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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 Douglaston investor, it is necessary to understand that you need to keep your cash flow moving in the right direction. To do as such, most investors try to keep most of their business funds engaged in as many profitable ways as they can. But it might likewise make sense to create an emergency fund for your investing business. Same as a personal emergency fund, this would be a sum of cash set aside to cover unexpected expenses. This fund should be separate from down payment savings, security deposits, and operating capital. But then again, how much money should you keep in your emergency fund? The correct response will be based 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 getting a sum of money equal to three to six months of expenses, although Suze Orman suggests eight months is ideal. The idea behind an emergency fund is to have a total equal to several months’ expenses on hand to protect against financial disaster. In case of a medical emergency, a job loss, or other unexpected (and expensive) life events, having an emergency fund can help you keep your bills paid before things return to usual again.

A similar concept applies to real estate investors as well, with specific 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 any sum of cash sitting in a regular savings account is not helping you grow your business. Furthermore, it is necessary to be sure that you have enough cash on hand to cover unexpected expenses such as large repairs, sudden vacancies, and so forth. A typical rule of thumb for real estate investors is to have between three and six months of operating capital put aside.

In any case, each investor’s circumstances will be different, so the size of your emergency fund will also vary. If you are planning to start in single-family rental property investing, a smaller emergency fund is usually all you’ll need. In case you own multiple properties or high-priced rental homes, surprise expenses could create some serious cash flow problems. Regardless of your present circumstance, however, 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. Even though no investor plans to experience financial difficulties, there is no way to anticipate every costly repair or market downturn. Hence, 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 Innovation. Speak to our Douglaston property managers at 516-570-9275 or contact us online to become familiar with our flexible property management plans.

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