Wednesday, August 2, 2017

The Landlord Files: Emergency Savings

We've talked about our own emergency funds, but haven't really discussed the specifics of being a landlord and having an emergency fund.  As you probably know from a previous post, I keep a completely separate account for my rental property, and it has it's own emergency fund.

How much do you really need to have in it?  I have to be honest, that isn't as simple as a straightforward number.  The first thing you need to consider is: What possible scenarios could come up, and how much would they cost me?  Let me give you a few that we've encountered:

  • Break-In (While it was empty):  setback $6000
  • Vacancy (Between renters):  setback of 1+ month's mortgage plus cleaning and maintenance fees.
  • Plumber:  setback $100+
  • Electrician:  setback $700+
  • Roof Repair (small repair):  $300+
  • Roof Replacement:  $5000+
This list goes on and on.  The numbers I've listed are approximations based on experiences that I have actually had.  These figures can vary hugely depending on the nature of the problem, and where you are, etc.  My point is that the last thing you need/want is to need to take out a loan to fix any of these kinds of issues.  The purpose of having a rental is to make money, not borrow more of it.  

All things considered, I've settled on 6-8 months worth of the mortgage payment.  In my situation, that is enough to cover pretty much all of the above listed items.  It would even cover a combination of those items.  

If you are considering getting a rental property, and have never done so before, you might want to make your own list of possible expenses and dollar figures to go with it.  That way you can decide safely whether 6-8 months of the value of the mortgage would suit your emergency savings needs, or if you need more than that.  Remember:  vacancies, repairs, and maintenance are all very real needs.  They don't need to be stressful if you're prepared.

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