Is a home warranty on a rental property rehab worth it?

[Jeffrey Naeger]

Asked about a home warranty for my first rehab and rental. Is this worth it? Was given an estimate of $500/year but sounds like a waste of $$.

[Joel Allen]

@Jeffrey Naeger

In my experience, it's not worth it.  I had home warranties on two of my rental properties for two years but after running the numbers it didn't make sense to keep the home warranty.  It cost approx. $50/month per home (plus a $75 service fee each time they sent a contractor to the home).  My observations were:

1.  Read the fine print! There were a LOT of loopholes built into the contract of what the home warranty wouldn't cover.  Many home warranties require you to pay for upgraded coverage for items such as refrigerators and garage doors.  There are also annual coverage limits that cap the amount of repairs the warranty will cover on each system.

2.  The contractors that were utilized by the home warranty companies were (in general) not high-quality.  The home warranty company wants to repair the issue at the lowest cost, so they choose contractors they can get at the lowest price.  When they sent contractors to the homes, I'd look them up on Google Reviews, Yelp, etc and most times they were about 2 out of 5 stars.

3.  The turnaround times of the repairs were slow.  It often took several days for the home warranty company to get a contractor out to the home, even if the repair was for a critical system (e.g. HVAC stopped working in Maryland in January).

Bottom Line: Instead of paying for the home warranty, I'd rather set aside the $50 per month as part of my monthly repair/CapEx. I can coordinate higher-quality contractors and do it more quickly than the home warranty company does....and after totaling all the costs, I can do it for cheaper.