Property Management Education

Should I Use a Home Warranty Company for My Rental?

Key Points:

  • Home warranty firms typically are slow to respond and use low-skilled labor.
  • Home warranty contracts have a lot of fine print.
  • We advise that the money you would be paying for a home warranty is better placed in a savings account.

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. Here are four reasons why:

  1. Home warranty firms are typically slow to respond: Tenants expect fast response times for maintenance. If your tenant contacts you for 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.

  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, 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: Often, home warranty companies will find fine print in their contracts to justify why fixes are not covered. For example, they may not cover a furnace repair because 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.

  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. This way, when maintenance items arise, you have a cash reserve to self-fund the repairs. This allows you to deliver a faster, better, and more cost-effective service. Click Here to learn more about how to budget for repairs!

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

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