A buffer is
a tool used by many sophisticated investors to buy time.
Understanding
what your holding costs will be and then creating a buffer to get through the
next 3 – 5 years.
For
example, a $30,000 buffer may get you through the next 3 years if your holding
costs are around $10,000 per annum or 6 years if they are $5,000 per annum.
Rather than
borrowing to the max, a beginning investor could look at reducing their budget
or purchase price and allowing some funds for a buffer.
Existing
investors may choose to use their savings or look at refinancing and using a
portion of the equity to buy time and fund the shortfall.
A buffer
can also be a great risk management tool when preparing for a recession, or a
GFC type of event because something unexpected will happen at some point in the
future.
It is about
preparing for the worst and hoping it never happens, rather than the other way
around.
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Jason Gwerder
Tuesday, 1 August 2023