Should I Use a Home Warranty Company for My Rental?

A common question we receive from real estate investors is, “Should I use a home warranty company for my rental property?” They want to know if home warranty companies help to save money or time when it comes to maintenance and repairs. In this blog, we will cover a few reasons why you may choose to opt out of using a home warranty firm, as well as provide you with cost-savings alternatives.

  1. Home warranty firms are typically slow to respond.
    Tenants expect fast response times when maintenance is concerned. If your tenant contacts you with a repair and you turn it over to a home warranty company, the sense of urgency you would provide your tenant may get lost as the company searches for the cheapest vendor to dispatch to your property. This can quickly become problematic, eventually cutting into your bottom line.

  2. Home warranty companies use low skilled labor.
    To make a profit, home warranty firms seek out the cheapest possible vendors. This keeps their revenue flowing, however, finding top-of-the-line repair companies to work on your rental property isn’t high on their list of priorities. Not only does this mean you will have low skilled labor doing repairs in your property, but it opens you up to risk of the repair being done incorrectly or insufficiently, costing you more money when it comes time to fix again.

  3. Home warranty contracts have a lot of fine print.
    One thing we have seen time and time again with clients who have chosen to use a home warranty company is that when issues arise, they are unexpectedly not covered, or cost an additional premium. For example, they may not cover a furnace repair, pointing to the fine print that your tenant forgot to change the filter. Or they may tack on an extra service fee in addition to parts when working with an older, uncovered appliance. If you work with a home warranty company, be sure to know exactly what is covered before signing anything.

  4. Home warranty companies are not in the business of losing money.
    As with any business, home warranty firms have an established, profitable business model. They aren’t in business to lose money, and the bulk of that profit comes from charging real estate investors like you more than the cost of the service itself.

Having served and transacted in the real estate investment industry for 40 years, we struggle to find any real pros when it comes to using a home warranty company. Our advice instead is to put the money you would be paying in premiums to have a home warranty into a savings account. That way when maintenance items arise, you have a cash reserve to self-fund the repairs. This ends up being better for both you and your tenant, as you can deliver a faster, better, and more cost-effective service. 

As always, the Grace Property Management team is here to serve as a resource for you. Whether you have questions on home warranties, or anything else related to property management or investing in real estate, our team is here to help! 303-255-1990

As a Colorado real estate investor, is it worth it to buy a home warranty?

Our simple answer is no. It’s important to remember that a home warranty is not synonymous with an insurance policy. There are better alternatives to handling maintenance for your rental property.

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