Paycheck Chronicles

From The Mailbag: Landlord Emergency Funds


Many military families become landlords, either as part of a plan or by accident.  There are many surprises in landlording, and a lot to learn.  I think the second biggest surprise, after depreciation recapture taxes, is how much money you need to have in your landlord emergency fund.

Dear Kate,

I've seen you say that you think that you should have $10,000 per rental house in a repair fund.  That's ridiculous! I've never spent more than $1,000 on repairs.  Why do you like to scare people?


I find this letter fascinating.  I've been accused of being an alarmist about stuff; I prefer to think of it as wanting people to know what's possible.  You know, that whole "prepare for the worst, hope for the best" thing.

And I've been in this writer's shoes.  We probably never spent more than $1,000 on repairs for the first five years we had a rental property.  And it's a good thing, because we didn't have an emergency fund back them.  We were naive and inexperienced landlords.

On the other hand, now that we've been a landlord for more than 20 years, I can now see plenty of reasons to have a large emergency fund.  Not only have I had large expenses myself, but I've seen friends have large expenses, and I can more clearly imagine all the things that can go wrong.

Dear JJ,

I'm so glad that you haven't had any big expenses yet!  Hopefully you never will.  If you continue owning rental property, you'll likely have some expensive months eventually.  Here are some expenses for which you might want to have a large emergency fund:

  • Replacing a sewer line (and possibly the cleanup costs)
  • New siding
  • A tenant who stops paying the rent, plus eviction costs
  • Mold removal and repairs
  • Major tenant damage beyond the security deposit
  • Termite damage
  • New roof
  • Kitchen remodeling
  • A couple of month's vacancy, either due to market factors or serious repairs
Any of these can run easily over $10,000.  My last new roof cost $12,000, and I'm glad we were prepared for it.  I can't even think about truly surprise expenses like foundation damage.

I hope you continue to have low expenses on your rental properties, but I'm going to keep recommending $10,000 for a rental repair fund.  It's much better to be too prepared than to be scrambling to pay for things that need to be done.


Plenty of people start out landlording with zero emergency funds.  Sometimes it's inevitable, but it's really not recommended.  Being a landlord needs to be treated as a business, and a good business doesn't ask it's owner for money all the time.  A large repair fund is the key to a self-sustaining rental property business.



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