Why Every Landlord Needs a Reserve Fund — And What Insurance Won’t Cover
You Can’t Insure Against Everything
Being a landlord comes with its share of ups and downs. You probably already have a good insurance policy (and if you don’t — start there!). But what many landlords don’t realize is that insurance doesn’t cover everything that can blow up your budget.
That’s where a reserve fund comes in — think of it as your rental property’s rainy-day account. Without one, a surprise expense could turn your next rent check into a repair bill (or worse, force you to dip into personal savings).
If you’ve ever been hit with a big unexpected cost, you know exactly what I’m talking about. If you haven’t — trust me, it’s just a matter of time.
Here are some common big ticket items that can catch landlords off guard:
What Insurance Might Not Cover — And Why You Need Reserves
1. Major System Failures
Furnace replacement
Central A/C replacement
Water heater failure
Electrical panel upgrade
These are usually not covered unless a sudden, covered event (like a fire) causes the damage. Normal wear and tear? That’s on you.
2. Roof Replacement
Insurance may cover storm damage — but not aging, worn-out shingles or a roof past its useful life. If your roof is 20+ years old, guess who’s paying? You are.
3. Sewer and Water Line Issues
Standard insurance usually excludes underground pipe failure unless you’ve purchased a special rider. Sewer line replacement can cost $5,000–$15,000 or more. (ask me how I know…)
4. Major Appliance Replacement
Refrigerators
Dishwashers
Washers & dryers (if provided)
Again — normal failure due to age is not covered by insurance. If you have aging appliances across multiple units, this can hit fast.
5. Structural Problems
Foundation issues
Significant settling or cracking
Termite damage
Unless caused by a covered event, these are landlord expenses — and they can be very expensive to fix.
6. Vacancy or Extended Eviction
Insurance won’t cover lost rental income if you have months of vacancy or if an eviction drags on. A solid reserve helps you stay afloat during these times.
How Much Should You Keep in Reserves?
A good rule of thumb:
👉 $3,000–$5,000 per single-family home
👉 $1,000–$2,000 per unit for multifamily properties
Adjust based on:
✅ Age of your property
✅ Condition of major systems
✅ Your personal risk tolerance
Final Thought: Peace of Mind Has a Price — And It’s Worth Paying
If you’re managing rentals into your retirement years, big surprise costs can take the fun right out of it. Building (and maintaining) a reserve fund gives you options — including the option to walk away from landlording entirely when the time is right.
And if the reserve fund looks more like a fantasy than a reality?
👉 That’s a good sign it may be time to explore a smooth exit strategy — and we can help with that.
