Home Warranty for my Rentals...

[Jake Kozul]

Has anyone had experience buying a home warranty to streamline maintenance costs? Seems like a decent concept if you include are comprehensive in the policy...especially now that I am self managing a number of my properties. Any feedback appreciated. 

[Jon Holdman]

IMHO it is a yes or no question.  A home warranty is a form of insurance.   You should buy insurance for risks you cannot sustain yourself.  The primary use of these home warranties is to reassure a buyer they're not going to have some big bill shortly after moving in.  For a landlord, ongoing maintenance is just a routine part of your expenses.  You should set aside money and handle those expenses yourself.  So, NO, you should not buy a home warranty.

Why do I flatly say no?  Because this insurance is profitable for the insurance company.  If it wasn't the insurance company wouldn't sell it.  So, from the perspective of the expected payout on such a policy, you will get back less money in claims than you pay out in premiums.  So you will pay MORE for repairs than if you pay them yourself.

These policies are notoriously limited in their coverage and hard to collect on.  A lot of the maintenance you are going to experience with your rentals is just damage and wear from things being used.  Broken faucets or light fixtures, clogged drains, etc.  Those things are not covered by such policies.   

Now, what you're concerned about may be some big expenses.  Like a furnace or an appliance.  You really need to accumulate cash reserves to cover such big expenses.  If you don't have them, you're out nothing, where if you buy this insurance and never have a covered expense you're still out the premiums.  An adequate cash reserve is your "self insurance."