Getting a home warranty for your investment property has its advantages and disadvantages.
If you are planning on adding a new home warranty, there are many things that need considering. Let’s begin with, how old is the home and the mechanical systems (hot water heater, air conditioner, heater, etc.)? If the home is a new build, there isn’t as much risk for things to go bad in the first several years. Not to say that the newness of the house is a guarantee, but typically there are few, if any, major repairs on a new house for the first several years of ownership. If there are any major repairs in the first couple years, they are typically covered by the builder’s warranty. On the other hand, if it is an older house and one or more of the major mechanical systems is well beyond its design life, a home warranty may be a good move. That way, if the air conditioner does fail and you have the warranty, you just saved a bunch of money.
Another consideration is to look at what the home warranty does and does not cover. Although most of the home warranties have many commonalities, they also have many differences. Landlord needs to understand what coverage they are buying and shop for what best matches their needs. They can choose if they would like to have extras like the washer, dryer, pool equipment, etc. covered. It would be terrible if they didn’t find out the pool equipment was not covered until after it failed. You should pay attention to the service fees too, as they will vary based on the warranty company they select.
I suggest that the landlord ask the various home warranty companies that they are comparing what their policy is for selecting and vetting the contractors they work with. I also suggest they ask who some of their key vendors are, such as plumbing, air conditioning and heating. Then they can do a search on those specific contractors to see if they meet the landlord’s criteria.
It’s important for them to ask about how preventative maintenance is handled. It is not uncommon that home warranty companies will not do any preventative maintenance. Most companies only go to the call and handle what is reported and do not repair possible issues that could lead to additional work orders in the near future. Costing the owner another service call fee, not to mention a very upset tenant. The upset tenant could use that experience to decide not to renew their lease, which in turn could cost the landlord hundreds or thousands of dollars in vacancy as a result.
Landlords need to ask if the home warranty company can work with property management companies. Some home warranty companies will complete a service call and bill the property management company, or they will allow the landlord to keep a credit card on file with the home warranty company so that the owner is charged the service call fee when a request is placed. Other companies will require payment from the tenant upon arrival of the technician. This almost always causes problems, so I don’t recommend that landlords use these types of home warranty companies.
A couple more things you will need to understand to make a good decision…
Time is of the essence when it comes to repairs. This can become more important for a repair that involves habitability or an emergency. Once the landlord has a home warranty company, the dispatched vendor does not work for them, their property management company or the tenant, they work for the home warranty company. The interest of the landlord and those of the home warranty company may not always be in alignment. Landlords should discuss this concern with the various home warranty companies as they shop around.
Most landlords think that once they buy a home warranty, they will have no further maintenance costs for the property. But keep in mind, home warranty companies typically have many exclusions. So just because a home warranty is in place, that does not mean the landlord’s maintenance worries are over. They are still likely to need to come out of pocket for some maintenance expenses.
I think the last couple questions landlords need to ask themselves are, what is my risk tolerance, and am I disciplined enough to set aside the money for the eventual major repair that will be needed at the property. If the landlord feels like they need to have all the coverage possible, then adding a home warranty will help them do that. Also, if they are not willing to set aside $50 – $100 per month for the major repair that is coming, the home warranty might also help in that capacity.
The one thing I can tell all landlords with certainty is that although I don’t know what big ticket maintenance item will hit or when it will hit, I can guarantee that eventually it WILL happen. So, they need to be prepared for it in advance and weigh their options before it happens, so they are in the best possible position to deal with it.
Bottom Line
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