Urgent maintenance is an unavoidable aspect of being a landlord, so having a 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:
● Cover the costs of maintaining the property, giving it the best chance of remaining tenanted.
● Cover the cost of the mortgage for a short period should you lose your employment or rental income.
A buffer ensures that you are not stretched or stressed to your financial limits, but rather comfortable while on your investment journey.
Best scenario, would be to have your buffer sit in an offset account 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, you need to ensure you have a budget and savings plan in place that accurately identifies all living expenses with the ability to save. A strong buffer would be around the three to six months’ worth of loan repayments and living expenses.
For those who find themselves needing to improve a property without a buffer, there are short-term options available. Personal loans and credit cards may cater to urgent funding, but they do attract higher interest rates and fees.
It’s imperative to have a strategy in place to pay back this debt as soon as possible, An example could be to refinance your property and draw on the equity to pay back the high interest loan, when you do this ensure that you revisit your buffer strategy as well.
Contact Bright Capital finance for more information.