans and credit cards may provide immediate funding, but they do also attract a higher interest rate and fees.

It is essential to have a strategy in place to pay back the short-term loan as soon as possible. An example could be to refinance your property and draw down equity to pay back the short-term loan, but ensure that you have to revisit your buffer strategy as well.

Come to speak to Kevin Poh on 0415820016. He is experts in matching property investors with the right loans to match their personal investment needs.

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