Obtaining a home warranty on your Los Angeles or Orange County rental property may seem like a good idea to protect you from potentially high repair costs.
This is true in some situations, but there are a few considerations to measure before you purchase a home warranty plan.
Home Warranties are Basically Insurance Policies
Home warranties operate a lot like insurance policies. You will pay an upfront premium for your home warranty plan, and then you also pay a service charge every time a repair technician comes out to assess the repair.
You’re betting that the number of repairs are going to cost more than the premiums you pay to the home warranty company.
The home warranty company is betting that the premiums they collect from you are going to be more than the cost of repairs at your property. The home warranty companies make a lot of money on this bet, and they generally win because the amount of premiums that they collect from you are generally more than the repairs they are going to make.
Paying for the Service Call
Perhaps you’re thinking you can have the tenant pay for the service call when the warranty company sends someone to the property. Some landlords like to double down and avoid paying out of pocket at all for repair expenses. But, there are often unintended consequences if you use this approach and expect your tenants to pay for the service call.
Tenants do not like to pay for repairs. They will go ahead and make the service call when it concerns a big item like an air conditioning unit or a water heater because those things affect the quality of their day to day life. But, if there are minor issues, they generally won’t call because it doesn’t affect their daily life and they don’t want to pay for that service call which could be $60 or more.
Small problems turn into big problems when they’re ignored. A small leak in the shower may be ignored by the tenant if a service charge is required, and with time, that leak will get into the walls and you’ll have major damage after your tenant moves out. Had you been in control of that and gotten someone out there right away, that problem could have been avoided. When the tenant is responsible, you really have no control over it. It will also be way too difficult to go back and try to claim it on the home warranty plan because a provision in there is to notify them in a timely manner of any repair.
Tenant Experiences and Home Warranties
You want your tenant to have a positive rental experience. You also want to have a well-maintained home that earns the highest possible rents.
With a home warranty plan, the tenant experience is not always positive.
Here’s an example of what we see every summer with home warranty plans:
- It’s 100 degrees outside and the tenant calls and says the air conditioning is not working. We go ahead and place a service request through the home warranty company, and per their guidelines they have 48 hours to get a vendor out there.
- Within 48 hours, the vendor goes to the property and determines the problem.
- The vendor needs to order parts, which take four or five days to arrive.
- Once they have the parts, the vendor has another 48 hours to make the repair. But, the repair doesn’t always solve the complete problem.
- The service cycle starts again. Meanwhile, the tenants endure two weeks of extreme heat and no air conditioning.
As a responsible landlord, you’ll need to accommodate the tenant somehow. This might mean bringing in portable cooling moving them into a hotel until the air is fixed. I think everyone will agree this is not a positive tenant experience.
So, should you buy a home warranty?
There is no absolute right or wrong answer to that. You just need to know all the pros and cons of having a home warranty, so you can make your best possible decision. If you’d like to talk more about your options or anything pertaining to your rental property in Los Angeles or Orange County, please contact us at HCM Property Management.