Property Insiders - Kevin Agent talks Cash Buffers

Performance Property Data

“Money is the root of all evil, but if you haven’t got it, it’s worse.”

This month on Property Insiders, David sits down with Kevin Agent from the Australian Lending and Investment Centre to chat about cash buffers.

A cash buffer is an amount of money you have in a special account that is there if something happens beyond your control.

Kevin tells David that there are two options for the cash buffer: to have it in a redraw account, or in an offset account. There are advantages to each, but Kevin thinks if you have a home loan, your cash is better off in a redraw account, and an offset account for an investment property.

A redraw account is money you use to pay off your loan, but is then accessible should you need it later on. An offset account is essentially a savings account where the balance is subtracted from your total loan amount, thus reducing your interest.

Kevin says his preference is always for an offset account, but for those who are not as good with saving money, a redraw may be a better option as the funds are often more difficult to access and the money feels like it is gone.

Some banks offer multiple offset accounts, which can then work like a budgeting tool that also reduces your debt. The money can then be used for future purchases.

Kevin says that some of the situations that arise where people might need to use a cash buffer include losing a job, falling on hardship, or even if you want to make purchases or go on a holiday.

A cash buffer is essentially about not having to worry and the amount a person has in their cash buffer account is whatever will help them sleep at night. However, Kevin says that it is a good rule of thumb to have about 3 to 4 months of repayments in reserve; at least $20k per $1M of debt.

Kevin continues by saying that he believes that unless your intention is to live in the property, the preference would be to not pay off the loan. Rather, keep the money in an offset account to reduce the cost of your loan, and then the money is there if you ever need it.

Finally, Kevin stresses that minimising risk is not just about having a cash buffer, but also about having insurance, cash reserves, and above all, purchasing the right asset.

About your host, David McMillan

During his 16 years in the property industry David has worked as a property valuer and property adviser to private clients, financial planners, accountants, finance brokers, major banks and governments. He has been involved in more than $500M worth of transactions across Victoria, New South Wales, South Australia & Queensland.

Since 2009, David has been specifically focused on helping medical professionals, expats, business owners and busy executives build effective property portfolios.

David is a fully licensed real estate agent in Victoria, South Australia and Queensland (CEA), Certified Practicing property Valuer (CPV), Qualified Property Investment Advisor (QPIA) and most importantly is an active property investor. David joined the Australian Property Institute in 2001 and is now an Associate (AAPI) and in 2009 became a member of the Real Estate Institute. David currently sits on the board of Property Investment Professionals of Australia (PIPA) to promote ethics in the property investment industry.

About David’s guest, Kevin Agent

Kevin commenced his career in the banking and finance sector in 1985 and held senior management roles at the ANZ in both business bank and mortgage business with ANZ. His specialty focus is on credit risk and wealth creation where he has achieved outstanding results time and time again through maintaining and building trusted relationships with his clients.

Since the inception of The Australian Lending & Investment Centre six years ago, Kevin has become both an industry leader in his field as well as one of the highest ranked advisers in Australia. Kevin is constantly ranked in the Top 20 advisers nationally. Kevin bring over 25 years of commercial and retail banking experience along with a wide range of industry specialists to work with his clients.