Are home warranties ever worth it on rentals?

Question

Recently closed on an older property that needs some updating. The AC is old, but I’m planning on holding off on replacing it. Meanwhile, I have been getting a number of ads for home warranties. I don’t generally buy into those as saving all this money, but I’m wondering if others have an experience or perspective?

Austin Jones · Answer

Most of the time, the home warranty takes a long time to approve your repair, reach the property, and then they use low-quality materials. Therefore, I would advise against it.

Drew Sygit · Answer

We've never had a good experience with a home warranty company.

Owners do get upset with us though, and blame us, when the inevitable happens and their claim is denied or the tenant threatens to move if the repair isn't taken care of faster.

Nathan Gesner · Answer

Many people have had a great experience with home warranties, myself included. However, that was a fluke.

Warranty companies are in the business of making money. Buy a $15 blender at Walmart, and they'll try to sell you an extended warranty. Why? Because they know you'll probably never make a claim, or your claim won't qualify.

Home warranty programs charge a trip fee every time you file a claim, and they use that fee to compensate the vendor. The vendor is often slow to respond because the fee is way below what they usually make. In my market, I only have one vendor qualified for appliance warranty work, and the warranty companies paid him half his standard fee for each service call. The only reason he did it was because it led to additional work. He also told me that warranty calls were always at the bottom of his list. He's also the least reliable repairman in my market.

You will also discover the warranties don't cover as much as you think, and claims are often denied.

Home warranties are so bad that most professional property managers will not manage a property with one in place.

Alecia Loveless · Answer

@Katie Camargo My sister has several warranties on SFHs in her portfolio. She no longer buys warranties because she has found the repairs are often shoddy and slow.

Her last deal she had a claim on the HVAC was leaking. After several weeks the warranty repairman met my sister and looked at the HVAC unit and said there was no leak. When it was clear water was running from the unit.

Fast forward another 8 weeks and the HVAC dies and the tenant moves out. Now the living room and 2 bedrooms that just had new flooring put in them 8 months ago are ruined from the leaking water from the HVAC and have to be replaced again.

The warranty isn’t covering the shot HVAC much less the ruined flooring and sub flooring.

My sister doesn’t recommend buying warranties anymore.

Peter Mckernan · Answer

My experience they are not worth what they are used for on the claim. You have to jump through hoops to get the approved work even if they will approve it. Ultimately it is either a long process to get a check/fix, or they deny the claim.

Bill Le · Answer

Hey Katie! I actually own three properties myself, plus my parents have four duplexes, and we’ve completely moved away from using home warranties. It’s not that they’re totally useless, but when you factor in the time it takes to coordinate between the warranty company and the contractors—and how tricky those approvals can get—it ends up being a huge hassle.

For a single-family home, we usually see about 2–3 repair tickets a year. If you just budget for that and have a reliable handyman on call, you’ll probably come out ahead in the long run, especially as you scale. That’s just been our experience, but of course, it might vary for others.

Hey Katie! I own 3 properties myself (plus my parent's 4 duplexes) and we have sworn off home warranties. It's not that they're not worth it but realistically, when you factor in your time to be involved, how complicated it can be for adjustments between the warranty company and the contractors, it's a massive headache.

For a single family home, there's usally 2-3 work order tickets per year. If you budget for that and work with a handyman to get it fixed, you're probably gonna be far head than having a warranty per house as you scale. Your mileage may vary but that's been our experience.

Adam Tiller · Answer

I would certainly agree with the above reply. Unless it is a new build, and it comes with purchase warranties are an extra cost and may or may not even be executed when needed depending on the circumstances. I'd like to know how self-management is going for you, I've self-managed and was quite lucky with my first renter and not so lucky after!

Gregory Schwartz · Answer

95% of the time we get the seller to pay for the warranty. I agree with most on here that the warranty process is less than ideal, however there are off chances that it saves you thousands. So if you can get it paid for then why not

David Peschio · Answer

I'm concerned that using a home warranty (HW) could lead to losing good renters. The wait times are long, and the contractor quality often doesn't reflect well on the property management.
In my experience, it's usually necessary to hire someone outside of the home warranty system to get timely repairs. I suggest you consider foregoing the annual home warranty fee and instead allocate those funds directly towards repairs.

Are home warranties ever worth it on rentals?

Are home warranties ever worth it on rentals?

Most Popular Reply

12 Replies