The Month That Almost Sunk Me
February. Furnace died at my duplex - $4,800. Three days later, a pipe burst at another property - $2,200. Then my best tenant gave notice. Total damage: $12,000 in repairs plus two months of lost rent. Without a proper emergency fund, I'd have been scrambling for credit cards or selling a property at the worst possible time. Instead, I wrote the checks and moved on. Stressful, but not catastrophic. Your cash reserves aren't optional.
They're the difference between a rough month and a financial crisis.
What Rental Reserves Actually Cover
Your personal emergency fund isn't enough. Rental properties have their own risks:
- Extended vacancy - mortgage still due, no rent coming in
- Major repairs - HVAC ($5K-$12K), roof ($10K-$20K), sewer lines ($3K-$15K)
- Eviction costs - legal fees, lost rent, turnover repairs ($5K-$10K total)
- Insurance deductibles - $1K-$5K before coverage kicks in
COVID taught this lesson hard. Landlords with cash survived. Those without didn't.
How Much Do You Actually Need?
Option 1: The 6-Month Rule. Keep 6 months of expenses (not rent-expenses) per property. $1,500/month carrying costs = $9,000 in reserves.
Option 2: Flat Dollar Amount. $10,000-$15,000 per property. I prefer this because it covers big-ticket items like roof or HVAC replacement that blow past a few months of expenses.
Option 3: Percentage Method. Set aside 6-10% of each rent check until you hit your target. Builds the habit of treating reserves as non-negotiable.
My Personal Approach
- $10,000 per property - covers vacancy plus one major repair
- Full insurance deductible - held separately (~$2,500)
- Sinking funds for known replacements - if the roof has 5 years left and costs $15K, I'm saving $250/month toward it
Lots of cash sitting around? Yes. Makes my returns look worse? Also yes. But I've never panic-sold or begged for money when things went wrong.
What Emergencies Actually Cost
| Emergency | Cost Range |
|---|---|
| HVAC replacement | $5,000 – $12,000 |
| Roof replacement | $8,000 – $20,000 |
| Water heater | $1,200 – $3,000 |
| Eviction (total cost) | $5,000 – $10,000 |
| 3-month vacancy | $4,000 – $8,000 |
Two or three of these hitting the same quarter? Happens more than you'd think.
Quick Tips
Keep it separate. Operating account for rent/expenses. Reserve account for emergencies. Security deposits in their own account (legally required in most states).
Keep it liquid. High-yield savings or money market. Not stocks, not crypto - when the furnace dies in January, you need cash, not a brokerage account that's down 20%.
Track it. Know your reserve balance and where you stand. I use FourCasa to track income, expenses, and reserves by property automatically - beats the spreadsheet chaos I used to deal with.
Bottom Line
Cash reserves feel boring. They drag down returns. But when the HVAC dies, and your tenant leaves the same week, you'll be glad you have them. Target: $10K-$15K per property, plus insurance deductible, plus sinking funds for known replacements. Build it slowly - 10% of each rent check adds up. Just don't skip it.
Track your reserves and expenses without the spreadsheet mess at fourcasa.com.