The Importance of Having a Buffer

[FormerLurker]

Back from the grave

Skater did you ever get the money owed to you?

I saw this thread linked in another and curiousity got to me....I need closure!

Plus it's a good thread and a revival wouldn't be a bad thing.

 

[skater]

Hi there Forum Lurker. No, we never did recover anything back from the employer. After seeking legal action it was explained that it could cost us more than what was owed to pursue it and even then there would be no guarantees that we would receive anything. She was very good at NOT paying for anything.

It took us ages to get back on our feet again. We had several set backs since then. First was an Agency that embezzled a heap. We lost over $10k through this. It was lenghty and involved and we had several properties mixed up in the mess.

Then we had four properties that were empty for around six months in a regional area. Long story short, we had tried four out of the five PMs in the area and were told that there was a huge oversupply of rentals and nobody was willing to rent ours. Changed to the fifth PM (the others had all told me they were hopeless) and got it rented straight away.

So, now, thankyou, I have had my fair share of bad luck and I don't wish to have any more. As things stand now, Hubby has a good job, all properties are rented, rents have gone up AND I have solved another problem with structing that we had, so I am looking forward to a much happier (and wealthier) future.

 

[jane1111]

I've heard top financial experts say that u should have enough buffer to last 8 months of expenses . Good luck .

 

[Indifference]

Great thread Skater!

I have kept a buffer for many years now & it has been used!

I keep a minimum 12 month cash buffer in a high interest account. Yes, always, and yes it lets me sleep soundly at night. It might be an overkill to many, but I don't care.

Thanks for sharing Skater.

 

[Rixter]

I keep a few 100k buffer atm...when I fully LOE it will be a $mil min.

 

[devo76]

I only have two properties but after development in the next few months i will have three( not including PPOR)
Shortfall is a bit under $300 pw across all four or under $100pw for the IP's.
For this i have $10,000 in the investment in/out account. (rent/interest)
$40,000 or so in a whatever account for personal only.
$50,000 or so in equity drawn from PPOR ready to be used for IP,s only.

To be honest $50,000 is as low as i would like to go with the equity but im using it for my IP build. This should free up an additional $100,000 equity so im going against my own rule for this reason only.

My low neg cashflow across my properties gives me plenty of SANF.
One thing some people do not factor in is if you lose your job you also lose any neg geared benefites. Worth remembering in your buffer calculations

 

[skater]

The original post was supposed to be a word of caution that problems can arise when you are least expecting it. If you don't have a little something in place (preferably more than a little) you can find yourself in a lot of hot water, especially if there is job loss, and as an investor you are unlikely to get any love from Centrelink.

Here's hoping that none of us find ourselves in that situation. It was not pleasant, and I don't ever want to go back there.

 

[Luv2Travel]

Thanks for this thread Skater, I see people add to it now and again so pops up in the unread threads as a nice little reminder for myself. I'm currently building up my buffer after having just bought IP2, and this thread reminds me to make sure I get a comfortable big one before I jump into IP3. Although my LVR is at about 77% and I do have access to funds if REALLY needed to today, but by this time next year my goal is to have that comfortable buffer zone.

 

[Of The Vultures]

Reviving an oldie with my own story to add. It is very important to have a buffer and thanks to Skater for this thread, it may be old but no less relevant.

Six months ago I had a well paid full time job and hubby was a stay at home dad. Then I went on maternity leave and hubby got a casual, not so well paid job. Concurrently, one of our tenants decided to stop paying rent and got evicted. The state they left the house in required an insurance claim which took a long time to resolve as it dragged over Christmas. Within a month, another tenant stopped paying rent and subsequently vacated. They didn't damage the property but it needs a renovation before I could hope to re let in the current market. The first property finally got a tenant after a 6 month vacancy and a $50 drop in rent, and the other is still empty.

Around Christmas we completed a duplex build in WA. Took another $50 drop in rent and two months to rent it. At the same time one of our Tassie properties became vacant, and another Tassie property had a tenant who stopped paying rent before Christmas and trashed the place. Our hands were tied till the end of Feb when their lease expired. This is still going through insurance as we speak and only just got a tenant - demand is there but few people are willing to look past the smell of urine in every bedroom, left there as a parting gift from the evictee. Replacing the carpets, but it takes time.

So bottom line is that we had 5 properties vacant at the same time, and three of these required repairs before being habitable again. And they were in three different states in case someone thinks we didn't diversify.

So a word of warning for those who think it can't happen. It can, and it does. What got us through is cash in our offset, plus I was still getting paid maternity leave and we had a large tax refund. Otherwise we would have had to dip in to a LOC as a last resort.

 

[devo76]

Yep. Totally agree
In my relatively short investing career I have ( had I guess as I've sold 2 in the last few months) 3 bad tenants across 3 properties

1
very first property and first tenant saw my property filled with 12 workers on visas. Trashed my house in 6 months requiring a second renovation all over again.

2
second property had a tenant that looked after it but very sporadic with rent. Best excuse was he was in Antarctica wake boarding off icebergs .......it was actually true but who gives a s#%t pay your rent.

3
Third and most recent was my new developed/built property just a few years old. Tenant did a runner and left the country. Trashed the walls and left it filthy.

Obviously had a lot of good experiences breaking these events up but it still tests you some days.

Cheers

 

[skater]

It is now 10 years on from that horrific time & 5 years from the last update. Kids have left home, we've bought a new PPOR and paid it off, bought more properties & hubby is able to retire. We're now selling some properties & putting the funds into offsets, so that there's money available should we need it.

What a difference a few years makes!

 

[Rixter]

It is now 10 years on from that horrific time & 5 years from the last update. Kids have left home, we've bought a new PPOR and paid it off, bought more properties & hubby is able to retire. We're now selling some properties & putting the funds into offsets, so that there's money available should we need it.

What a difference a few years makes!

Yep. You've done very well Skater. Well done.

Made a decision, devised a plan, actively worked the plan and kept focus.

A very important real life lesson for someone just starting out.

 

[The Y-man]

It is now 10 years on from that horrific time & 5 years from the last update. Kids have left home.....

You make that sound like the biggest positive impact!

The Y-man

 

[skater]

Yep. You've done very well Skater. Well done.

Made a decision, devised a plan, actively worked the plan and kept focus.

A very important real life lesson for someone just starting out.

Thanks Rick.

I feel a big part of us pulling through that whole mess was that not only did we have a bit of funds in place to help us through, because looking back now, there wasn't really a whole lot there, but we also immediately went into what I call 'survival mode', others might call it 'panic mode'.

In a nutshell, what that means to me is that ALL discretionally spending stopped! We were spending around $300-$400pw on skating lessons at the time & we cut it all back only allowing the kids one lesson each - $30pw (they were both top level athletes, so tried to give them some normality) and nothing for us. No movies, no meals out, no expensive cuts of meat, etc.

I can't remember if that was the time that I sold some old Business equipment or not, but we had a heap of left over stuff just sitting around, and all that got put on Ebay.

Sometimes it's not just good enough to have money saved up for a rainy day, you've got to do all you can to make that money last for as long as possible. If we HAVE to, we can live on next to nothing. It's not fun, but the important thing to remember is that its only for a short term, not forever. So, buckle down the hatches, get on with it, and try not to let it impact you for the long term.

 

[skater]

You make that sound like the biggest positive impact!

The Y-man

Hehe.....It's only partly true actually. One's left, the other's still here, but what I meant is that they aren't a financial responsibility anymore, as the one that's still here is an adult now & although still at home pays her own way.