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My Leaky AC Unit and How It Got Fixed

by Jason Hanson on July 17, 2011 · 4 comments

  

I got a call from my tenant Sandy earlier this week. She lives in one of my townhouses and she told me that the air conditioner was leaking, and that water was coming through the ceiling into the kitchen.

Obviously, this is a problem, and needed to be fixed immediately. So what did I do after her call? Well… I certainly didn’t run over there to fix the AC unit myself. My handyman skills are good enough for changing light bulbs and that’s about it.

Instead, I immediately called my virtual assistant Lisa and told her to call American Home Shield and have them send someone out to fix the leak. You see, American Home Shield is the home warranty company I use and I think every investor who owns rental properties should get one of these warranties.

There are many companies out there in addition to American Home Shield, however, I’ve been using them for years and I’ve been pleased with the way they work.

So how exactly do they work?

Well, my assistant Lisa called them up and told them that the air conditioner was leaking and gave them the address of the property.

Then American Home Shield contacted one of the HVAC companies in their database to go out and repair my AC unit. (On a quick side note, my assistant Lisa gave American Home Shield my tenant’s cell phone number so that the HVAC company could set up a time to come fix the AC. In other words, I didn’t have to go wait for a repairman or even step foot in the house.)

When the repairman had finished fixing my AC, my assistant Lisa called and paid via credit card so that my tenant didn’t have to write a check and have me repay them. (The payment she made was the $60 co-pay, but the cost of the home warranty plan I use is around $400 a year.)

Some people balk at paying $400 a year but not me.

First off, I only pay for the home warranty on properties that are in my “buy and hold” portfolio, which I plan to hold onto for the next 30 years. If I’m doing a lease option deal, then my tenant/buyers are required to purchase the home warranty and pay for it themselves.

Another reason I don’t balk at paying $400 a year is because I’ve tried finding a good and reliable handyman . . . If you’ve been in this business long enough you know that finding an honest handyman who shows up for the job is like finding Big Foot. It isn’t easy.

So having the warranty makes my life all around easier, so I don’t have to spend time dealing with handymen who don’t show up or who take too long to fix something or who show up drunk. (Yes, that happens quite often.)

Since one of your main goals should be to run your real estate business as efficiently as possible, I would highly encourage you to use the same system I have to deal with repairs on your rental properties.

Photo: Jeremy Hetzel

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{ 4 comments… read them below or add one }

Anonymous July 17, 2011 at 7:41 pm

Having leaks from the air conditioner or clogged kitchen sinks are just some problems common to tenants. That’s why it is very important to have landlord or landlady who’s prime concern is the safety and comfort of its occupants. Having to worry about home maintenace or repair is the last thing that a tenant would want to deal with, especially if their schedule is full everyday. That’s why it is indeed helpful to have a standing home warranty which could address the future inevitable problems related to home maintenance.

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Nathan Gesner July 17, 2011 at 9:46 pm

So you paid $400 for the insurance policy and $60 for the service call, totaling $460 to repair a leaking A/C unit? That doesn’t make financial sense!

I manage 135 rental properties. I typically experience one appliance break-down every few years. Using your scenario, that would cost me about $1,200 in warranty plus $60 for the service call deductible. Even after the warranty covers the repairs, I still have an old unit that is more liable to break down in the near future. You would be wiser to set $400 aside every year for emergencies and then use that money to pay for repairs OR just buy a brand new unit.

The reason warranty companies exist is because they make profit off the gullible. Just like gambling, it is rare that the consumer comes out ahead. A wiser investment would be to set aside a certain amount each month and build up a buffer account that can handle anything from minor repairs to major emergencies.

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Liz Benitez July 19, 2011 at 7:15 am

I’m not so sure about that. This time it was just his A/C unit but what if it was the whole HVAC system and it didn’t just need repaired but replaced. Then you are looking at a lot more money out of pocket.

What gets me is people are willing to fork over $200 plus a month for car insurance but balk at $400 a year to cover their home.

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Nathan Gesner July 19, 2011 at 8:56 am

Liz,

According to a study by Insurance.com in February, the average consumer will spend over $84,000 in their lifetime on car insurance, while the average consumer will spend $150,000 in cars during their lifetime. I can assure you, most consumers do not have $84,000 in claims during their lifetime. The insurance companies make money by taking in WAY more than they pay out. I have 25 years of driving cars and motorcycles and have less than $10,000 in claims (it’s only that high because I had a car stolen). That’s a lot less than what I’ve paid and it includes a stolen car! If I had put that same amount in savings, I could have paid for all my claims AND I’d still have over $5,000 on hand for other things.

Yes, there are rare occasions where a claim can be extremely high, such as a major accident caused by reckless driving or getting sued by someone for an injury. But again, how many people do you personally know that can show they’ve received more in claims than they paid in premiums? Very, very few.

Your statement about the HVAC is the same. The warranty ONLY pays for itself if you have a major breakdown that requires complete replacement. Let’s say he had a $5,000 HVAC that was ten years old and it breaks down. The warranty will cover repair, which is probably going to cost less than the cost of the warranty and the service fee ($460). Even if it cost $1,500 to repair, he might be ahead the first year, but he’ll end up paying for it in future years.

I manage 135 units and can tell you that fewer than 10% require more than $400 in repairs during a year. Some require as much as $1,500 in one year but then go for 5-10 years with nothing. If I were buying warranties for each one, I might come out ahead on a few but I would lose out on over 95% of them every year. The easy way to prove this is take a home that you’ve owned for 10 years and add up all the maintenance costs during that time. Then add up what a warranty would cost, add in $50 for each service call, and see how much you would pay for a warranty vs. repairs out of pocket. Like gambling in Vegas, the house always wins.

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