Home Warranty for rental properties

[Allen L.]

Hi guys,

I just purchased a home warranty plan for a property that I own as a rental. I think many people here would think this is a terrible idea but I think the benefit is in the nuance so let me explain.

First, home warranty details:

1. $276 a year for 3.5 year totally $967

2. Covers all systems (HVAC, plumbing, electric, duct work, water heater) and free roof coverage

4. $60 dispatch fee

5. Fully transferable to any property within the country with 15 day grace period

6. Cancellable any time and they will pro-rated the remaining and refund

7. $276/year is locked in for life if I decide to continue to use them after 3.5 years.

My property has antique HVAC system that is now > 20 years old, so I'm fully expecting them to break down in the next 24 months, and apparently home warranties will replace the unit if they cannot repair it, which means there's a chance that I will get a new furnace and air conditioning unit (~$5000 value) or at least a cash out value.

The other benefit is that I own a few properties, and since the warranty is also transferable, so at any time if I feel like another property has weak systems, I can transfer the warranty over to that property and potentially lower my maintenance and capex cost. 

I have had a home warranty in the past given to me by the seller of another property, and reaped the benefit of that within the first year. The heat pump (>15 years old) broke down and the home warranty company said they can either repair it (they said that my out of pocket expense was $2500 because they didn't cover certain part of the AC lol) or give me a cash out for approx. $1800. I took the cash out and got a new heat pump unit. Since then I've always looked at home warranty as a great tactical optionality play, if you get the timing right, you can save more than it costs. Maybe this is the trader in me seeing this as an arbitrage. Anyways just want to share a heterodox opinion!

[Nathan Gesner]

You'll hear success stories but there are far more horror stories. Most property managers I know will not manage a home with a home warranty.

They are structured in favor of the warranty company. It's the only way they make money. When a repair is due, you have to pay a deductible. They pay pennies on the dollar, which means you get a poorly qualified technician that knows they're making far less than they would working for an individual. They are slow to respond and do crap work.

The house always wins.