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Deciding Whether to Purchase a Home Warranty for your Rental Property

Michele - Saturday, September 24, 2011
Property Management Blog

When you purchase a home as a re-sale, you have the option of putting a home warranty in-place to cover unexpected expenses due to failures in appliances or systems in the home. When you transition your home from your primary residence to a rental property, you again have this option available. We are currently managing approximately 100 properties with over 1/3 of the landlords having opted to put a home warranty in place. So, we have had a great deal of experience interacting with the warranty companies. 

There are pros and cons to having a warranty but I believe the decision should be based on how the landlord is most comfortable budgeting for maintenance expenses. There are 3 major home warranty companies (American Home Shield, 2-10 Home Warranty, and Old Republic) as well as several smaller ones. Each warranty policy costs between $350 and $500 per year depending on the chosen coverage and deductible. Assuming that an average home may have 2 maintenance claims per year, the average annual cost to the owner with a home warranty would be $600, which would include the cost of the policy and the 2 deductibles. If the home is relatively new and appliances and systems have been well maintained, it may be likely that several years would pass without needing to initiate a warranty claim at all. Those owners may prefer to forego the warranty policy and instead put $600 per year into a maintenance savings funds so that they have the funds available when an appliance or system repair is needed. 

The main benefit of having the home warranty in place is that it protects landlords from major repair expenditures. Repairs to older HVAC systems can cost thousands of dollars, so for older homes where the HVAC system is near the end of the life cycle, the warranty plans often provide great value. Note that the systems and appliances must be properly maintained or the warranty can easily be voided. 

The downside of the home warranty is that it can sometimes take several days to have a vendor assigned and an appointment for repair set. This level of responsiveness can be frustrating to the tenants. Also, there are often items that are not covered (removal of old equipment, requirements to bring systems up to current code at the time of the repair) that catch owners by surprise. 

Some local Property Managers have chosen not to work with warranty companies because of the limited ability to react quickly to urgent situations. At RPM Direct, we will support the owner’s decision to carry a home warranty, we just want to make sure they understand the pros and cons before making a decision. Please feel free to ask if you have any specific questions!