Why You Shouldn't Use Home Warranties on Your Rental Properties
Home Warranty Isn't the Safety Net You May Believe
Home warranties have become increasingly popular in recent years, promising peace of mind for homeowners and landlords alike. These service contracts claim to cover the repair or replacement of major appliances and systems in a property, offering a sense of security against unexpected expenses. While home warranties may seem like an attractive option for landlords, there are several reasons why they should be approached with caution or, in our belief, avoided altogether.
The Promise of Home Warranties
Home warranties are marketed as a safeguard against costly repairs and replacements, making them appealing to landlords who want to minimize their maintenance expenses, especially the costly expenses that can arise with appliances. Typically, a landlord pays an annual or monthly premium to a home warranty company, which then promises to cover the repair or replacement costs of specific items, such as HVAC systems, plumbing, electrical systems, and major appliances, when they break down due to normal wear and tear.
Drawbacks of Home Warranties for Landlords
Limited Coverage:
Home warranties often come with a laundry list of exclusions and limitations that landlords may not be fully aware of when signing up. Common exclusions include pre-existing conditions, improper maintenance, and certain parts of covered systems or appliances. This limited coverage can lead to disputes with the warranty provider, leaving landlords with unexpected out-of-pocket expenses.
Service Call Fees:
When landlords request service under a home warranty, they typically have to pay a service call fee, which can range from $50 to $125 or more per visit. This fee adds up quickly, especially if multiple service calls are needed in a short period, removing any potential cost savings.
Delayed Repairs:
Landlords often find that the repair or replacement process through a home warranty company is slow and inefficient. They may need to wait for extended periods before technicians are dispatched to their property, causing inconvenience to tenants and potentially affecting their satisfaction.
Subpar Service:
Home warranty companies have a reputation for working with contracted service providers who may not always deliver the highest quality of service. Landlords may find themselves at the mercy of these contractors, who may prioritize cost-cutting over providing a lasting solution to the problem.
Lack of Control:
Landlords who rely on home warranties for maintenance and repairs may lose control over the choice of contractors and the quality of work performed. This can be particularly problematic if the landlord has a preferred vendor or wants to ensure repairs are done to a certain standard.
Cost vs. Benefit:
When you consider the annual premium, service call fees, and potential out-of-pocket expenses, the cost of a home warranty can quickly exceed the actual value of the repairs or replacements covered. Landlords may find that setting aside a maintenance fund or carefully vetting contractors is a more cost-effective approach.
All of these outlined drawbacks are exacerbated when landlords and homeowners contract with property management companies. The additional communication required can result in horrible experiences for tenants, homeowners, and property managers alike. While home warranties may initially seem like a prudent investment for landlords, the drawbacks and limitations associated with these service contracts often outweigh the benefits. Landlords are better off exploring alternative strategies for managing maintenance and repair costs, such as setting aside a dedicated maintenance fund or establishing relationships with reputable contractors.
