When you purchase a home, you’ll often get recommendations to invest in a home warranty. They can save you money on costly repairs, as well as time searching for a service provider.
Some property managers also recommend purchasing a home warranty for your rental properties as an added convenience and protection when covered systems and items break.
However, there are several drawbacks to using a home warranty with a rental property. Here’s why we DON’T recommend home warranties for the rental properties we manage.
1. They can be expensive.
Depending on the age of your home, as well as the age of the systems and appliances covered by the warranty, you may end up paying much more in premiums than you would the cost to make repairs. Like any other warranty or insurance policy, you’re paying for “peace of mind”, but if a warranty costs between $400 and $700 per year (depending on what’s covered) that cost could add up with little to no return. Especially if most of the systems and appliances in the property are newer or necessary repairs don’t end up being covered.
2. Repairs aren’t always timely or convenient for tenants.
Home warranties work well if you are a homeowner and you can wait three days for a service provider to show up to look at your broken AC during a heatwave or your heating system during a cold snap. Because the homeowner is generally only paying the dispatch fee, it seems worth the wait. However, when we are providing a service to tenants who are paying to live there, a delay in repairs can create dissatisfaction. Tenants don’t really care why there is a delay; they want repairs done quickly.
3. More costly repairs aren’t likely to be covered.
Most home warranty companies have very low limits for how much they’ll pay for replacement or repair of covered items and systems. These limits can be as low as $500, and when you’re looking at repairs to a major system like HVAC or plumbing, you may be out of luck.
In addition, even if a policy covers a system, it won’t likely cover damage caused by a problem with that system. For example, if the pipes under your kitchen sink leaked, causing damage to the cabinetry and floor, the plumbing repair or replacement would be covered, but the cost to repair or replace the damaged cabinets and flooring would not.
4. They cause more work for Property Managers.
Home warranty companies generally partner with local companies who do not get paid much for their services. This sometimes leads to lower quality work that’s not very reliable. Which also means the Property Manager ends up spending a lot of time on the phone with home warranty companies to get things dispatched or to resolve customer service issues that inevitably crop up.
In addition, the vendors almost exclusively demand payment on site when they arrive. In this case, the Property Manager either has to take a check to the property or the tenant has to pay the vendor and get reimbursed–both of which can be time consuming and inconvenient for both the PM and the tenant.
Renting out a home is a business and tenants see delays and inferior service as an insult. While the owner may save some money by using a home warranty (although this is debatable), they could potentially do damage on the service and reputation front. And of course, that blame will likely fall to the PM rather than the owner or the home warranty company.
What Works Better
Rather than invest money into home warranties, a good property management company will have established relationships with vendors they know and trust as professionals. This means they will have more control over who they contract with for repairs.
For example, the property management company will know if the vendors are reliable, if they have the proper licenses and insurance and if they treat the tenants in a professional manner. And if not, the PM company can choose new vendors. With a home warranty company, that’s rarely an option as you are stuck with the vendors they chose to work with.
Ultimately, a PM company with a wide range of dedicated and quality service providers can provide faster and higher quality service than vendors chosen by a national home warranty company not located in that locale.
If you’re considering purchasing a home warranty for your rental property and you presently have a property manager, think twice. It’s rarely worth the risk of providing a lower level of service to your tenants and likely not worth the extra money either.