As an owner of several rental properties, I used to believe that having a home warranty for my rental properties was a smart idea. Managing over 400 properties in the real estate market has taught me home warranties are not designed to work for investor clients.
At one point, I had a rental property warranty on each of the 14 rental units I owned, plus I had one on my own personal residence. Initially, it seemed you just pay a reasonable annual fee and a nominal deductible for repairs, and the warranty company pays for everything else. Sounds great, right? Who wouldn’t be enticed by such a deal?
From my perspective, it was purely a matter of common sense — until things started breaking. Then, it was one red flag after another and the problems ensued. The frustrations, difficulty with contractors, hassles and time wasted started accumulating.
That seemingly common sense idea is a waste of time and money, so real estate investors should keep that cash in their pockets — and here are six reasons why.
1. Rental warranties don’t give you a choice…
One of the advantages of running a property management company is that our years of serving landlords has led to the assembly of a terrific crew of licensed contractors. In short, we know a lot of great contractors, yet with a home warranty for a rental property, we were not allowed to use any of our WJD contractors.
The home warranty company assigned their vendors according to the specific issue. You might be thinking, that’s typical right? You’ll probably get a decent local specialist out to the property to fix the problem, right?
Well, not exactly — which leads me to the next problem….
2. Who are these home warranty contractors anyway?
I have been in the property management business (and fixing stuff in homes) for about three decades now, so I know most of the residential contractor specialists in my area. Big surprise, I had never heard of any of the vendors they assigned to fix the problems in my properties.
It might be that a few good contractors end up on the list of home warranty preferred vendors, but it seems more plausible that warranty companies tend to just go for the lowest bidders. In my opinion, that doesn’t really bode well for the typical landlord/investor looking for expert help.
Nor does it inspire confidence that repairs will be done right and in a timely manner.
3. Slow service is a major risk…
Things got real when I was told the rental warranty contractors have up to 48 hours to respond to a problem.
What? What about water emergencies?
Well, I found out in one extreme instance of water leaking all over my beautiful hardwood floors that water emergencies have the same response time frame as any other problem. Then the situation got worse. I was told by the home warranty company that their contractors would not begin the repair until after they had been paid the deductible.
Woah. So now I have to worry about a tenant paying the deductible at the time of service. What if the tenant doesn’t have the money right away? Or doesn’t want to pay out of pocket (even if their lease requires them to pay it). Yep, you guessed it. That water is still sitting on the hardwood floors waiting for someone to show up with the payment.
And guess what — not all contractors will go to the trouble of contacting you if they fail to collect the deductible from the tenant. And we should also note that some don’t accept credit cards either.
4. They fail to contact the tenant…
Communication breakdowns were a real problem! Even though it should be obvious that a home warranty for rental property means dealing with tenants, neither the warranty company nor the assigned vendor contacted the tenant for access to the property and instead they kept calling me even though they had been given the tenant’s contact information.
Meanwhile, the repair delays continued.
Our takeaway? Having a home warranty on multiple rental properties did not give us any kind of priority service.
Whether you’re an individual landlord/investor or a large property management company, you have to wait. First you wait 48 hours for the contractor. Then, you might wait (and stress over) the inevitable deductible payment problem. Then, more waiting while they call everyone but the tenant for access.
Meanwhile, the needed repair waits, your tenants are inconvenienced and you (possibly) wind up with more damage.
5. Those deductibles pile up…
I had one home warranty vendor who made repeated trips to a property to deal with a heating issue and collected a deductible for every visit. Naturally, the tenant became very agitated (as did we) because it became evident that the home warranty’s policy was clearly to apply cheap band-aid “solutions” instead of replace the appliance, which was obviously at the end of its useful life.
The furnace was eventually replaced, but not before a number of irate calls to the vendor and the home warranty company. As time progressed, it was clear the home warranty company used substandard contractors. And I learned the age-old lesson that you get what you pay for.
6. The final straw…
I had a fluorescent light in the ceiling of my personal residence that stopped working. The vendor assigned by the home warranty company arrived two days after I placed the service call and after pulling the light apart, he told me that it couldn’t be repaired. OK, surely it can be replaced, right?
Turns out the contract he’d “purchased” did not cover replacement of electrical fixtures, only their repair.
Apparently, this was some contractual fine print that I had overlooked. The next morning I called the home warranty company and cancelled all 15 of our contracts and was not rebated any of the annual premium costs, which I had just recently paid.
At that point, nothing about owning a home warranty surprised me and I accepted the loss of my premiums — and said good riddance to bad home warranties.