Should You As A Landlord Worry About Meeting Unforeseen Expenses?
How much emergency cash should I have for each rental property for unforeseen maintenance and repair expenses? Is there a percentage? These are some of the questions that our current investors or would-be investors ask me at times. After all, as a landlord one has to be prepared for things to break, need replacement or regular maintenance, right? However, I have some tips for people who don’t want to park thousands of dollars of their hard-earned money in some emergency/ reserve fund.
Who needs an emergency fund?
If you follow what we call the “Remote Control Retirement Riches” formula that we have perfected over the years, you don’t need to worry about all of this. The first thing to do is to remember – only brand new homes! I will always advise my investors to invest in brand new, single-family homes. Single-family homes fetch the best rent, and buying brand new has several other benefits. For one, you are far less likely to have breakdowns or breakages in a brand new home. A brand new roof is less likely to spring a leak and a brand new air conditioning system is far less likely to malfunction, for instance.
Plus, there is the builder's warranty that protects you in the unlikely event of such expenses as well. So if you decide to opt for a brand new home – wisely – then you are much less likely to need a reserve or emergency fund for your rental home. By the time a few years go by, your cash flows start to improve – while your mortgage payments remain the same, your rental income increases. So you are able to maintain better liquidity.
Why a bank credit line makes more sense.
Back in the day, I would park thousands of dollars in an emergency or a repair fund, meant to be used when a rental property of mine needed repairs or maintenance and so on. Soon I realized the futility of jamming my hard-earned money for so long. My aim was to invest in as many houses as possible and having to maintain some emergency fund or account spoiled my chances of doing this. So I decided to take another route.
Instead of keeping money aside in some emergency fund, what I did was start a line of credit with my bank. I didn’t even need to use it, but it was there in the event I needed it. If there were repairs to be made or things to be replaced, that line of credit would take care of the expenses. I find that this makes more sense than maintaining an emergency fund. Watch this video for details.
It is all a part of the Remote Control Retirement Riches formula that we at icgre.com have developed and refined over the years. You too can benefit from it at no added cost to you.