Home Warranties & Your Rental: Friend or Foe?

Please note that this post is an excerpt of the webinar hosted by our sister company, The Landlord Code, where our co-founders coach DIY landlords how to avoid problem tenants and maximize rental profitability. Get access to more training like this in our (free!) private Facebook group HERE.

We are covering one of the top questions that we hear from landlords. When they come into our company, especially landlords who have just purchased a new property, they ask us about home warranty is a home warranty, a smart investment for my rental property. Should I spend the money to save the money down the line? We know what our answer is. We know our fellow property management company owners answers. And today we are sharing that answer with you.

So we get this only when people buy a house, but also what they’re going to rent their house for the first time they try to save a buck, right?

Number one, the challenges that we typically run into with home warranties and the upside and secret savings by not, you know, just circumventing the home warranty practice altogether and going directly to the you’re the pros in your neighborhood. So let’s just talk number one about why it might be a good idea. So if you are buying a home and it’s going to become an investment property for you on the front end and the appliances we’re talking, water heater, furnace, dishwasher range, those things that typically cost over $500 to over a thousand dollars are ancient and on the brink of failure. And that might be why you got a great deal on this place. Then a home warranty might be a good decision for you to keep in place. However, you usually get this home warranty. It’s usually a 12 month deal.

When you purchase the property, typically it’s paid by the seller, who’s selling you the property. My recommendation is if those things haven’t failed in that first year of that home warranty, then don’t renew it. Then we get into why. When we have a home warranty, we believe a home warranty might be a good idea for your rental.

The other case is no matter what the condition of your home, if you’ve just purchased it and it comes with the home warranty, okay, fine. You’re not going to get rid of it, but you will possibly run into problems finding a property manager because many property management companies flat out will not take a home warranty. We do allow them with some exceptions in our brick and mortar business Foundation Homes, property management in Marin county. And we’ll get into why property management companies despise home warranty. Yeah, there are strings attached. There are some sauces, lots of strings attached, but if you’re a DIY landlord, you’re doing you’re out there on your own. We’re going to kind of dispel some of the, the, the, the things that people talk about with home warranty.

Some of the upsides, some of the downsides right now. So the challenges that we regularly run into, with our brick and mortar business Foundation Homes property management, is that the vendors that these home warranty people or the home warranty companies use are unreliable. And often then not, they’re sourced from outside of your local area. So you might be living in one place, but they might be finding somebody that could be 50 to 100 miles outside of your area, which is going to put stress on the timing of making that repair. So if you have a dishwasher or a range that is failed and your tenants in place, you’re going to be calling a vendor to come out there and there’s going to take them awhile.

You’re going to deal with traffic in the timeframe that they’re going to give you is likely not going to be realistic. Let me ask you a question, “who likes waiting in line at the DMV?” These are the types of things that you, a DIY landlord, will be dealing with when you decide to try to make use of this warranty.

I’ve got American express card. And when I call American Express customer service, Johnny is all there for me. The other thing is like the time commitment associated with, and this is a good segue time commitment associated with facilitating and coordinating these repairs. Now, if you’ve ever waited for a cable company to come to your house to fix something, usually get like a timeframe between, “Hey, we’ll be there between 12 and 2.”  So let’s think about it. If it’s your own home and you live there, you roll your eyes. Let’s say you’re a landlord and you’ve got tenants now, how are those tenants going to react to, “oh, you’ve got to be there between 8:00 AM to 6:00 PM.” Guess what? They might be working. They might not be able to do that. So then you as a landlord, are you going to go have to be there? Or if you’ve got your property manager, does that mean your property manager has to go sit at the property all day? What happens when this out-of-area vendor is now late because of the traffic or doesn’t show up or gets lost? In the property management industry, when a tenant submits a complaint, you start a work order, right? And then the whole process that it takes to take that work order from start to finish. That whole process is 80 minutes on average. So you as a DIY landlord, self managing, think about that. That’s just your average. My sink is dripping, or my toilet is running. That’s an average work order. 80 minutes. When you use a home warranty, that process is doubled tripled quadrupled because of the things that we’ve mentioned, the amount of time you will spend on the phone, trying to get a representative, the amount of time you will spend trying to wait for that repair person to show up or not repair person.

And that brings us to point number three, The tenant complaints, the tenant complaints. If you’re a tenant is waiting for a vendor all day and they might have a family and screaming kids in the background, or they might have an important meeting that they’re not getting to or an important date. And they’re waiting for this vendor to show up, to fix this one thing that they need to have fixed because of the home warranty. And they don’t show up or they’re super late get and or worst case, they show up and they late and they fix it. They fix it and it breaks again. More commonly even than that is that because these are generally subpar contractors who are getting sent out, they come to the property eventually after you eventually get them on the phone, and you eventually get it scheduled between the vendor and the tenant. They eventually make the appointment and they can’t fix the issue. So now you have a tenant on your hand, who’s already been waiting a longer than normal amount of time to just get this repair person, get it scheduled and get them here. And now the issue can’t be fixed. And now you, as the landlord or the property management company go to a fun little place, we like to call “Never, never land” where you are in the loop.

So basically now you’re dealing with, you’re dealing with a tenant. That’s upset. They waste their time. The thing that they really needed to get fixed is not fixed. And now you’re dealing with that and you have to go back to square one to call the home warranty. Recently, this was in, I believe one of our Tiburon properties and the washer/dryer broke covered by home warranty. They got in the loop, do the whole thing, go to never, never land, and it stretched on weeks and weeks and weeks and weeks, in to months. And these are tenants paying a fair market rent in our area. It’s about an average rent, about $5- or $6,000. That’s again, our area. They were good tenants, but how long is the person expected to go without a washer/dryer? So then you get into this issue of what does your lease contract say? What’s the owner’s obligation to provide a working washer dryer week, right? Maybe two weeks, but as it starts to stretch out into months and months, then we get into the scenario where the owner has to provide a rental appliance of sort. That ends up costing you money.

So the upside and secret savings of just circumventing your home warranty program altogether is number one, you get to use Intel vendors that know your area. They’re going to show up on time and you can get ahold of them. If something goes wrong. The second thing is the amount of time you’re going to save yourself and the stress and the energy and all that stuff, because it’s going to be one call. They’re going to show up. They’re going to fix the problem. It’s going to be nice. And it’s done, no more phone tree, no more “never, never land”, and no more loop. None of that. It’s going to be done right, the first time. And number three, this experience is just going to be so much easier. You’re going to have peace of mind. Your tenants are going to know who’s going into their property and they’re going to get the job done right, and on schedule.  You’re going to have happy tenants and it’s going to save you money.

It will always save you money. Case in point, we used to triage these home warranty things back in the day, early on in our property management business, and it ended when I realized that our team was spending hours waiting for vendors. Now, what we always recommend is, “Hey, let’s send our vendors out there and let them look at the actual device the appliance and see if they can fix. If they can’t, let’s get you a new one.” Now you have a different warranty program. A home warranty is different than like a new remodel warranty or contractor’s warranty.

The contractor’s warranty is a circumstance when you have a remodel to your house or built a new house. Generally the contractors legally have to give you a one-year warranty from the work from the time that work ends to the end, to the next year to fix anything that might come up.

So definitely if something fails in your house like electrical or a hot water heater or something that they installed, call your contractor, they’ll come back and fix it. Those people are very real. And we’re also not talking about warranties that come when you purchase a new appliance. So for example, we have a Bosch dishwasher in our house that we purchased from a appliance company, who we have a relationship with through our buying power of our property management company here. But we had, unbeknownst to us, a piece of glass, and it failed last week where it wasn’t draining properly. So I called them up and I’m like, “am I still under warranty?” And they said, “no, actually you’re no longer under manufacturer warranty, but you are under a service warranty for another two and a half years. Let’s send my team out there.” The guy opened it up. We saw there was an issue, fixed it, and it doesn’t cost me anything. Plus, it was done in like 15 minutes. That’s a great example of why it might be helpful in a way that actually DIY landlords or if you’re considering dipping into property management and hiring a property manager, that’s an example of one way a property management company can actually help save you money because companies like ours have relationships with vendors. And we would be able to say, “no, don’t buy this appliance from such and such company, buy it from our guys because you’re going to get this extended warranty.” So that is all very different than the home warranty. So we just wanted to make that clarification that what we’re talking about here is the home warranty. My recommendation is don’t go out there and purchase your own, utilize if you have one after you purchase a property.