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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 Seaford investor, you must understand that you have 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 would be something like a personal emergency fund, that would be a sum of cash set aside to cover unexpected expenses. This fund shall be separate from down payment savings, security deposits, and operating capital. Yet how much money should you keep in your emergency fund? The response will be base on 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 saving a sum of money equal to three to six months of expenses, while Suze Orman suggests eight months is a good option. The idea behind an emergency fund is to possess an amount equal to several months’ expenses on hand to guard you against financial disaster. If the time comes for such things as a medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid while waiting for things to return to normal.

A similar concept applies to real estate investors as well, with relative differences. For instance, having enough cash on hand to pay eight months of expenses for all of your properties may be too much. Why? Because every sum of cash sitting in a regular savings account is not helping you grow your business. Concurrently, nonetheless, it is necessary to be able to have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and so forth. A general 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 also rely on the situation. If you are beginning in single-family rental property investing, a smaller emergency fund is typically all you would need. But if you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Nevertheless, irrespective of your present circumstances, 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. Whereas no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. For this purpose, 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 Diamond. Call our Seaford property managers at 302-313-7700 or contact us online to know more about our flexible property management plans.

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