Home Warranties for Buy & Hold Investors

General Landlording & Rental Properties
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Home Warranties for Buy & Hold Investors

Atul Kaushal
Lake Zurich, IL · Member since 2017 · 20 posts · 3 votes

Happy New Year! Thanks to the BP community and wonderful books / podcasts, we were highly motivated to grow our nascent REI business in 2018 and went from three units to ten units over the last 12 months. They are condos, townhomes, and SFHs in B+ / A- neighborhoods, costing between $170K and $240K, and meeting (at minimum) the 1% rule. I know there are a lot of other ways to measure returns, but we like the 1% as a rule of thumb and just the simple cash flow at the end of every month to keep the businesses going.

There are approximately 60 appliances (six per home) + systems like HVAC, hot water heater, electrical, etc.  I'd be grateful for others' input on getting home warranties for these rental properties.  Seems like the average cost would be about $600 per year and might save some time / headache in repairing or replacing some of the older appliances and especially with some of the older systems.

American Home Shield actually let's me select which appliance to cover, so that if I update a kitchen and put in new stainless appliances (with manufacturer warranties), I can take those off the list at AHS and my rate comes down.

Or is it better to let the appliance break down, replace them with new ones, and then go with the manufacturer's warranty?

Thanks in advance for your thoughts!

AK

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Jonathan G.
Investor · Marietta, GA · Member since 2015 · 382 posts · 258 votes
7y
Would recommend against. Go to the American Shield page (or any other Warranty company) on Facebook and there’s an endless supply of consumer complaints every day. I used in the past on rental property in the past and they are horrible. Contractors are bottom tier quality. They deny everything. Takes weeks to get someone to come to do work. The 100 dollar copay is often more than it cost for many basic appliance repairs. And when it comes to HVAC , they will deny and still charge you $80+ per pound of Freon . Even if you have a worse case scenario of HVAC failure and they do cover an HVAC, your tenant is without AC for weeks, you are on the phone with warranty company and contractor for hours (mostly on hold regurgitating the same story over and over again)your still out the $600 annual payment (probably several years wort), your paying the $500-600 for the “uncovered” Freon, and the headache of it all. It really isn’t worth it.
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  • Keith A.
    Rental Property Investor · TX · Member since 2019 · 236 posts · 392 votes
    7y

    Tried one of these companies about 13 years ago because the warranty automatically came with my primary home I purchased.  Didn't find it worth it at all.  I have found that for rentals, I built relationships with good contractors that do good work for a fair price because they know I will call on them often. I rely on these people and our good relationship as opposed to the 3rd party contractors that the warranty companies send out to "fix" everything... and they WILL try to patch and fix everything and not replace it. Sometimes it's best to just put in a new appliance and call it a day. I also remember them charging for trip fees every time they were needed.  It will cost you way more in the long run to use a home warranty company (they wouldn't be in business if they didn't make good money off of these warranties). But if peace of mind is what you like then this may be the ticket. I just remember them wanting maintenance records for my appliances and other time-consuming junk that I didn't have because I just purchased the house... they used that as a reason not to replace something.   For AC systems I have a wonderful local AC company in my town do two services a year... one in spring and one in fall... they make sure the filters are replaced, blow out the condensation drains, clean the coils and make sure all is well. I find this much more effective and preventative. They know me when I call. I can text my electrician for help on something I'm doing. I can text my plumber to ask a stupid question. I can text the guy that can repair a blown down fence in a days notice...    You can't get that with a warranty company.   Thats just my experience.... 

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  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    7y

    If I were to do it I'd get it just for HVAC and that would be after I realized the HVAC bills for that property were piling up year after year. I saw it offered for $10/mo through one company. Everything else can be purchased or fixed pretty inexpensively for the most part. If you're getting some expensive appliances it could be worth it. If it's a rental I would not supply expensive appliances in the first place. 

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  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    7y

    @Atul Kaushal I'm sure others will disagree but I do not like home warranties at all. Especially for a rental property. Home warranties are insurance products and they make money by denying claims or cutting costs.

    It's been my experience when I had AHS (and others) that they did one or all of the following:

    • Took an extraordinarily long time to address anything
    • Used a loophole on page 473 of the contract to deny a claim 
    • Sent the cheapest contractor out to shoddily fix something

    I personally had to wait 6 days for a water heater issue at my primary residence which was a very long time without a hot shower. Tenants don't seem to be understanding or care if the warranty company is the delay, either.

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  • Atul Kaushal
    OP
    Lake Zurich, IL · Member since 2017 · 20 posts · 3 votes
    7y

    Thanks for all the solid feedback.  I was under the impression that the $600/year would be worth it if anything needed replacement, but I am guessing that would probably be a big struggle with the warranty company, judging from the comments here.  I'll go ahead and let my current contracts expire and let my contractors know they are my main teams now.  Hopefully i can develop the reliable relationships that Keith was describing.

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  • Jonathan G.
    Investor · Marietta, GA · Member since 2015 · 382 posts · 258 votes
    7y
    Would recommend against. Go to the American Shield page (or any other Warranty company) on Facebook and there’s an endless supply of consumer complaints every day. I used in the past on rental property in the past and they are horrible. Contractors are bottom tier quality. They deny everything. Takes weeks to get someone to come to do work. The 100 dollar copay is often more than it cost for many basic appliance repairs. And when it comes to HVAC , they will deny and still charge you $80+ per pound of Freon . Even if you have a worse case scenario of HVAC failure and they do cover an HVAC, your tenant is without AC for weeks, you are on the phone with warranty company and contractor for hours (mostly on hold regurgitating the same story over and over again)your still out the $600 annual payment (probably several years wort), your paying the $500-600 for the “uncovered” Freon, and the headache of it all. It really isn’t worth it.
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