Are Home Warranties a Good Idea in Rental Properties?
You might be concerned about repair costs in a rental property and it seems as though a home warranty would be a good way to prevent high repair bills.
When I am involved in a sales transaction I always recommend a home warranty as it gives both buyers and sellers peace of mind. If the water heater goes out in the first month there’s a number they can call.
However, I never recommend home warranties on rental properties and I know several property management companies that refuse to take on properties with home warranties.
Why not?
- Home warranty companies do not use A list vendors. Also each time you call you will be given a different vendor. The most common vendor in rental properties is a plumber. Property management companies give their plumbers volume so they get good service, a good rate and the plumbers know the properties. They don’t waste time finding cleanouts or other details.
- In addition to your premium you will also pay a service fee each time the home warranty company rings the doorbell.
- You will not get quick service. 48 hr. turnaround or longer is not uncommon and just placing the call for service will be a lengthy time on hold.
- They are in business to make a profit. If an a/c system needs replacing they will do band aid after band aid before finally agreeing that the patient is on life support.
Rather than use a home warranty for a rental property I advise my clients to self-insure. Based on normal expected lifetimes of property components you can estimate that your water heater will need replacing in the next 2 years, dishwasher might last another 3, roof should be replaced in 6, etc.
Far better to set aside x amount each month for expected replacement of the above items rather than waste money on a home warranty that will frustrate all parties involved.