Using a Home Warranty company on a rental

13 Replies

Just putting out the feelers.  I currently have a home warranty on my rental home that I am considering dropping.  I have had them for about three years, but have only had to use them once and it turned into a headach and required a pretty good deductible.  I have had the same renters in the home for the past three years and they seem to truely care for the home.   I wanted to see if other investors use a home warranty company for their rentals or if there is a good formula that takes into account the age of the home when considering if using a home warranty company is in my best interest.  I appreciate any feedback.

Thanks,

Philip

@Philip Mullinax - Yes, I use home warranty on all of my rentals. I have been doing this for 2 years and find it to be financially rewarding, efficient and their response time is good.

I am contracted to two home warranty companies and use that as a negotiating tool when the during renewals.

I don't have to worry about any internal issues and each call is either $60 or $75 per vendor contract.

I see it as an insurance policy, coupled with the fact that it saves money based on the amount of calls received for AC/heating, plumbing, electrical and appliance issues to name a few.

I am very happy with their service and will continue to use them. 

I am a long distance investor and the warranty service is a plus for me.

I believe they are a waste of money. The chances of ever using them is actually very slim. The insurance companies make a killing on these types of policies.

Thanks @Linval T. and @Arlan Potter .  I appreciate both of your insight.  Either way I think I may need to change companies if I do stay with a home warranty at all.  The one time I used them it took them close to a week to tell me they had no one in my area.  I had to call the vendors in my area to coordinate the service and then there was an issue of payment because all it turned out to be was flushing the system in a dishwasher.   Arlan- how do you handle repairs when needed?  Do you have a property manager or do you coordinate the repairs yourself? 

@Philip Mullinax :

 We have a home warranty on our rental home. My early experience with them was that I never wanted to buy it again. Every time I called, the item was not covered. However, our a/c was not working properly and they came out and replaced the compressor, which would have cost us $2000. With the age of our home (1979), I think it's a good investment because the bigger items are expiring quickly. 

@Philip Mullinax

I have 94 units, 1/2 of which have central HVAC.  Even at $475/year for home warrantee for those with HVAC units, it would be well over $20K per year and most would be wasted. Too many restrictions, too many deductibles. They rarely replace an entire system, just patch. When we have an issue we fix it.  In fact, this year, I replaced only 4 or 5 water heaters, and 3 of those were under the manufacturers 5 year warrantee(no charge).

The odds of an AC or Furnace actually going bad, I mean bad and needing replacement in a particular year is nil.

These warrantee programs are only good if paid for by the seller of a property, to help sell the property to a leary buyer.

If you looked at my P & L for each rental, the vast majority of properties have no or minimal repairs on an annual basis.

PS   This summer  we did replace 3 HVAC furnace systems in our apartments. It cost me about $11,000. I wonder if they would have paid to replace the 1968 model Lennox Furnaces.

Personally, when you buy a Home Warranty, that premium is deducted from the money you would have saved annually (for the covered systems).  So you would save 600.00 less per year for potential A/C, plumbing, water well pump and built-in appliance problems.

If you save for the full cost of the covered system/appliance at EOL AND pay for warranty, you're over saving.

Justin

Thanks @Brianna H. , @Arlan Potter , and @Justin Fox .  It seems like a mixed bag of pros and cons.  I may just need to start socking away more for the unexpected repair and keep up with my preventative maintenance.   Arlan- thanks for sharing your breakdown of the properties.  I am no where near that number of properties, but I can see with that volume how this could be a true cost savings.  I appreciate everyone's help. 

The experiences I've had along with others that I have had this same conversation is that it doesn't pay off. 

It's hard to say what's best If you have an old hvac maybe hang on to it. But if your hvac is new and you keep it for appliances it's highly unlikely they swap you for a brand new one, most likely they repair it as much as they can, which could be a big waste of time for you, having to give notice to your tenant, and all the other stuff that comes along with waiting for a 3rd party company. 

The plus side is if you think it's valuable it could be a write off as an expense at the end of the year. 

@Philip Mullinax :

 Another side bonus if you word it properly, in my lease it states that the tenant will pay the service fee for any maintenance. So if the a/c isn't blowing properly, they will call the home warranty directly instead of calling you. Takes you out of the equation some. :-)

Wouldn't it be more beneficial to save the $600/year as Cap. Expense reserves rather than paying a warranty company? That way YOUR money is staying in YOUR hands. If you don't have any repairs, you've added that much money to your account. Might as well make a 1/4% interest on your own money rather than handing it to some company. Granted, if you had a major failure within the 1st few years, it would definitely hurt, but after that you'd begin to develop substantial savings.