The short answer? No. Well, generally speaking, home warranties are not a good investment.
Home warranties sound like a can’t-miss option, though, right? (PS: The same applies to Timeshares, but we can discuss that at a later time.) Home warranty companies tout that their products provide peace of mind, big savings, and reduced maintenance costs. So should investors get a home warranty? In rare instances, yes, but usually, they’re not the best move for investors. Why?
Below we list a few things to consider:
Most home warranties will not replace items, but they rather just repair them. This generally means Band-Aid repairs and usually on the cheap.
Yes, they can deny your claim. If they determine you did not properly maintain the item in question, they will likely deny coverage. They also won’t cover pre-existing conditions, animal infestations, recalled items, etc.
Remember, as for-profit companies, if they can find a way to deny your claim, they will.
They Don’t Cover Everything
Rude! Some things fall outside their scope of coverage. You may have to pay out of pocket for certain repairs, which kind of defeats the purpose of a warranty, right?
In our experience, it can take up to a week at times to fulfill a claim. So, we don’t consider this an option when you have an emergency.
Quality of Vendors
Many investors don’t like losing control of the decision-making process. Home warranties make you stay within their network of vendors. Similar to an HMO plan, the list of approved vendors is limited––assuming you even get a choice at all.
Acts of God
Nope. Most home warranties won’t cover these. Heathens!
Premiums Are Paid in Advance
Expect to pay annual premiums in advance. If you end up not needing any repairs during that year, then it’s money not well spent.
Each trip out to the property will require a call-out fee, in addition to the annual premium. The fees can range from $50-$75, and sometimes upwards of $125, just to come over and say hello. The premium only gets your foot in the door. The repair itself will require a charge each and every time.
Wait Times on the Phone
We hate this part, possibly the most. Nobody wants to spend time on the phone “on hold” listening to crappy elevator music. But you can bank on hearing the whole awful playlist. Twice. Maybe thrice. As they say, time is money, and the guaranteed wait times waste both!
Maybe an afterthought, but when tenants have to wait for repairs, they can become quite irate. And rightly so! If this happens often enough, you may lose said tenants at the end of their lease. Instead of basking in cash-flow, you may find yourself paying new leasing fees and dealing with vacancies.
The long-short on home warranties? Buyer beware. We do not recommend them to our clients, but in a few, very specific instances, they may make sense. If you want to discuss home warranties further, or learn more about property management, reach out!
We’ll offer expert advice on your unique circumstances.
Jason Hamilton | Realtor
Business Development Manager