Do you all account for Home Warranty?

Question

Hi, I have 2 investment properties in Atlanta, GA and both of them are turnkey which are built around 2019 and 2021.

While calculating monthly cashflow, do you all spend some amount on the Home Warranty? Since I'm based out of Austin, TX and this is a long distance out-of-state investment, I recently took a Home Warranty for both of my properties at $80/each.

Though I can write it off in taxes, is it still worth it? What do you all suggest?

1. Keep the Home Warranty in place and use it when some appliance or garage door or something breaks, OR
2. Find a good handy man who can handle these, cancel the HW plans, and save $160 in cash flow each month for 2 properties.

Thanks in advance.

Bill B. · Answer

Please click on the magnifying glass in the upper corner and type home warranty. This is literally asked weekly, when it isn’t asked daily.  They are a horrible decision for an owner occupant. They are MUCH worse for landlords.

The only time you should have one is the first year when you buy the property. And even then. Only If you can’t get a seller to give you $100 off instead of the “warranty”.

Your ac has gone out? We’ll get a guy out there in a week. Oops, he needs a part, it’ll be here in a week. Oops, that part didn’t fix it, we need a different part. We’ll get back to you. That sucks at your house. It’s pretty much illegal for most landlords. You’ll either be putting them up at a hotel, supplying addition ac units or discounting rent more than the repair would have cost you.

Ps. At $1,000/yr I assume you NEED 2-3 failures per year to break even? Most of my houses are almost 20 years old now. 1 failure every 2 years is extreme. And that might be a $300 microwave or $500 laundry unit.

Todd Rasmussen · Answer

@Akshay Bhaskaran

Save the money, cancel the home warranties. I've never heard a good story about a home warranty company. Retain that risk in exchange for the return is something most investors would do.

Bill B. · Answer

I think you’d still save money replacing every broken appliance vs repairing and paying for the warranty. Almost ever appliance is $400-$500. Almost every repair is $250-$400. Just bite the bucket and pay Lowes/Home Depot prices and have it delivered and installed. Unlesss you have an RC Willey or someone like them in your market. They charge $99 for a year of unlimited delivery/installs to any number of addresses.

Ps. I will admit if you can get the warranty straight from the power company like they offer in MN that can be a good deal. But they will also let you get the warranty after the part fails. They’re not using it as a profit center.

Ned J. · Answer

Home warranties are a rip off.... if you get one for free at the purchase then fine..... but I do not recommend them for long term

They hire the cheapest, worse companies to do the work...drag their feet on response time....parts etc, then band aid the job and rinse and repeat. They often have a trip fee you have to pay anyway...and since they often dont fix the issue properly, you pay that fee over and over....

Think about the business model in general...... they are there to make $$- do you really think that they are going to pay out more for honoring the contracts than they take in? Yes there are a few guys that hit a "homerun" and get a bunch on repairs done way more expensive than they paid in..... but thats the exception rather than the rule....if  the majority of warranty "owners"  were in that situation HW would be out of business.

Akshay Bhaskaran · Answer

Yes, I agree with your comments. For my primary home there was a dishwasher that went out, and they took 2 weeks to order the part, receive the part, and replace it. Same thing happened for my microwave oven as well. Now, this makes me re-think my decision. But, only thing is that being an out of state investor, finding GC's is getting little difficult. Thumbtack fellows are taking advantage of the urgency!

Charlotte Torres · Answer

I understand that I will likely be in the minority here, but I have had a home warranty on my rental properties for years, and they have paid for themselves, and then some. The claim process is onerous for sure, but I have recovered completely the cost of a new oven, a new microwave, and a new AC unit as well as multiple ancillary repairs. I know that they are tough to deal from a personnel perspective but w patience my vote is they are worth it for older properties.

Josh Bowser · Answer

Hey Akshay - I am thinking you can include this as an expense, but I would consult a tax person to make sure you're on the up&up there.

What are the terms on your home warranty? Any deductible?

I have heard of people praising their home warranty, and I have heard of them cursing it as well.

The benefit of having them (obviously) is to reduce the amount of reserves you need to keep back if something we're to break!

Scott Johnson · Answer

If they're that new, do they have warranties still on their larger ticket items? If so then I wouldn't spend the money.

Otherwise, I believe it's investor choice. Definitely a good way to hedge your CapEx

Do you all account for Home Warranty?

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