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?

  1. 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.
  2. In addition to your premium you will also pay a service fee each time the home warranty company rings the doorbell.
  3. 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.
  4. 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.