Thousands of Australians invest in property for capital gains and tax benefits. However, it’s important to retain a cash buffer to provide security in the case of unexpected costs or loss of employment or rental income. These can be in the form of unplanned maintenance and repairs, and mortgage repayments. A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey.
Using an offset account
An offset account is a type of transaction account that can be linked to your home or investment loan to save you money on interest. It is used to reduce the interest you owe on your mortgage by offsetting the credit balance of your transaction account daily against your outstanding loan balance. It is beneficial to have your buffer in an offset account against your mortgage, so that you have immediate access to the money, whilst also reducing the interest payable on your loan.
Equities & Bonds
Traditionally, investors have relied on diversifying equities with bonds, or market timing, to help minimize their risks from losses. But these strategies may be challenged in certain market environments. Investors who sell at the first sign of market downturns and wait on the sidelines in cash for the market to recover can miss out on top-performing days.
Options for investors without a buffer
Have no fear, there are short-term options available for those without a buffer. Personal loans and credit cards may cater to urgent funding, but they do attract higher interest rates and fees. If you do need to access this type of credit, make it a priority to put a strategy in place to pay back this debt as soon as possible.
Before calculating a buffer, make sure you have a budget and savings plan in place that identifies your living expenses and ability to save accurately. As a guide, you should look to have two to four months of rental income on hand as a property investment buffer, as well as two to four months of personal income set aside as a personal income buffer.
Ready to secure your future? Get in touch with us today to talk through your cash buffer options.