Cash Reserves for Property Investors: Why I Keep a Buffer
December 3, 2022
Cash reserves give a property investor two useful things: the ability to deal with problems and the ability to act when an opportunity appears. I don’t see cash as something that must always be invested immediately just because it’s available.
In December 2022, I made a video explaining why I was holding more cash ahead of what I expected to be a difficult market in 2023. That was my view at that point in time, not a prediction being made today. The more lasting lesson was about preparation: if buying conditions improve, you need the money and the practical ability to do something about it.
I was particularly interested in opportunities to negotiate a good purchase price. Property gives you that possibility in a way that simply buying a quoted share at the market price doesn’t. But having cash only helps if the investment you’re considering is sound.
You can watch my original video about holding cash for the historical context behind my approach.
Cash has a purpose even before you invest it
An unspent balance can feel frustrating when you’re trying to build wealth. You can see properties for sale, imagine the rent and start thinking of cash as money that’s doing nothing. I think that misses the value of being able to choose when and how to use it.
If all your money is committed, a repair or an empty property can force you to raise funds at an inconvenient time. It can also mean passing on a good opportunity because the deposit is tied up elsewhere.
Cash doesn’t guarantee a better investment later. Holding it has trade-offs, including the possibility that purchasing power falls or that an opportunity never arrives. But immediate investment has trade-offs too, particularly if you buy something weak simply to feel that you’re making progress.
I’d rather be clear about why I’m holding money and what would justify deploying it. That turns waiting into a decision with a purpose, rather than an indefinite response to frightening headlines.
What I learned from buying during Covid
In the video I described purchases made during the uncertainty around Covid. One was a Didcot property bought for £275,000, against the roughly £350,000 listing figure I recalled. Another was a Corby property bought for £116,000.
Those are examples of my own transactions, not a claim that every asking price represented fair value or that the same discounts are available in another market. They mattered to me because uncertainty created circumstances in which a seller valued a buyer who could move forward.
The Corby property also needed substantial work. In this video I referred to about £40,000 of renovation and an end value around £200,000 at the earlier stage of the project. Later market movement was a separate part of the story.
That separation is important. I wanted the purchase and refurbishment to make sense before relying on another rise in prices. A market increase might improve the eventual result, but it wasn’t the only reason for buying.
A discount from asking price isn’t automatically profit
It’s easy to hear a story about a property advertised at one price and bought at another and treat the difference as money made. I’d be more careful. An asking price is the seller’s starting position, not a guaranteed valuation.
A useful discount needs to be measured against a credible assessment of the property, with its condition and costs taken into account. If a house needs expensive work, the gap between the asking price and your offer may simply reflect that work.
I also distinguish equity from cash. Buying something for less than a supportable valuation may give you a stronger balance-sheet position, but it doesn’t put the difference straight into your bank account. Selling or refinancing involves further costs and conditions.
My discussion of property price versus market value goes further into that distinction. It’s one of the checks I’d want to make before deciding that a supposed bargain deserves money from my reserve.
The Newbury flat illustrates a different kind of opportunity
I also discussed a Newbury flat that I bought for £160,000 when I considered it worth around £180,000. It needed relatively little work beyond repainting, rather than the substantial refurbishment involved in the Corby example.
That appealed because the opportunity wasn’t entirely dependent on completing a complex building project. The purchase price itself was an important part of the investment case, alongside the expected rent and operating costs.
Again, the £20,000 difference was my assessment of value at the time. It wasn’t a separate cash payment or a promise about what a future buyer would pay. The transaction still had to be financed and the property still had to work as a rental.
The comparison shows why I don’t have one fixed picture of what an opportunity must look like. Sometimes value comes from improving a building. Sometimes it comes from a straightforward purchase at a price that fits the seller’s circumstances and your own numbers.
Find out what the seller actually needs
A practical phrase I discussed was asking an agent how a vendor might respond to a particular offer. It’s a way of opening a conversation about whether there is room for a deal, rather than assuming every seller is in the same position.
Some sellers need certainty. Some have a deadline. Others are happy to wait for a higher price. The appropriate offer and timetable depend on those circumstances, as well as on what the property is worth to you.
I’d want the conversation to be honest. If I offer a quick completion, I need a realistic basis for saying I can deliver it. A buyer who promises speed and then cannot arrange funding isn’t providing the solution they claimed to offer.
People may be selling during a difficult period in their lives. That doesn’t remove the need for clear information and fair dealing. A workable transaction should be one both sides understand and choose, rather than one based on pressure or misleading claims.
Being ready means more than having a deposit
Cash readiness is only part of being an effective buyer. You also need a solicitor or conveyancer, a route to finance where required and a clear idea of the checks that must be completed before committing.
A proof-of-funds request is not the same as a lender confirming a mortgage on that particular property. Nor does a mortgage valuation replace every investigation a buyer might need. Condition, title, lease terms and the intended use can all affect the decision.
The government’s guide to buying a home sets out the wider process in England and Wales. The detail of an investment purchase may require specialist advice, but the basic point remains: speed should come from being organised, not from skipping necessary work.
I’d want to know which steps could delay the transaction and whether the proposed completion date is credible. Cash gives flexibility, but it doesn’t make an unsuitable property or a legal problem disappear.
Keep opportunity money separate from essential reserves
There’s a difference between cash available for a new investment and cash needed to protect the properties you already own. If I treat the same money as both, the reserve is less substantial than it looks.
I’d first consider the existing commitments: mortgage payments, known works, insurance, management and the possibility of a void or unexpected repair. Only then would I decide what is genuinely available for another purchase.
The appropriate amount varies. A recently refurbished single let and a portfolio of older buildings with several mortgages don’t have identical needs. I’d base the reserve on the actual risks and bills rather than a neat percentage copied from somebody else’s situation.
That discipline can make a tempting deal harder to buy. I think that’s useful information. If a purchase leaves everything else dependent on nothing going wrong, it may be too large a commitment for the cash position, however attractive its headline return appears.
Decide what would make you invest
In the original video I talked about wanting a meaningful discount in a more uncertain market. The exact percentage was less important than the principle of building resilience into the purchase instead of relying on an optimistic forecast.
I’d turn that into a specific buying brief: the locations I understand, the type of property, the achievable rent, the work I can fund and the minimum room I need after all costs. That makes it easier to judge opportunities consistently.
Then I’d test a less comfortable scenario. What if the work costs more, the letting takes longer or the next mortgage is more expensive? If the numbers are only attractive under the best assumptions, the discount may not be enough.
I also wouldn’t keep moving the target every time a suitable property appears. Holding cash is useful when it supports a considered decision. It becomes less useful if I’m waiting for a perfect bottom that nobody can reliably identify in advance.
Preparation matters more than predicting the exact market low
The point of my 2022 argument wasn’t that I could name the precise date of the next bargain. It was that uncertain conditions might create opportunities, and I wanted to be in a position to assess and complete them.
I still think that is a sensible distinction. I can control my research, reserves, buying criteria and readiness much more directly than I can control house prices or interest rates. A clear property investment plan helps keep those decisions connected.
If you’d like to discuss how much cash to commit to your next property step, book a free 30-minute call. You can also explore the Starter Club or find out about Done For You for support with your plans.