Most landlords purchase insurance to protect against property damage caused by weather, water, fire, and theft. Should landlords also purchase a home warranty policy?

Home warranties typically cover service visits and repairs for electrical, plumbing, and HVAC, and may cover major laundry and kitchen appliances as well.  The items covered, service fees, and exclusions vary quite a bit though, so it’s important to carefully review those items before purchasing a policy.  Below are several items to consider when deciding whether a home warranty is right for you.

Pros

Predetermined Service Fees: Service fees usually range between $75 to $100.  This relatively small fee can help limit large, surprise repair expenses.

Easier to Budget:  It’s often hard for landlords to plan for large, unexpected repairs.  With a home warranty policy, you can budget for the annual cost of the policy and a reasonable number of service calls over course of the year.

Savings: The repair or replacement cost of HVAC systems or major appliances can be far greater than the cost of your policy plus the service fees.

Tax Deductible: The cost of your policy and expenses are tax-deductible.

Sounds great, right?  But, let’s consider the other side of the equation.

Cons

Limited Coverage: Home warranty policies can have major coverage gaps. For example, an HVAC compressor repair may be covered, but the cost of the freon/ refrigerant may not be.  This exclusion can add hundreds of dollars to your expense, even though the HVAC is technically “covered”.

Other common limits include exclusions for systems being “past their useful life”, or for “failure to properly maintain” a system.  Exclusions like these can mean that you may have no coverage at all for major systems that you thought were included.

Cheap Repairs:  Home warranty providers often prefer short-term or “band aid” repairs instead of dealing with the root cause – especially when an appliance needs to be replaced rather than repaired. Meanwhile, as the landlord, you will continue to pay service fees every time the same device requires repairs.

Vendor Selection:  The warranty provider retains the right to choose which vendor to hire for repairs. In many cases, they use vendors that will work for the lowest cost and may not deliver the level of quality and service you expect. Furthermore, they may place unreasonable limits on replacement costs.

Additional Fees:  If a major item, such as HVAC or water heater is covered, then the replacement cost may be included, but there may be extra fees for haul-off or refrigerant removal.  These expenses, along with the cost of the policy premium and service fee may actually exceed the cost of having the repair done without a home warranty.

Repair Delays:  Surveys consistently show that the number one deciding factor in whether a tenant opts to renew the lease is if they had a positive experience with handling a maintenance request. At times, repairs through a home warranty may take longer though, which can cause dissatisfaction for tenants.

While the warranty might have saved you some cost, any savings goes out the window if the tenant decides to not renew as a result of a delayed repair.

Overall Costs:  If you don’t have major repairs during the term of coverage, then any expenses for the cost of the policy are lost.  If this happens over the course of several years, then the cost can be significant.

So, what do you do?

If you’re uncomfortable with the idea of unexpected repair expenses, then a home warranty policy may make sense.  Just be sure to review the various companies available and choose the one that best fits your needs.

However, if you’re ok with handling the occasional large expenses that may arise, then it may be best to not purchase a home warranty policy.  You can save what you would have spent on annual policy premiums and then apply those funds to repairs as needed.  This allows you the flexibility to choose the vendor and scope of repair as well.  If you don’t have any large repairs over the course of the year, then the funds saved are yours to keep in reserve for the future.

About Rentals America

Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management and we’re here to help landlords navigate the rental market.