Home Warranties on Rental Properties: Yes or No?
September 14, 2018
At Austin Fleck Property Management of Gilbert AZ, we’re asked a multitude of questions concerning insurance on rental home properties. We’ve written about Landlord and Tenant insurances in the past, so click on the links if you’d like to know more about these insurances. But there is another insurance that many rental home property owners ask about, and that is: home warranty insurance.
Home Warranty insurance is a type of insurance that guarantees major home systems such as HVAC, plumbing, and electrical systems. You can add items like water heaters and large appliances for additional fees. Unlike homeowners insurance that covers damage to the home due to catastrophes, home warranties cover the cost of repairs due to normal wear and tear. As part of a home warranty, when a covered item breaks, the warranty company should repair or replace the item for a $75.00-$125.00 service fee.
A Good Deal?
Home warranty providers sell their product on the basis of giving you peace of mind. The concept is that if something goes wrong, as a homeowner you’ve got it covered. As part of their agreement with you, the home warranty provider agrees to take care of locating and scheduling contractors, which may seem like a good deal for busy people who don’t have the time or skill to fix a broken furnace or faulty plumbing.
The cost for a home warranty policy varies from company to company and depends on what is included in the package. You can buy a basic package that covers only heating and plumbing; a premium package including everything and the kitchen sink; or anything in between. You can expect to pay a yearly fee of $350-$600 for a basic policy. Additional items added to the policy can cost as much as $600 extra, which could mean paying as much as $1,200.00 per year. Added to the cost of your insurance premium is the per-call service fee mentioned previously. Is it worth it? Some experts don’t think so. They feel it’s better to put your money into a home repair fund, and we agree.
A Better Deal!
For one thing, when something goes wrong, a home warranty company generally has a list of vendors they call. Those vendors are not vetted, and they may or may not be available. We’ve already experienced anywhere from a four-day wait to a two-week wait on the arrival of a vendor! Second, we’ve had home warranty repair crews who replace or repair an item that isn’t covered under the home warranty, and they’ve charged up to four times more for the uninsured item. Third, a home warranty vendor could repair the item and refuse to fix a related problem at the home because it wasn’t on their repair order, making life difficult for the tenant and leaving a mess behind for someone else to clean up. And lastly, a vendor who isn’t familiar with laws could easily violate the tenants’ rights and cause the owner to be liable.
As part of our property management service to you, Austin Fleck Property Management takes care of any repair problems that come up. We will never send a vendor we don’t know. Our vendors have been trained in the Landlord and Tenant Act and will not violate the tenants’ rights—and that protects the owner from liability. We know the excellent quality of work our vendors provide; we know they will do a job well and they’ll report to us when the job is finished. And we invoice the owner for the exact cost of the repair: we add no upcharges or service fees.
Let’s say the air conditioning goes out in one of the homes we manage. We’ll have our repair technician there within one day. But with a home warranty company, if there is a delay in a technician’s arrival, it could mean paying additional expense to provide temporary housing for the tenants, and/or a refund of housing costs to the tenant for those days. With a home warranty, you are really flying blind.
The Best Deal
We would never purchase a home warranty for our own rental homes, and neither should you. Rather than buying home warranty insurance for your rental home property, we recommend setting aside a monthly amount for repairs in an interest-bearing account. And if, in a year or two, something breaks down, you’ll have the finances on hand to pay for a vetted, quality repair technician who won’t charge exorbitant fees or do shoddy work.
Austin Fleck Property Management has over 30 years of experience in handling every aspect of rental home ownership. In every area of rental home property management—from marketing to tenant screening, to maintenance and rent collection—let our expertise work for you. We don’t take shortcuts, and we don’t have hidden fees. Our job is to make sure your investment is protected and your profits are maximized. It’s really the best deal going!