Home warranty on rental property worth the cost?

11 Replies

Just closed a few weeks ago on my first rental property. SFR in east Cleveland 44128. New roof on the home but most of the property is in average condition. $45k purchase price.

Is the cost of a home warranty worth it, from a company like American Home Shield or Select Home Warranty? The average cost looks to be about $35-50 per month. Anyone with experience, good or bad, care to chime in? Thanks.

@Kellan Martz . I have tried a couple home warranties early on in my real estate investing career. Fast forward 25 years and I never once used them. About 10 years in I did a cost benefits analysis and found it did not make financial sense for me.

@Kellan Martz
The prices on those home warranty companies seem so cheap, it's almost a no-brainer to use them for repairs that may come up. EXCEPT:

a) It may take days to get someone to come take a look vs. using your own vendors who can come same day
b) Most property managers hate home warranty companies and won't work with them
c) Most importantly, you should check out google reviews and yelp reviews for these companies - these scammers try to avoid paying for any major repairs when you need something done

I'd skip them.

Had once with bad luck.  Tried to use them to fix something at a rental. They even denied fixing after paid fees just for diagnosis.  Will never buy them again. Search posts here and you will find that lots of experiences in rentals show they are a waste time and money. 

I see that you are an OOS investor, do you self manage? If you have a great tenant in place that will work with whoever the home warranty company sends out then it could prevent you from having to search for contractors. If you have a local property manager then I would let them do the work, you can self escrow the money and see how it works out over time and decide what you want to do on your next property.

In general I don't think that home warranties are worth the money, there are too many exceptions in the policies.  For example I have a friend that just had a plumbing leak and the home warranty company sent someone out to fix it, they did repair the plumbing but had to cut open walls/ceilings in the process.  They did not cover the drywall repairs or paint and he was still on the hook to find someone to make those repairs.

Originally posted by @Kellan Martz :

Just closed a few weeks ago on my first rental property. SFR in east Cleveland 44128. New roof on the home but most of the property is in average condition. $45k purchase price.

Is the cost of a home warranty worth it, from a company like American Home Shield or Select Home Warranty? The average cost looks to be about $35-50 per month. Anyone with experience, good or bad, care to chime in? Thanks.

 When you said East Cleveland, I was worried. I thought you purchased a property in the city of East Cleveland. It looks like you are just in the city of Cleveland on the Southeast side. I have heard good and bad things about warranties. I would research the provider. Good luck!

I bought one when we first started renting 11 years ago, I got it because the air conditioning unit was old at that point and we had been warned by a air conditioning guy that it was on it's last legs.

Here we are 11 years later still going and 0 call outs

$50 a month average, $60 per call out
So say $600 a year for 11 years, we could of put a brand new air con in there and be paid off by now.

Now I am typing this , it will probably die!

Originally posted by @Kellan Martz :

Just closed a few weeks ago on my first rental property. SFR in east Cleveland 44128. New roof on the home but most of the property is in average condition. $45k purchase price.

Is the cost of a home warranty worth it, from a company like American Home Shield or Select Home Warranty? The average cost looks to be about $35-50 per month. Anyone with experience, good or bad, care to chime in? Thanks.

 No.....Home Warranties are complete trash.

I agree with alot of the reviews from some of the other investors. I used them for years and I used two different companies and they are always trying to undercut you on a repair. For instance I had a dryer that went out and it the tech said it need to be replaced.. they authorized me $275 for a replacement. There is no where you can get a brand new dryer for $275 and I had to dispute for them to come up more. Plus when you have multiple properties and you look at the yearly cost it makes no financial sense to have them where you can pocket that money in your Capex account. Build a good team of contractors that can jump on to issues right away for you and you will be better off as it takes them forever to find a contractor and that is because alot of contractors dont like signing up with these warranty companies because they dont try to pay or they take long paying them out.

@Kellan Martz Hi, I have used American home Shield as well as Fidelity for my rental property in Oregon. It does make sense for out of state investors.

American Home Shield is pathetic and unprofessional. My experience with Fidelity has been really good.

Cheers

Suren