Are Home Warranty Plans Necessary?

[Kareem Aaron]

I have two rental properties (one of which is currently occupied) and I have home warranty plans with Complete Appliance Protection, Inc. for each of them. My question is, is it necessary to have home warranty plans in place?

If not, what are some best practices for landlords handling repairs? 

[Cara Lonsdale]

WOW!  This group is really torn in 2 extreme directions.  I hope I can shed some light to help.

Home Warranties are like any other type of insurance.  You feel like it's useless when it doesn't get used, but are grateful when something catastrophic happens and it is there for you... Just like your car insurance or health insurance.  Equally notable....there are all kinds of home warranties.  Some only cover appliances.  Some cover major systems (HVAC, electrical, basic plumbing), but not personal appliances like the fridge or washer/dryer.  Others cover only specific items like the sewer line from the street to the house.

As @Maria Flowers so clearly pointed out, it can be used as a tool to not only help with repairs, but eliminate you as the middle man for every little thing as the Tenant can be set up to submit claims and pay the trade call fee if written in the lease to do so.  

It is true that Home Warranty companies sometimes go through an overly cautious repair period prior to replacement....just like your doctor may send you to physical therapy before he elects for surgery.  But put this in perspective.... you spend $500 for the home warranty, and they are trying to evaluate whether or not to put out $3K for a new AC unit!  I would say it was worth the investment, as well as the extra time for them to trouble-shoot.  It IS easy to feel the frustration during this period, but again, put it into perspective for what you just avoided paying that the home warranty is picking up for you.

Also, what alot of people don't know about some of these warranties, is that if you don't like their decision to repair, or whatever the recommended course of action is, you can opt to take a cash settlement for the cost of the repairs they are proposing, and then go do whatever course of action you want to do.  We did use this option for a pool repair once.  The warranty suggested replacement of some parts in the filter, which also required it to be emptied and refilled with sand (which is expensive to do).  We opted to take the money and replace the filter because the expense to do so was only a couple hundred dollars more than they were going to pay for all the repair work and sand replacement on the old filter system.

As an added bonus, a home warranty sets you up with contractors for various repairs, which is also a great tool for you as an investor as you get to build your contact list of credible contractors to refer back to when it comes time for a rehab.

All that being said....Home Warranty companies are not all alike!  Shop around.  Read their brochures to see what EXACTLY they cover.  I have found that Old Republic Home Protection is a good one.  Check to see if they are offered in the area that the property is located.  They replaced 2 AC units in our properties this year alone!  Not bad for a $500 investment per property.  That would have been $7K out of my pocket within a 45 day span of time.  No thanks!

I hope this helps.  Best of luck to you!!