How to Raise Emergency Funds as a Landlord
As a landlord, unexpected emergencies can arise at any time.
From urgent repairs to unforeseen vacancies, expenses may crop up at any time and may end up costing you thousands in cases such as boiler repairs.
After the recent pandemic, 12% of landlords (representing 21% of tenancies) said they would decrease their portfolio and 10% said they would sell off their portfolio. To avoid being in this position, you must be able to weather emergencies. This guide outlines some effective strategies to raise emergency funds as a landlord.
Building an Emergency Fund
Creating a dedicated emergency fund is the first step toward being prepared for emergencies. Set aside a portion of your rental income each month specifically for emergencies.
Ideally, aim to save at least three to six months' worth of rental income to cover potential contingencies. Keeping this fund in a separate account will prevent you from using it for non-emergencies.
Boiler Upgrades
Investing in boiler repairs and upgrades can prove to be a smart and strategic move. Boilers are critical components of any rental property, providing hot water and central heating. However, older boilers can be prone to breakdowns and inefficiencies, leading to costly repairs and potential emergencies.
Upgrading your property's boiler system can bring several benefits that contribute to long-term financial stability. Modern boilers are designed to be more environmentally friendly, offering improved energy efficiency ratings that can potentially lead to higher rental rates.
Refinancing Your Mortgage
If you have an existing mortgage on your rental property, it may be worth exploring refinancing options. Lower interest rates or extending the loan term can lead to reduced monthly mortgage payments, freeing up cash flow that can be used to build or replenish your emergency fund.
Cutting Non-Essential Expenses
Review your personal and business expenses to identify areas where you can cut back. Consider renegotiating service contracts, reducing discretionary spending, or finding cost-effective alternatives for property management services.
Redirecting these savings into your emergency fund can quickly improve your financial safety net. This means that when an emergency comes, you will have the money to cover it.
Increasing Rental Income
Exploring opportunities to increase rental income is a proactive way to boost your financial capacity. Conduct a market analysis to assess whether raising rents is feasible without adversely affecting tenant retention.
Alternatively, you might consider adding value to your property through renovations or offering additional services to justify higher rental rates. Be aware of the laws around this and act in your tenant’s best interests as well as your own.
Line of Credit
Establishing a line of credit with a bank or financial institution can serve as a flexible safety net when you need emergency same-day loans. This revolving credit allows you to access funds as needed and repay them when your cash flow improves. Only do this for genuine emergencies.
Home Equity
If you have significant equity in your rental property, you may consider taking out a home equity loan or a home equity line of credit (HELOC). These loans leverage the value of your property to provide a lump sum or a credit line, which can be used to fund repairs or address financial emergencies.
Government Assistance or Grants
In some cases, the government may offer assistance or grants to landlords facing financial difficulties. Research any local or national programs that provide support to property owners during times of crisis. These programs can offer temporary relief and help you weather challenging periods.
Landlord Association
Consider partnering with other landlords or real estate investors to pool resources for emergencies. Forming a partnership or joining a landlord association can provide access to shared knowledge, experiences, and financial support during challenging times.
