Property reserves and personal efund locations

Member since 2023 · 25 posts · 9 votes

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

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Crystal SmithPro Member

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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

Quote from @Nilusha Jayasinghe:

This is a great question. An emergency fund needs to be liquid, and immediately available to you in addition to being low risk and protecting principle. For these reasons, we don't invest our emergency funds in anything that has volatility and we can't write a check against it the same day for an emergency. I don't like the returns but we use regular savings accounts. The returns suck at a little over 3% per annum but we deal with it.

Another idea that we have been exploring is using the cash value of whole life insurance funds for emergencies. We'll only do it if we can access the funds immediately.

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Dominic Mazzarella
Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
1y
Quote from @Nilusha Jayasinghe:

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

Yes, it would be unwise to put this into an index fund like that. The market is at historic highs and could break at any moment. Emergency funds are for just that, emergencies that you can’t foresee.
I suggest finding an online bank that gives high interest rates. There are plenty of them out there that keep pace with or beat inflation.
Just to beat a dead horse, we could see a recession in the future where you and/or your spouse lose your jobs. This could be coupled with the a dramatic drop in the S&P 500 which would feel pretty awful. This could also force your current tenants to lose their jobs and need to move out and then you’d be in a real bind. I’ve seen this happen to people and it’s devastating. If anything, your emergency savings should be significantly higher and you might be over invested right now.
1 Reply
Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
It sounds like you would be in a good position to invest some or all of the RE emergency fund in a “safer” index fund. But there are a couple things to consider. I know you said you don’t expect anything major on the properties soon, but I would take a careful look at what is most likely to need to be replaced soon and figure out how you would pay for that if it needed to be done tomorrow. Could you put it on a CC and pay it off within the billing cycle with either your income or selling some stock if absolutely necessary?
The other thing that concerns me is you mention that you are both high income earners but that you are “trying” to save an emergency fund. Are you able to reduce your expenses quickly and easily if needed? Is your $15k even enough of an emergency fund for you personally?
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Nilusha Jayasinghe
OP
Member since 2023 · 25 posts · 9 votes
1y
Quote from @Tim Delaney:

It sounds like you would be in a good position to invest some or all of the RE emergency fund in a “safer” index fund. But there are a couple things to consider. I know you said you don’t expect anything major on the properties soon, but I would take a careful look at what is most likely to need to be replaced soon and figure out how you would pay for that if it needed to be done tomorrow. Could you put it on a CC and pay it off within the billing cycle with either your income or selling some stock if absolutely necessary?
The other thing that concerns me is you mention that you are both high income earners but that you are “trying” to save an emergency fund. Are you able to reduce your expenses quickly and easily if needed? Is your $15k even enough of an emergency fund for you personally?

Thank you @Tim Delaney, these are great questions for me to think about. As for the first, yes we'd be able to do that (for example, replacing a water heater which is the mechanical that's closest to the end of its useful life). For the second, by "trying" I don't mean that we're struggling to do that but I see why it comes off that way. I just meant to say that it's our next goal to build that up, having just gone on a spending spree on fixing up both properties in a short period of time. I think we can reduce our spending quickly if needed. I'll keep thinking on these questions!
1 Reply
Nilusha Jayasinghe
OP
Member since 2023 · 25 posts · 9 votes
1y
Quote from @Dominic Mazzarella:

Quote from @Nilusha Jayasinghe:

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

Yes, it would be unwise to put this into an index fund like that. The market is at historic highs and could break at any moment. Emergency funds are for just that, emergencies that you can’t foresee.
I suggest finding an online bank that gives high interest rates. There are plenty of them out there that keep pace with or beat inflation.
Just to beat a dead horse, we could see a recession in the future where you and/or your spouse lose your jobs. This could be coupled with the a dramatic drop in the S&P 500 which would feel pretty awful. This could also force your current tenants to lose their jobs and need to move out and then you’d be in a real bind. I’ve seen this happen to people and it’s devastating. If anything, your emergency savings should be significantly higher and you might be over invested right now.

Thank you for putting things into perspective @Dominic Mazzarella. I knew I had an uncertain feeling about the idea of investing that $$ for a reason...
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Dominic Mazzarella
Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
1y
Quote from @Nilusha Jayasinghe:

Quote from @Dominic Mazzarella:

Quote from @Nilusha Jayasinghe:

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

Yes, it would be unwise to put this into an index fund like that. The market is at historic highs and could break at any moment. Emergency funds are for just that, emergencies that you can’t foresee.
I suggest finding an online bank that gives high interest rates. There are plenty of them out there that keep pace with or beat inflation.
Just to beat a dead horse, we could see a recession in the future where you and/or your spouse lose your jobs. This could be coupled with the a dramatic drop in the S&P 500 which would feel pretty awful. This could also force your current tenants to lose their jobs and need to move out and then you’d be in a real bind. I’ve seen this happen to people and it’s devastating. If anything, your emergency savings should be significantly higher and you might be over invested right now.

Thank you for putting things into perspective @Dominic Mazzarella. I knew I had an uncertain feeling about the idea of investing that $$ for a reason...

Hey no problem at all. It’s a good question to ask.
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Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
Quote from @Nilusha Jayasinghe:

Quote from @Tim Delaney:

It sounds like you would be in a good position to invest some or all of the RE emergency fund in a “safer” index fund. But there are a couple things to consider. I know you said you don’t expect anything major on the properties soon, but I would take a careful look at what is most likely to need to be replaced soon and figure out how you would pay for that if it needed to be done tomorrow. Could you put it on a CC and pay it off within the billing cycle with either your income or selling some stock if absolutely necessary?
The other thing that concerns me is you mention that you are both high income earners but that you are “trying” to save an emergency fund. Are you able to reduce your expenses quickly and easily if needed? Is your $15k even enough of an emergency fund for you personally?

Thank you @Tim Delaney, these are great questions for me to think about. As for the first, yes we'd be able to do that (for example, replacing a water heater which is the mechanical that's closest to the end of its useful life). For the second, by "trying" I don't mean that we're struggling to do that but I see why it comes off that way. I just meant to say that it's our next goal to build that up, having just gone on a spending spree on fixing up both properties in a short period of time. I think we can reduce our spending quickly if needed. I'll keep thinking on these questions!

I was hoping it was just a context issue. Personally I don't keep much cash on hand for emergencies, but I do have a large untapped HELOC that I can use in a pinch. That way my money can keep working for me and I have the peace of mind that I have cash available if necessary. Since you have high incomes and can cut your spending quickly if necessary you should be ok with some cash in a HYSA and some short term credit available. Obviously I don't know your entire situation so take my thoughts with a grain of salt.
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Dominic Mazzarella
Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
1y
Quote from @Tim Delaney:

Quote from @Nilusha Jayasinghe:

Quote from @Tim Delaney:

It sounds like you would be in a good position to invest some or all of the RE emergency fund in a “safer” index fund. But there are a couple things to consider. I know you said you don’t expect anything major on the properties soon, but I would take a careful look at what is most likely to need to be replaced soon and figure out how you would pay for that if it needed to be done tomorrow. Could you put it on a CC and pay it off within the billing cycle with either your income or selling some stock if absolutely necessary?
The other thing that concerns me is you mention that you are both high income earners but that you are “trying” to save an emergency fund. Are you able to reduce your expenses quickly and easily if needed? Is your $15k even enough of an emergency fund for you personally?

Thank you @Tim Delaney, these are great questions for me to think about. As for the first, yes we'd be able to do that (for example, replacing a water heater which is the mechanical that's closest to the end of its useful life). For the second, by "trying" I don't mean that we're struggling to do that but I see why it comes off that way. I just meant to say that it's our next goal to build that up, having just gone on a spending spree on fixing up both properties in a short period of time. I think we can reduce our spending quickly if needed. I'll keep thinking on these questions!

I was hoping it was just a context issue. Personally I don't keep much cash on hand for emergencies, but I do have a large untapped HELOC that I can use in a pinch. That way my money can keep working for me and I have the peace of mind that I have cash available if necessary. Since you have high incomes and can cut your spending quickly if necessary you should be ok with some cash in a HYSA and some short term credit available. Obviously I don't know your entire situation so take my thoughts with a grain of salt.

That peace of mind you get from a HELOC could be misplaced. Your lender can restrict your access to that credit for a number of reasons. Market conditions being one of them. If the economy takes a downturn, you could wake up to a very uncomfortable email from your lender restricting your access to credit from the HELOC at a time where you might need it the most. You have no control over this. But cash that is yours is completely under your control. Just my two cents.
1 Reply
Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
Quote from @Dominic Mazzarella:

Quote from @Tim Delaney:

Quote from @Nilusha Jayasinghe:

Quote from @Tim Delaney:

It sounds like you would be in a good position to invest some or all of the RE emergency fund in a “safer” index fund. But there are a couple things to consider. I know you said you don’t expect anything major on the properties soon, but I would take a careful look at what is most likely to need to be replaced soon and figure out how you would pay for that if it needed to be done tomorrow. Could you put it on a CC and pay it off within the billing cycle with either your income or selling some stock if absolutely necessary?
The other thing that concerns me is you mention that you are both high income earners but that you are “trying” to save an emergency fund. Are you able to reduce your expenses quickly and easily if needed? Is your $15k even enough of an emergency fund for you personally?

Thank you @Tim Delaney, these are great questions for me to think about. As for the first, yes we'd be able to do that (for example, replacing a water heater which is the mechanical that's closest to the end of its useful life). For the second, by "trying" I don't mean that we're struggling to do that but I see why it comes off that way. I just meant to say that it's our next goal to build that up, having just gone on a spending spree on fixing up both properties in a short period of time. I think we can reduce our spending quickly if needed. I'll keep thinking on these questions!

I was hoping it was just a context issue. Personally I don't keep much cash on hand for emergencies, but I do have a large untapped HELOC that I can use in a pinch. That way my money can keep working for me and I have the peace of mind that I have cash available if necessary. Since you have high incomes and can cut your spending quickly if necessary you should be ok with some cash in a HYSA and some short term credit available. Obviously I don't know your entire situation so take my thoughts with a grain of salt.

That peace of mind you get from a HELOC could be misplaced. Your lender can restrict your access to that credit for a number of reasons. Market conditions being one of them. If the economy takes a downturn, you could wake up to a very uncomfortable email from your lender restricting your access to credit from the HELOC at a time where you might need it the most. You have no control over this. But cash that is yours is completely under your control. Just my two cents.

True. I also have business lines of credit. But I realize those are in the same position. I also have multiple streams of income and the ability to reduce my expenses sharply if needed to payoff a major unexpected expense. But your point is valid, which is why I was asking @Nilusha Jayasinghe what their ability was to stockpile cash quickly. I would not recommend relying on a HELOC as emergency funds for everyone. I also want to clarify that I do still keep a decent amount of cash - just not enough to cover every single property roof at the same time if that ever happened for some reason.
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Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
1y
Hello hello @Nilusha Jayasinghe - Love that you looked through the forums first to see if there is already an answer to your question!

My opinion is that it's totally up to you. Unless, you are going to leave it in the S&P 500 for a significant amount time, I would just ask why you want to invest it in the S&P 500 opposed to somewhere with less risk?

Sounds like you are better off in a high yield savings account like @Dominic Mazzarella mentioned...
Just out of curiosity, Nilusha, what Chicago neighborhood are your 2 flats in?
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Crystal SmithPro Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
1y
Quote from @Nilusha Jayasinghe:

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

This is a great question. An emergency fund needs to be liquid, and immediately available to you in addition to being low risk and protecting principle. For these reasons, we don't invest our emergency funds in anything that has volatility and we can't write a check against it the same day for an emergency. I don't like the returns but we use regular savings accounts. The returns suck at a little over 3% per annum but we deal with it.

Another idea that we have been exploring is using the cash value of whole life insurance funds for emergencies. We'll only do it if we can access the funds immediately.

312-681-7487
2 Reply
Nilusha Jayasinghe
OP
Member since 2023 · 25 posts · 9 votes
1y
Thanks all! I decided to leave it in a high yield savings account due to the reasons you all mentioned.

@Jonathan Klemm I'm in Logan Square.
1 Reply
Thomas RutkowskiPro Member
Financial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
1y
Quote from @Crystal Smith:

Quote from @Nilusha Jayasinghe:

Hey all, I'm a smalltime investor currently living in a flat of a Chicago 2-flat while renting the other out, and also have a SFH rental in OH. I'm not looking to scale anytime soon. I have my personal emergency fund stored away in a HYSA, and am working to build up a15k property reserve as well, but am conflicted on where to keep that 15k. We don't have kids (might in the future), my husband and I are young and healthy, have stable high-income full-time jobs, and just put in a lot of work to both properties so don't expect huge expenses in the near future. Both properties are in A areas with great tenants. I know that the general guidance is that emergency funds aren't to be invested, but given our financial security and the fact that we already have a personal e-fund in a safe, non-volatile location, would it still be crazy/unwise to invest this 15k in an S&P500 index fund in a brokerage?

I've looked through the forums and can't find answers to a question similar to mine so I thought I'd post. Would love to know your thoughts and hear if anyone does anything similar with their personal vs property funds. Thanks in advance!

This is a great question. An emergency fund needs to be liquid, and immediately available to you in addition to being low risk and protecting principle. For these reasons, we don't invest our emergency funds in anything that has volatility and we can't write a check against it the same day for an emergency. I don't like the returns but we use regular savings accounts. The returns suck at a little over 3% per annum but we deal with it.

Another idea that we have been exploring is using the cash value of whole life insurance funds for emergencies. We'll only do it if we can access the funds immediately.

I am a proponent of using life insurance as an emergency fund. It earns a great rate of return compared to a bank account and is fairly liquid. It is not something that you can access immediately, like same day.
It usually requires 2 Business days to process loan request. But somebody could use a credit card fund the immediate need and then pay it back with the policy loan fairly quickly.
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