Real Estate: An Emergency Fund — The Difference Between a Blessing and a Curse

When I was in my twenties and just starting out, I lived in fear of my car breaking down. I had a new job and a little money in the bank. But I hadn’t saved enough for unexpected emergencies. I knew I needed to save at least the deductible amount of my health and renter’s insurance, enough to cover routine dental and medical expenses and a chunk for my dog’s vet bills. To me, that emergency fund was more important than vacation or clothes or evenings out.

Fast forward four score and a few years. 2020 was the best example ever of the importance of an emergency fund. A year ago, I was in the hospital for a back surgery while I was in the process of closing on a beach condo, a new addition to my investment portfolio. I fully expected the condo to pay for itself with weekly rentals on Anna Maria Island.

But here’s the rub: because of pandemic, the government put a moratorium on short term rentals. Bummer, right? The bills were coming in, I was out of commission with a bad back and, yes, I was feeling pretty sorry for myself. But I knew I’d be okay. I had my emergency fund so I wouldn’t have to borrow money or pay bills on credit.

Emergency Fund Lessons Learned

Looking back, let’s call 2020 the Year of the Emergency Fund. People who had an emergency fund in place fared much better than those who didn’t. Some real estate investors were forced to sell their vacation properties last year. Big mortgages and no income to pay the bills wasn’t the equation they’d counted on. It was scary. Those who prepared and held on are sure glad they did. In Manatee County, median property values are up 17 percent over last year—a darn nice return on investment.

In my twenties, my early emergency fund was about $1,000. Now I want to know I have enough to pay for the new roof or HVAC at a rental or an unexpected condo assessment. At the beginning of every year, I like to set aside enough for insurance and property taxes and keep that in my emergency fund, too.  If you are a real estate investor, these are the kinds of bills you do not want to pay on credit because paying interest eats profits.

Rebuilding after an emergency

I really, really, really want to remodel my kitchen. I’ve picked out the appliances and know just the cabinets I like best. It was in my 2021 budget until 2020 took more out of my emergency fund than I liked. The kitchen can wait. Sometimes, like the cobbler’s kids, investment property comes first. What frustrates me most is that so many big-ticket items are like underwear. No one sees it!  As sexy as a new water heater or AC system may be, it’s not something I can show off like a shiny new kitchen.

Saving isn’t very sexy either compared to a new car or shoes that make me feel like a million bucks. But I’ll always remember going with my dad to the bank, carrying my little savings passbook, and learning how money works for us when we manage it right.

It’s probably cost me a few sales, but I always talk about the importance of an emergency fund with new home buyers. That cushion in the bank really does make owning your own home a blessing. When the roof is leaky, the cars broke down, the baby is sick and there is no emergency fund, that same house is a curse.

Start now

Big or small, rebuilding or just starting out, getting your emergency fund in good shape at whatever stage of life you’re in is an accomplishment to be proud of. You’ll stress less so the benefits are big for your physical and your financial health. You won’t be forced to sell a piece of property or borrow money or abuse credit to get through the hard times. There will always be hard times, and an emergency fund puts you in the driver’s seat.

If you have children or grandchildren, what a learning opportunity! Get them involved, too, because fiscal responsibility should start at an early age. Maybe it’s the year to skip the Disney vacation and explain why. If you’re looking for a place to start, here’s an Emergency Fund Calculator from Nerd Wallet.

Terri White, Realtor – Florida Suncoast Real Estate Inc.

Photos from Deposit Photos