Key takeaways
- Three buckets, funded before you list: the make-ready, a vacancy cushion, and a repair fund.
- Size the vacancy cushion to the bills you pay in an empty month (mortgage, taxes, insurance, HOA, utilities, lawn), not to the rent you are missing.
- Size the repair fund from the age and replacement quote of each system, and add the wind and hail deductible on your policy.
- Illustrative only, not a quote: on a $2,200 rental the three buckets come to $12,600, about 5.7 months of rent, or $15,600 with a $3,000 deductible.
- A property manager pays vendors with your money, not its own. A large repair is funded by you.
How much should you set aside for repairs and vacant months before renting out your house? Fund three separate buckets before the house is listed: the make-ready work, priced from a written scope; a vacancy cushion of about two months of the bills that keep running when no rent comes in; and a repair fund sized to the systems you actually have. For most houses in Keller, North Richland Hills and Fort Worth that comes to several months of rent, held in an account you do not touch for anything else.
Owners usually ask for one number. The honest answer is three numbers with different jobs, and the third depends on your house more than on any average. Here is how to size each bucket in an evening.
The three buckets at a glance
Here is what each bucket pays for, how to size it and when it gets spent:
| Bucket | What it pays for | How to size it | When it is spent |
|---|---|---|---|
| 1. Make-ready | Rekey, safety devices, repairs, paint, flooring, cleaning, yard | A written scope with quotes on the larger items, plus a contingency | Once, before the first tenant |
| 2. Vacancy cushion | Mortgage, taxes, insurance, HOA dues, utilities and lawn while no rent comes in | Your own monthly bills for the house x the months you want covered (two is a sensible start) | During the first lease-up and each gap between tenants |
| 3. Repair fund | Water heater, HVAC, roof, appliances, and the small repairs every tenancy brings | Each system's replacement quote divided by its remaining years; the full quote for anything past its expected life | Whenever something fails, usually without warning |
| Insurance deductible (inside bucket 3) | Your share of a covered claim, such as hail damage to the roof | The amount on your policy's declarations page | After a storm or other covered loss |
How to read this table: only the first row can be priced exactly, and only the first row is spent on purpose. The other rows are money that waits. If you can fund just one of them fully, make it the system closest to failing.
Three buckets, funded before you list
The repair fund, for the water heater that fails in February and the compressor that fails in July, is the bucket owners most often under-fund, because the big items feel far away.
Keeping the three separate matters, because spending the repair fund on paint during make-ready is how an owner ends up financing an HVAC replacement on a credit card eight months later.
Bucket one: the make-ready, paid up front
Walk the house and write a scope. Start with what Texas law requires in a rental, because none of it is optional:
- Security devices. Property Code section 92.153 requires, without the tenant asking and with limited exceptions, a window latch on each exterior window, a doorknob lock or keyed deadbolt and a keyless bolting device and door viewer on each exterior door, and a pin lock plus a handle latch or security bar on each sliding glass door.
- Rekey. Section 92.156 requires the locks to be rekeyed at the landlord's expense no later than the seventh day after the tenant moves in.
- Smoke alarms. Section 92.255 requires at least one in each bedroom, one in a corridor that serves several bedrooms, and one on each level of a multi-level home.
Then add anything a tenant would report in the first week, and the paint, flooring, cleaning and yard work the rent assumes. Get written quotes on the larger items. The make-ready guide sorts the items into required, worth doing and skip, and which upgrades are worth doing before renting covers the optional ones.
Add a contingency, because opening a ceiling stain usually reveals something. If the quotes come in higher than you want to spend, the decision is which optional items to defer, never which required items to skip. This is general information, not legal advice.
Bucket two: the vacancy cushion, sized to your bills
The first lease-up takes time: make-ready, photos, marketing, showings, screening and a move-in date that suits the tenant. Every later turnover takes time too.
Size this bucket to what you pay out, not to what you fail to collect. The rent you miss in an empty month is income that never arrives. It is not a bill, and the IRS says in Publication 527 that you cannot deduct a loss of rental income for the period a property is vacant. What you have to cover in cash is the list that keeps running: the mortgage, property taxes, insurance, HOA dues, and now the utilities and lawn in your name. Add those up for one month and multiply by the months you want covered.
Two months of those bills is a sensible starting cushion: one for the first lease-up, one for a gap between tenants. If the house is priced above what leased comparables support, no cushion is big enough, which is why I would rather an owner start with a free rental analysis than with a listing at a hopeful price. The full accounting of an empty month is in what a vacant month really costs.
Bucket three: repairs, sized by the systems, not a rule of thumb
Percentage-of-rent rules treat a five-year-old house and a thirty-year-old house the same, and they are not the same. Size the repair fund from the house:
- List the big items: HVAC, water heater, roof, major appliances, and in this area, the foundation and the plumbing under the slab.
- Note the age of each, from the labels, the permit history or a recent inspection.
- Get a replacement cost for each from a quote or a recent invoice.
- Estimate how many years each has left and divide the replacement cost by that number to get an annual amount.
- Add a floor for the small repairs that come with every tenancy, and the deductible from your insurance declarations page.
A house with a new roof and a new HVAC needs a modest fund. A house with equipment past its expected life needs the full replacement cost of the next failure in the bank before the tenant moves in. Once a tenant is in place the repair cannot wait for your finances: Property Code section 92.052 requires a diligent effort, once the tenant gives notice, to repair a condition that materially affects an ordinary tenant's health or safety, and it names hot water specifically.
That table is one more reason to hold real cash. The big items in this bucket are the ones the IRS lists as examples of improvements, which you generally must capitalize, so the tax benefit of a new roof or air conditioner arrives over years of depreciation, not in the year you write the check. Ask your CPA how it applies to you; this is general information, not tax advice. The reserve guide covers how to keep the fund topped up once the house is rented.
A worked example on a $2,200 rental
Here is one house, start to finish. Assumptions: a twenty-two-year-old house in North Richland Hills that will rent for $2,200; a mortgage payment including taxes and insurance of $1,700 and $200 a month for utilities and lawn while empty, so $1,900 of bills in a vacant month; an original water heater past its expected life with a $1,800 replacement quote; a ten-year-old HVAC system with a $9,000 replacement quote and about six years left; a roof replaced a few years ago; and a 1% wind and hail deductible on $300,000 of dwelling coverage. Every figure is made up to show the method. Illustrative only, not a quote:
| Line | How it is figured | Amount |
|---|---|---|
| Make-ready | Rekey and devices $300, interior paint $2,200, carpet in two bedrooms $1,200, cleaning $400, yard $400 | $4,500 |
| Vacancy cushion | 2 months x $1,900 of bills | $3,800 |
| Repair fund: water heater | Past its expected life, so the full quote | $1,800 |
| Repair fund: HVAC | $9,000 / 6 years left = $1,500 a year; the first year funded now | $1,500 |
| Repair fund: small repairs | A floor for the first year | $1,000 |
| Total before listing | $4,500 + $3,800 + $4,300 | $12,600 |
| Wind and hail deductible | 1% x $300,000 | $3,000 |
| Total with the deductible | $12,600 + $3,000 | $15,600 |
How to read this table: $12,600 is about 5.7 months of the $2,200 rent, and $15,600 is about 7.1. Only the $4,500 make-ready is certain to be spent. The rest sits in your account, and if nothing breaks and the house leases quickly, most of it is still there a year later.
If you hire a manager, add the one-time cost of the first lease. On our price sheet, tenant placement is 75% of one month's rent on the Standard plan ($1,650 at this rent) or 50% on Full Service ($1,100), and the enrollment inspection is $49 on Standard and included on Full Service.
Do property management companies pay up front for a roof replacement?
As a rule, no. A property manager spends the owner's money: rent collected, the working reserve named in the management agreement, or funds you send for a specific job. A licensed Texas broker holds that money as trust money. TREC rule 535.146 says it may be disbursed only in accordance with the agreement under which it was received, and it may not be commingled with the broker's own money. Do not plan on a manager advancing its own funds.
So a roof is paid for one of two ways. If hail or wind caused the damage and the policy covers it, the insurer pays the claim less your deductible. The Office of Public Insurance Counsel explains that a percentage deductible is calculated on the amount of insurance on the home, not on the size of the claim: 1% on a home insured for $200,000 is $2,000. If the roof is simply worn out, the whole bill is yours.
Either way, the cash comes from bucket three. A hail claim on a rental is covered step by step in the hail and roof damage guide. This is general information, not insurance advice.
Where the money sits and how it refills
Keep the cushion and the repair fund in a separate account in your name, where you can see the balance and will not spend it on a vacation. It is not the working reserve a property manager holds to pay routine invoices. That reserve is a float for small repairs between disbursements, and the management agreement states its size. The big-ticket money stays with you. How the float works is in how much a property manager keeps as a maintenance reserve.
Refill after every draw from the monthly cash flow, and revisit the system list once a year, because the HVAC gets a year older every year whether or not it breaks. If you cannot fund all three buckets yet, delay the listing or trim the optional make-ready items. Do not list with an empty repair fund and an aging water heater and call it a plan.
How Perpetual handles this
Perpetual Property Management is broker-owned, with our office at 5755 Rufe Snow Dr in North Richland Hills, and we manage homes in Keller, North Richland Hills, Fort Worth and nearby. What our site states about the three buckets:
- Make-ready. The free rental analysis includes make-ready guidance: which improvements raise rent and which just cost money, before you spend it.
- Vacancy. The same analysis gives a rent range from leased comparables. Once the home is market-ready it is listed on every major rental platform within 5 business days, or the first month's management fee is waived.
- Repairs. Routine repairs under the limit you pre-approve go ahead without waiting. Anything larger comes to you with a description, photos and a recommendation. The vendor's original invoice is always in your owner portal, and every plan includes an annual property inspection.
The guarantee is subject to the Guarantee Addendum. The size of any working reserve we hold for your home, and how a repair larger than that reserve is funded, are not published on our site, so both are confirmed in writing before you sign, along with every fee on the price sheet. We do not offer a rent guarantee and do not pay rent during a vacancy. To get your rent range and make-ready guidance, call 682-593-7033.
The takeaway: Price the make-ready, hold two months of bills for vacancy, size the repair fund to the age of your systems and your deductible, and keep all of it in your own account.
Questions owners ask
How much reserve does a property manager hold for my rental?
Managers generally hold a small working reserve, stated in the management agreement, to pay routine vendor invoices between disbursements. It is a float for day-to-day maintenance, not a fund for an HVAC replacement. There is no standard amount. Your own repair fund and vacancy cushion sit in your account. Ask for the reserve amount in writing with your quote.
Should I set aside money for repairs even if the house is new?
Yes, but less. A new house still has a water heater, appliances and a fence that will need attention, and tenants generate small repairs regardless of age. Fund the small-repair floor, your insurance deductible and a modest annual amount toward the systems, and revisit the figure each year.
What is the most expensive repair on a rental house in North Texas?
It depends on the house, which is why the fund is sized from your own list. Our maintenance page singles out aging HVAC systems, water heaters and roofs on the 30 to 50 year old homes common in Northeast Tarrant County, and a dead air conditioner cannot wait in a Texas summer. Size the fund so the single most likely big failure on your house can be paid without borrowing.
Can I use the security deposit as my repair fund?
No. Under Property Code section 92.102 a security deposit secures the tenant's performance under the lease, and section 92.103 requires it to be refunded on or before the 30th day after the tenant surrenders the home, less lawful deductions. Spending it during the tenancy leaves you short on the day it is due back. Fund repairs from your own reserve.
Do property management companies pay up front for a roof replacement?
As a rule, no. A manager pays vendors from the owner's money: rent collected, the working reserve or funds the owner sends for the job. A covered hail or wind claim is paid by the insurer less your deductible, and a worn-out roof is the owner's cost in full. Read your management agreement for how large repairs are funded.
How many months of rent should I have saved before renting out my house?
There is no single rule, because the repair fund depends on the age of your systems. In this guide's illustrative example, a $2,200 rental needs $12,600 before listing, about 5.7 months of rent, or $15,600 once a $3,000 wind and hail deductible is included. A newer house with a small make-ready needs far less. Build your own number from the three buckets.
Is money I set aside for rental repairs tax deductible?
Not when you set it aside. The IRS says most individuals are on a cash basis and deduct rental expenses when they pay them, so moving money into savings is not an expense. A repair is generally deductible when paid, and an improvement such as a new roof is generally capitalized and depreciated. This is general information, not tax advice.
Related services
Property management in Keller, North Richland Hills and Fort Worth. How full-service management works in Tarrant County →
