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Should you use a home warranty for your investment property?


This is a topic that comes up from time to time on different forums and from what I can tell the consensus is no. However, I do think it’s worth considering under certain circumstances. But before I get into that below is a list of some pros and cons of using that type of service.

 

Pros

  • Easy to schedule and no need to look for repair company

The warranty company will assign a contractor to fix the issue. This is a great time saver if you have a busy schedule with your 9 to 5 job. In some cases, service request can be performed online. Which is great since you don’t need to sit on hold waiting for someone to pick up the phone.

  • Provides 3rd party verification of maintenance and expense tracking

From my experience the warranty company will keep records of the service and charges related to service request that can be accessed on a web portal. This can be beneficial for several reasons, for example if a tenant takes you to court and states that you have not made timely repairs you will have documentation from a 3rd party to show a court otherwise.

  • Potentially putting a cap on your repair expenses

One nice thing about a home warranty is that if something goes wrong and is covered under the warranty in theory there is a cap on how much you will pay for the repair. For example, if the tenant’s toilet is leaking at the base your repair cost would be fix at $75 (prices will vary per your warranty contract) verses $500.


Cons

  • Cost

Now this is where I believe most people say the service isn’t worth it. In general home warranties almost always cost more than finding your own handyman when including the monthly fee. Also depending on the properties condition and how well the tenant takes care of the property you may not have any service calls for a year or more. In that context a home warranty is very expense since most plans require you to pay a monthly fee of $25 or more.

  • May not cover full cost of replacing an item.

This is another one I see people take issue with online. For example, you sign up for a home warranty and everything is going well, then your furnace breaks, cannot be repaired and has to be replaced (this can definitely happen with a gas furnace). This usually plays out in one of three ways. First way is that the home warranty company pays for the full replacement cost. The second way is that the home warranty company doesn’t pay for the full replacement cost instead they provide you a check with for an amount that is stated in the contract. The third way is that the home warranty company doesn’t pay at all.

 

So back to the original question “Should you use a home warranty for your investment property”.


Well, it depends, if you are using a property manager then in my opinion, I would say no. Your property manager should manage all repairs at your property. This should include finding the repair company, scheduling the time of the repair, and tracking the expense of the repair. Also, a lot of property managers will ask you to keep a repair balance with them (usually around $250) so that in the event a repair is needed they already have $250 to put towards the issue. And in the event that you should go over $250 they will apply the tenants rent payment towards the balance. Another reason why I wouldn’t recommend using a home warranty company is if you already have a reliable repair company. In that case there is no point since you already have what the home warranty service provides.


Why should you consider using a home warranty company?


If your new to real estate investing and are managing your own property you should consider using this type of service. Not only will it give you access to repair companies, from my experience your request will be treated as a priority. Some home warranties request feedback about the repair company after the repair has been completed. I would imagine that if a company gets a certain number of negative reviews they will be cut off and that could seriously hurt their business. In general, when requesting service, you will work directly with the repair company to address an issue. This is a good method to build a list of repair companies that have already been vetted by the home warranty company. Once you have enough repair companies on your list you may want to consider canceling the home warranty and contacting the repair companies directly when there is an issue in the future. With that said I have noticed that I receive service much faster when a request comes from a home warranty company versus when I call the same company directly.

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