The following is based not only on our first hand experience, but also from discussions with thousands of people involved in residential real estate including owners, contractors and agents. Many residential real estate investors new to the business or new to property management ask whether we work with home warranty companies. Based on our experience, we advise all of our potential clientele to leave the home warranty policy behind. While a home warranty policy can seem attractive on paper, typically they just add another layer of work on top of any issues with your rental property. The following is based on our experience and we acknowledge that your experience may differ.
How Home Warranty’s Are Acquired
Some residential real estate investors seek out a home warranty directly. However, in our experience they are typically acquired a gift to our property owners during the purchase of a rental property to enhance the perceived value of the deal. In both cases, the perception of value is far greater than what will typically ever be realized. Not only will the value prove to be less than was hoped for, the aftermath of trying to utilize it can cost you in a number of untold ways particularly in wasted time.
How Home Warranty Companies Work
Typically, home warranty companies prioritize denying claims upon initial contact. If a claimant proceeds, vendors dispatched may employ various tactics to deny the claim such as alleging negligence or improper maintenance. Additionally, property owners are often charged a fee for vendor visits, regardless of the outcome – these can run upwards of $100 per visit thereby hitting your ROI.
Although home warranties occasionally cover expenses for water heater or HVAC system replacements, their contribution is limited. For instance, a standard water heater replacement costs around $1,200—roughly equivalent to 2 years’ worth of premium payments for home warranty coverage. Moreover, warranty companies may impose additional expenses on property owners, making their services financially inefficient.
Regarding HVAC breakdowns—a critical concern in Texas’ scorching summers—home warranty companies fall short. They do not accept after-hours calls, leading to significant delays in resolving issues. Residents may endure discomfort for days due to prolonged vendor queues and approval processes. Moreover, warranty contractors, not vetted by property managers, may deliver subpar workmanship, potentially jeopardizing tenant satisfaction.
The Finances
Financially, home warranty contracts rarely align with actual repair costs, and delays in service exacerbate property management challenges with frustrated tenants. Despite occasional exceptions, our experience with numerous home warranty companies has been overwhelmingly negative. Delays in vendor response, lack of urgency in emergency repairs, and overall dissatisfaction among tenants contribute to our reluctance to endorse home warranties.
In summary, we advise property owners to carefully consider the implications of home warranty investments. These policies often result in tenant dissatisfaction and hinder property management efforts. Ultimately, retaining satisfied tenants is paramount for maximizing property value and ensuring long-term success in the residential rental market.