By Lauren Day, Australian Property Investor
Have you ever been through a period where everything that could go wrong does go wrong, all at the one time?
You know what they say. No news is good news. So when I saw those emails start coming in from property managers I knew there had to be a problem. The first few weeks weren’t so bad, just a ‘$0’ on the rental payment slip thanks to our lovely tenants who stopped paying rent. But then another dreaded email came through from another property manager on another house – the tenants were moving out and we’d have to drop the rent.
Breaking the news to hubby wasn’t the most exciting day of my life. Telling him I got a phone call in relation to a third property that same week wasn’t great either. The third time, the tenant was ringing to report the carpet was looking old and needed replacing. So in the space of about a month, we had no rent coming in from one property, a rental decrease on a second property and a much-needed upgrade report on a third property. This happened when I was on maternity leave, at a time when I was already sleep deprived and, as new mums would know, perhaps a tad on the emotional side.
The reality is property investing isn’t easy. If it was, everyone would do it. It’s why most people will retire with little more than their savings and why most people do nothing, instead happily criticising people who try to have a go. After all, you can’t lose when you only have zero to start with. It’s easy to read this and think ‘yeah, property investing isn’t worth it, there are too many dramas’. However, having a child last year definitely put things into perspective. I certainly don’t want to rely on my five-month-old son to see me through retirement. I’d love to be able to help set him up and support him. Imagine what our properties will be worth by the time he’s 30… I constantly think about that now.
So that’s why I’m investing. Along the way, there are ups and downs. And that’s why having a cash buffer is so important. It helps you through the times when the rent stops coming or when an expensive repair is suddenly needed, sometimes without warning.
We refinanced about 14 months ago, drawing equity from a property and using the cash as a deposit for another. We also kept $10,000 aside as a cash buffer. Ever since we’ve refinanced, I’ve always made sure that our $10,000 cash buffer never drops. Well, okay, that’s a lie. I went to the Lionel Richie concert this week and have been known to make random purchases on my credit card, (we’re off to Noosa this weekend, thanks Mastercard!) but I still always make sure our cash buffer sits around the $10,000 mark. When I was on maternity leave, I knew we had about $10,000 we could potentially draw on if we really needed to. And when those property manager emails started coming in, I knew at the end of the day, we didn’t really need to stress, as the mortgage repayments could always be covered as long as we had that $10,000 in the bank
It basically means we can handle one tenant not paying rent for a few months (not a fabulous option obviously, but a possible one), we can handle another vacancy and we have money to buy new carpet straight away if we really need to. I’ll top this up throughout the year and hopefully put some aside at the end of the financial year (I love tax time!) That $10,000 in our account means I can sleep at night. Well, at least until the little bub starts calling at 1am and 4am.
I would recommend all investors build a cash buffer, if not through savings then refinancing. It just makes life so much easier to know that throughout the ups and downs of property investing, most situations just aren’t worth stressing about because there’s always a back-up. Unexpected things happen all the time and if we didn’t have the cash to cover it, I’d hate to think of the stress this would have caused. It also means we will be able to handle things if interest rates start to rise or if something else was to go wrong.
Thankfully, I have a job where I get to learn from the experts and the best in the business every day. I simply listen to what they say each month in Australian Property Investor and try to take their advice. Having a cash buffer is often one of the recommendations and it helped us enormously during my maternity leave.
What about you? Have you ever had a situation where having a cash buffer helped? Or lack of cash caused unwanted dramas? We’d love to hear your story!