Will you work with home warranties?

 

 

Home warranties are generally a bad idea with rental properties (and arguably with any property, if you're the one paying for it). Think about it this way: a home warranty company makes their money on the spread between the cost of the repair work (including their own overhead), and what you pay for your premiums and deductibles. The warranty company may claim to you that they get volume discounts from their vendors. And that's probably true. But the vendors they're using are already among the most expensive, because most vendors won't work with home warranty companies because of the hassles involved. So while the vendor is discounting from their normal rates, their rates are already well above other vendors to start with. So in the end the warranty company is paying about the same rate for the work that you would on your own, but then they're adding on top of that the costs of their own overhead. And that overhead is extensive. They're funding a sales department, a marketing department, the call centers that take claims calls, an accounting department, lawyers to fight their own customers (that's you) when they don't want to pay out a claim, etc. All of this adds up to a rather large amount, So that "discounted" repair bill from the vendor ends up being more expensive than you could have gotten on your own. But wait, there's more! The warranty company exists to make a profit. So now they're adding on their own profit margin, which is likely in the 10%+ range. So by the time it's all said and done, you're paying quite a bit more to use that home warranty company than you would have been to just have the work done yourself.

So what's the alternative? Setup a savings account or money market account with your bank. Take the amount of money you would pay every year for the premiums on the home warranty and put it into the savings account. Then take the amount of the deductible that the warranty company would charge for a service call (usually between $75-$100) and put that amount into the savings account every other month (that's about how often you could expect a service call when average out over the long term). Then when repairs come up, just take the money out of this account to pay for the repairs. In the long run, you'll end up with extra money in this account, because doing it this way is far more efficient than paying for a home warranty company's overhead and profit margin.

Now, back to the original question: will GTL Real Estate work with home warranty companies (even though we recommend against them)? The answer is generally yes, but with exceptions:

  • We charge an extra fee because of the extra time and hassles involved in dealing with home warranty companies; your management fee will increase by 1%
  • We reserve the right to not use the warranty company if they aren't going to get the repair done in time; as a practical matter, this means that we won't use them for things like HVAC repairs, because it just takes them far too long to get the work done; we will use our own vendors in these cases, because they'll get the work done fast
  • We reserve the right to stop accepting the warranty company at any time if they become too much of a hassle to deal with

Most management companies simply won't work with home warranty companies. We try to be more flexible, but we still put the above limits on it, because we just aren't going to get into a situation where a tenant is waiting two weeks for an air conditioning repair when it's 90 degrees outside. That isn't fair to the tenant, and it's not in your best interests, either, because that tenant will never renew their lease, which will cost you more money.

The bottom line: home warranty companies are a bad deal and a very bad idea for rental properties. We strongly recommend against them. But if you insist on using one, we'll try our best to make it work, but will ultimately get the done with our vendors if necessary.