100 Property Investment Tips: Learn from the experts and accelerate your success by Rob Dix & Rob Bence

Author:Rob Dix & Rob Bence [Dix, Rob]
Language: eng
Format: epub
Published: 2015-02-06T00:00:00+00:00

Keep a healthy cash buffer

One of the most frequent questions I get from new investors is: "How much of a contingency fund should I have?"

The answer is that there's no right answer: it depends on the number of properties you have, how much maintenance they're likely to need, your attitude to risk, whether you have a rich brother-in-law who you could be sure to borrow £10,000 from in a pinch, and so on. Some investors have hard rules like "10% of the value of my portfolio" or "10% of the rent that comes in", whereas others feel comfortable with a fixed number - or don't think about it much at all.

It's galling to see a chunk of cash sitting in a deposit account when it could easily go towards buying a new property. But it's important to remember that cash is the lifeblood of any business, so if you're hit with an unexpected roof repair or a tenant stops paying the rent and you can't make your next mortgage payment, you're in a very fragile position.

To arrive at an estimate you might want to put on your misery-guts hat for a moment and think about all the things that could go wrong over the next year: which boilers could blow up, which roofs could leak, which tenants could trash the place and do a runner, and so on. Your attitude to risk will determine the worst case scenario you imagine - then just tot up what it would all cost, and keep that amount earmarked in your bank account (or ideally, in a separate account).

So there's no right answer, but there's one clear wrong answer: "Er,, con-what-gency fund?"

- Rob Dix, www.thepropertyhub.net/rob-dix

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