Wondering if you should purchase a home warranty for rental property? We say save your money… In our years working in property management, this question “should I purchase a home warranty for my rental property” continues to be a highly queried question. We first began writing on this topic about five years ago. I will tell you, as an owner of multiple rental properties, I used to think having a home warranty for rental property was a great idea. Managing over 400 properties for Northern Virginia landlords, though, has taught me a different lesson. Keep that cash in your pocket–here’s why that “good idea” is a waste of time and money. (And potentially even bad for your home.)
I had a rental property warranty on each of the 14 rental units I owned–and I even had one on my personal residence. You pay a reasonable annual fee and a nominal deductible for each repair, and the warranty company pays for everything else!
Who wouldn’t find such an arrangement attractive? It seemed a matter of sheer common sense.
Yes, I thought this was a great idea – until things began breaking. Then, the red flags started waving like mad. And the frustrations, difficulty with contractors, and wasted hours started accumulating.
Red flag #1: Rental Warranties Give You No Choice
One of the advantages of running a property management company is that our years of serving landlords have led us to assemble a great crew of licensed contractors, across all specialty areas. WJD has had a long and comfortable history with vendors who specialize in everything from HVAC to plumbing. However, in going through the home warranty for the rental property, we were not allowed to use any of our WJD contractors. The home warranty company assigned the vendor depending on what the issue was.
Well, you may be thinking, how bad could that be? Either way, you get a well regarded local specialist out to the property to fix the problem, right? Well, not exactly….which leads me to the next red flag.
Red Flag #2: Who Are Those Home Warranty Contractors Anyway?
I have been in the property management business (a/k/a fixing stuff in homes) for a long time, so I know most of the residential contractor specialists in my area. At least, I know the ones I have come to have a high regard for–and the ones my clients have worked with already or my colleagues recommend. And, surprisingly enough, had never heard of any of the vendors they assigned to address any of the problems in our properties.
While it may be that some perfectly good contractors end up on the list of home warranty preferred vendors, my guess is, the warranty companies tend to just go for the low bidders. Which doesn’t necessarily bode well for the average landlord looking for expert help.
Nor does it bode well for getting repairs done in a timely manner.
Red flag #3: Slow, C.O.D. Service Puts Your Property at Risk
This next red flag began waving furiously when I was told the rental warranty contractors have up to 48 hours to respond to a problem. What? What about water emergencies?
Well, as I found out in one extreme instance of water leaking all over a beautiful hardwood floor in a rental property, water emergencies have the same response timeframe as anything else.
But wait, it gets worse.I was told by the home warranty company that their contractors would not begin the repair until after they had been paid the deductible.
Yikes. So now we are dependent upon a tenant paying the deductible at the time of service. What if the tenant doesn’t happen to have that money available? Or doesn’t want to pay out of pocket? (Even when a lease requires them to pay it, that doesn’t mean they always will.) You got it. The water (or other emergency you were trying to get fast service for) just sits…and waits until someone shows up with the payment.
Occasionally our tenants were unable to pay the deductible (as required by their lease) which meant the WJD staff had to scramble to somehow get payment to the vendor.
Fortunately, in the incident of the water on the hardwood floor, the contractor accepted our company credit card and the leak was repaired before irreparable damage had been done. But not all contractors accept credit cards over the phone. And not all will go to the trouble of contacting you if they fail to collect the deductible from the tenant.
Red Flag #4: They Fail to Contact the Tenant!
A fourth red flag came to light the first time I experienced a complete communication breakdown. Even though it should be obvious that a home warranty for rental property means dealing with tenants, neither the warranty company nor the assigned vendor contacted the tenant for access to the property.
Instead, they kept calling the WJD office to schedule the service—even though they had been given the tenant’s name and telephone number. In the midst of all of these communication failures, the repair got delayed even further.
We later determined that because the warranties were all in the name of WJD Management, everyone concerned thought they needed to speak with a property manager in order to get into the property. Our takeaway? Having a home warranty on many rental properties did not give us extra clout or better service. Whether you’re an individual landlord or a large property management company, you have to wait. First you wait 48 hours for the contractor. Then, perhaps, you wait (and stress) over the deductible payment snag. Then, after all of that, you get to wait while they call everyone but the tenant for access.
In the meantime, the needed repair waits, your tenants are inconvenienced, and you (possibly) wind up with more damage.
Red flag #5: Racking Up Those Deductibles
We saw this red flag pop up when one of the home warranty vendors had to make repeated trips to a property to deal with a heating issue, each time collecting the deductible. The tenant was becoming very agitated with this cost and the fact that his heat kept failing in the middle of the night. I was becoming equally agitated with the fact that the home warranty’s policy was clearly to continue to apply cheap band-aid “solutions” rather than to replace the appliance, which was obviously at the end of its useful life.
The furnace was eventually replaced, but not before I had to place a number of irate calls to the vendor and the home warranty company. In all fairness, I can’t lay the blame for that situation entirely on the warranty company. But the problem certainly related to the quality of the contractors they chose to affiliate with.
As time progressed, I came to realize that the home warranty simply used substandard contractors. No matter what specialty area I needed service in, that was the case.
Lesson learned, you get what you pay for.
Red Flag #6 (The Final Straw)
The sixth giant red flag came when a fluorescent light in the ceiling of my personal residence stopped working. The vendor assigned by the home warranty company arrived two days after I placed the service call. After pulling the light apart, he told me that it couldn’t be repaired.
I said, “Okay, then go ahead and replace it.”
His reply? The contract I’d purchased did not cover replacement of electrical fixtures, only their repair.
Apparently, this was some contractual fine print that I had overlooked. The next morning I called the home warranty company and cancelled all 15 of our contracts. These were annual contracts which I had only recently renewed, but I was told they would not rebate any of the cost.
By that time, nothing about the worthlessness of owning a home warranty surprised me. The sea of waving red flags had convinced me. I accepted the loss of my premiums and said good riddance to bad warranties.
Are you a Northern Virginia landlord looking for an effective way to manage risk for your home or investment properties?
A more cost-effective and convenient solution than taking out a home warranty is to work with a property management firm like WJD that specializes in residential management. Landlords who work with WJD Management get the benefit of our long relationships with top local contractors in in Arlington, Alexandria, and Fairfax Counties–and throughout the Northern Virginia region. We keep eyes on your house, doing our best to catch problems before they become emergencies.
And you’ll never have to wait 48 hours for a response, play phone tag with a vendor, or rely on a tenant to pay the bill!
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