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How Much Money Should I Keep in an Emergency Fund?

Mason Jar with Several Dollar Bills Stuffed Inside as an Emergency FundAs a South Gate investor, always bear in mind that you need to keep your cash flow moving in the right direction. To do that, most investors try to keep most of their business funds engaged in as many profitable ways as they can. But it may also make sense to create an emergency fund for your investing business. It is similar to a personal emergency fund, that would be a sum of cash set aside to cover unexpected expenses. This fund will be separate from down payment savings, security deposits, and operating capital. But how much money should you keep in your emergency fund? The answer will depend upon your current circumstances and future investment goals.

Most financial experts agree that individuals should have an emergency fund saved up. Personal finance guru Dave Ramsey recommends getting a sum of money equal to three to six months of expenses, though Suze Orman suggests eight months is better. The idea behind an emergency fund is to have a sum equal to several months’ expenses on hand to protect yourself against financial disaster. When it comes to a medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid until everything is back to normal.

The same concept applies to real estate investors as well, with certain variations. For instance, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because any amount of cash sitting in a regular savings account is not helping you grow your business. In any case, it is critical to be able to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and some other matters. A universal rule of thumb for real estate investors is to have between three and six months of operating capital put aside.

At the same time, in any case, each investor’s circumstances will be different, so the size of your emergency fund will change also. When you are only beginning in single-family rental property investing, a smaller emergency fund is maybe all you will require. But in case you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Despite your present circumstances, though, an amount equal to at least three months of operating capital is a good goal to keep in mind.

Having an emergency fund is an essential part of long-term real estate investing success. While no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. Accordingly, the most successful investors prepare for the unexpected with an emergency fund.

You can save an emergency fund more efficiently if your investment property revenue is optimized by Real Property Management Southland. Call our professional South Gate property managers at 562-270-1777 or contact us online to get more about our flexible property management plans.

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