Should you keep your home warranty on your rental property?

Property Management, Property Manager

So, you have a home warranty, and you’re converting your home to a rental property.  Should you keep the home warranty?  I get it.  It’s peace of mind.    It’s a cheap service call fee, problem fixed, super easy.  If only it really were that easy.   

Home warranties can be great, but they’re more tailored to homes where the owner lives there.  Some buyers will purchase a home warranty, or negotiate it in the sales contract, for the first year they own a home to ensure that there are no major maintenance surprises.  But, it’s difficult having a home warranty in place for a rental.  Here’s a few reasons why.  

  1.  First off, they aren’t free.  You pay around $500-600 per year – depending on your plan, and then anywhere from $75-100 each service call.  Say you use them 2 times a year, for two years.  You’ve just spent roughly $1,500.
  2. Second, tenants get frustrated at the delay of the warranty company.  A typical contract will allow several business days to just schedule the appointment.  This means that if it’s a major system malfunction such as AC, furnace, or water heater, your tenants are living without for several days.  I had this happen on a rental a few years ago – the owners insisted on using their home warranty company, and their tenants were left without hot water for almost two weeks.  Guess what – the tenants didn’t renew their lease.   
  3.  It’s so much easier for the homeowner to be more patient with the home warranty.  For a tenant, they have nothing to gain by the landlord using a home warranty, so they get super frustrated when the repairs are delayed.  
  4. The home warranty company is going to do their best to repair, not replace.   Just because your 15 year old AC isn’t working, doesn’t mean the warranty company is going to automatically replace it.  They’re going to do what they can to avoid replacing the unit, even if that means lots of outages. 
  5. You have to read the fine print.  Many home warranty companies charge a premium for AC service, garage openers, refrigerators, stuff like that.  They also might deny a claim due to wear and tear, or because something was modified.  I just heard recently of a claim that was denied because someone painted the AC unit.  

In theory, yes home warranties sound great.  And for a homeowner who lives in their house, they’re definitely more beneficial.  For rentals, there’s just too many negative impacts that don’t make them worth it.  I hope this helps shed some light for you on home warranties in rental properties.