Why property investors need savings


There are many benefits of owning an investment property, however, being a landlord also comes with the responsibility of unavoidable property maintenance. Therefore, it is essential for landlords to have savings set aside for when unexpected problems arise.

When renting out an investment property, it is important to have access to funds to be able to cover costs for maintaining the property, which will give it the best chance of remaining tenanted. Also, when a resident chooses to leave the property, it may take a month or two to get new tenants. Therefore, having a cash buffer would ease the strain if the landlord were to lose rental income or their employment.

A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey.

These funds should be in an account so that you have immediate access to the funds. Most lenders offer offset accounts, having the cash buffer sit in this account is ideal, not only are the funds readily available but at the same time, reducing the total interest payable on the loan.

When going through the loan application, your broker should ensure that the clients have a budget and savings plan in place which highlights living expenses and their ability to save. When calculating a cash buffer, savings of three to six months to cover loan repayments and living expenses is ideal.

If you find yourself needing to improve the property without a cash buffer, there are other options available. A personal loan or credit card is a faster option to obtain property; however, they incur higher fees and interest rates.

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 down equity to pay back the loan, but ensure that you revisit your buffer strategy as well.

If you’re looking to purchase an investment property or already have one and would like more information, give us a call. We’re here to help.