Protect Your Rental Portfolio with an Emergency Fund

Posted by Jules Born on Oct 23, 2018 9:00:00 AM

Emergency Funds for Rentals

Many homeowners don't like to think about home repairs or unexpected expenses connected with breakage. But this is life, and roofs can cave in or water pipes can break. Every appliance has an expected lifespan, so it's important to think about an emergency before it hits you. If you want to act wisely and plan the emergency fund for your rental properties in advance, here is how you can start. 

First of all, you should separate your bank accounts.  Ideally, a landlord needs three bank accounts: an operating account (for mortgage payments, rent, taxes, and insurance), a security deposit account for each rental property, and a general emergency fund. 

The amount of money you should have in your emergency account varies. If you have several rental properties, you should have more emergency savings, as more things can go wrong.

A good trick is to add up your monthly mortgages, insurance premiums, taxes, operating utilities, and possible condo fees. After that, multiply it by three and cut this figure in half. The number you get is a good gauge for your minimum emergency fund.

There are several ways to fund your emergency account without taking our loans or using credit cards. One way is to set aside a portion from your monthly income (if landlording is not your full-time job) and save that money. Alternatively, you could set aside 10 percent of the rental income you receive on a monthly basis. Saving can be challenging in the beginning, but you will soon get used to it and enjoy the security net of having your emergency fund.

Remember not to use money from this fund as a deposit for financing your next investment property.  This account should only be used to protect your portfolio, not to expand it.

Jules Born

Jules Born is a content manager for a Personal Money Service company that offers emergency loans for rent and other financial options.  She is pleased to share her personal knowledge, experiences, reviews, and ideas with readers.

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Topics: Real Estate Investing

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