Ask Lucas 005: Should I Buy a Home Warranty for my Rental?
Rachel from Michigan just bought her first rental property (Hooray!), but is wondering if she should buy a home warranty insurance package. It’s a tough question, as most warranties cost between $400-$800 a year, and even then, don’t always cover everything.
Mentioned in this episode: HMS National; https://www.hmsnational.com/
Lucas: Hey what’s up everyone? This is Lucas Hall from Landlordology and Cozy. Welcome to the 5th episode of Ask Lucas. It’s a bite-sized Q and A show where I answer your questions about landlording. I am a do-it-yourself landlord and I’ve figured out how to make it fun and profitable. That’s what this show’s for. It’s to teach you how.
Up next we have Rachel from Michigan. Let’s here what she has to say.
Rachel: Hi Lucas. This is Rachel from Michigan. I just picked up my first rental property and was wondering what your thoughts were on home warranties. Whether it was a good thing to get or not necessary. Thanks.
Lucas: Rachel. Thank you for your question and congratulations on your first property. That’s really great and I think your question is a genuine one that a lot of landlords really do struggle with in the beginning because money is so tight yet they want to make sure that their property is taken care of and that they don’t have to worry about maintaining it or having to find contractors, especially in the new area that they may not know very well. What do they do? Home warranties are often a very plausible and easy solution.
I will preface this answer with first saying that I do buy a home warranty on every new property that I purchase at least for the first one, maybe two years, that I own it. That’s just because I have no idea what to expect when I brought that property. Maybe I had a little bit of knowing what to expect. I’m also a handyman in my own right. I like to claim that I am. However, I can’t always be there and I don’t know what’s going to break and I don’t really know the furnace system. I don’t know the plumbing yet. I don’t know the electrical and even if I had somebody look at it, it still doesn’t tell me how it’s going to run on a daily basis. Is there a faulty light switch somewhere that’s constantly going to give problems?
I basically just want to have that insurance that everything is going to be okay. So, I buy a home warranty package. For landlords, home warranty packages are great but they do have catches. I want to tell you that they’re not all perfect. There are many, many national brands out there that will service your property. They all have interesting tweaks about them that you really have to look closely into the contract.
A couple things to consider is the deductible. What that means is when somebody comes out to the property, they expect to be paid anywhere from 75 to 125 dollars every single time that they come out, regardless of if they do anything at all. They may look at the toilet and say, “Yup, it’s clogged.” Then you have to pay them 75 dollars. Theoretically, from that point on should get paid for by that home warranty company. That’s why you’re buying the insurance. However, in a lot of cases, they don’t necessarily pay the full amount. Let’s say your furnace breaks and they cover the repair to do that. That may be covered 100 percent but then there’s a part that’s not covered. Then you have to pay for that. Or if your furnace needs to be replaced, the home warranty often says we do replacement but it’s only up to a thousand dollars. Then you’re stuck paying the other 2000 dollars that the home warranty program didn’t. They are great and they give you the peace of mind but they don’t necessarily cover everything.
With that said, there’s really only one company that I think is an excellent deal for landlords and that’s called HMS National. They have a specific program designed for landlords that means that there’s no deductible, meaning you don’t have to run over to your rental property and give a check or the tenant doesn’t have to give a check to the contractor. They’ll do guaranteed full replacement on a lot of appliances or systems. Not only that, they’ll also manage the whole process. If a contractor isn’t able to get a part, they’ll stay with it and they’ll make sure it gets done or they’ll follow up with that contractor to make sure that the contractor does come back and does do a satisfactory job.
From a landlord’s perspective, a landlord who’s not on site all the time, that’s the best program I’ve seen but there’s plenty of other ones too. Just make sure that you read the contract very, very, very carefully so that you know what parts are covered and what systems aren’t covered at all.
That’s my encouragement to you. It’s awesome. Check it out but read carefully.
Thanks for your question.
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