Is Buying a Home Warranty Worth It for a Rental?

The answer is yes if you pick the right home warranty company and if you don’t have a property manager. I have managed hundreds of properties and I have personal experience with all the major home warranties so I know a thing or two about how they work.

What is normally covered under a Home Warranty?

Home Warranty companies have different plans that cover some or most major home system components and appliances. Some even cover septic, pool pumps, and roof repairs.

When buying a Home Warranty doesn’t make sense

• Your property is brand new or you just did a major rehab and everything is new. Most appliances and the HVAC have their own warranties.
• You have a property manager. Most PMs charge higher fees if you have a Home Warranty because it’s a hustle to schedule the repairs and there is a higher chance that the tenant will complain online if the repairs are not done on time.

When you should get a Home Warranty

• When you are managing the property yourself.
• When all of your appliances and systems are older and will need replacement soon.
• When you don’t have the reserves to make major repairs.

Things you should know before buying a Home Warranty

• If something breaks but can still be repaired, the warranty will repair it and not replace it. I had one AC that was making a horrible noise but the home warranty kept fixing it and not replacing it. The service calls can add up. 
• The home warranty requires regular maintenance and cleaning on HVACs or they will not pay for a replacement.
• The warranty company may not cover the entire repair or replacement, read the fine print. Anything outside the house may not be covered, like a sump pump.
• You can’t choose the technician repairing your appliances or HVAC.
• Replacement for AC can take a long time, make sure you have a portable AC to give to tenants.
• A home warranty will not cover weather-related damage, for example flood damage.

So, why buy a Home Warranty if you are a landlord?

If you are a landlord without a property manager, get the most comprehensive coverage with the least deductible and give the service request telephone number to the tenant. They can call directly for repairs. American Home Shield even introduced a Pro Connect service for any repairs that are not covered under the warranty.

Include a clause in your lease that the tenant will be responsible for the service call changes. You get a free repair dispatch service and low or no repair bills.

In order for this to work, you need to schedule regular maintenance for your HVAC and preventative maintenance of the property.

The two Home Warranty companies I can recommend

I have good experience with only two Home Warranty companies: American Home Shield and Choice Home Warranty. 

Both companies have a reasonable response time and they have not refused any repairs. My frustration has been that they repair rather than replace appliances.

If you decide to buy Home Warranty for your rental, make sure you read the fine print and are clear on what’s covered and what’s not.

Pick the lowest service fee and the most coverage available and make the service fee responsibility of the tenant. Make the maintenance request as pain-free as possible.