Just spent $7,000 on home warranties..?? 馃槴馃槼

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Just spent $7,000 on home warranties..?? 馃槴馃槼

Julia Hagen
Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes

I have a daughter in college with a 4yr tuition bill that will total $120,000 plus. So, while money is tight I thought it would be a good idea to purchase home warranties for our 3 homes (10 individual units in total because of attached granny units and subdividing).  So, I paid $7,000 cash for 6 yrs of full coverage on each home from Home Choice. (馃く馃槺馃が)

But, it鈥檚 been a total nightmare. I was hoping that we could continue investing this way because we wouldn鈥檛 have to worry about big, unexpected costs while dealing w/tuition.  What should I do now? Get a refund? Switch warrenty companies?  Is it advisable to purchase home warranties on rentals? 

Note:                                                                       - Roofs are all OK
- Two furnaces will need replacing w/in 5-8 yrs.                                                              - Interior/exteriors are OK (new carpet and paint eventually, in one home)                             - About 5 appliances will probably need replacing w/in next 5 -10 yrs

Thank you!!

PS

Some shots from a few of our units 馃

Garage StudioNewest HomeCollage of photos from biggest rentalWalk in closet we converted into kitchen in master bedroom to studio conversion, newest homeBathroom in master bedroom we just converted into a studio, newest home
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
2y

Home warranties are good for the company. They charge you fees up front. They charge another fee any time they respond to a request. They are slow to respond. They send low-quality contractors. They don't cover nearly as much as you think they do. They make slow repairs rather than replacements.

Get rid of them. Keep a reserve and you'll be better off.

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  • Glen Wiley
    Investor 路 Richmond, VA 路 Member since 2023 路 459 posts 路 474 votes
    2y

    I have never heard anyone have a good long term outcome from home warranties. I ignore them when sellers want to include them in closing terms for houses we buy.

    This may have been tuition in the school of real estate investing.

    3Reply
  • Kevin Sobilo
    Realtor 路 Hanover Twp, PA 路 Member since 2018 路 3k+ posts 路 3k+ votes
    2y

    @Julia Hagen, home warranties will always cost you more money and add more hassle for you in the long run. That is EXACTLY how they are supposed to work! I know that sounds crazy, but its true. They are NOT intended to save you money and you are adding more parties into the process of making repairs which is always more hassle. 

    Home warranties are a type of insurance basically. They are intended to MAKE MONEY for the insurance company! So, of course if the company makes money over the cost of the repairs themselves then you are spending more money than you otherwise would.

    The value in a home warranty is the same as any other kind of insurance. If you cannot budget for or handle the issue(s) you are covering then dealing with the issue(s) could be catastrophic for you. So, if the things covered by the policy would cause you to start missing mortgage payments and eventually lose your property then there is a value and for a landlord who is struggling that may be true.

    However, for a landlord who has things together, they are better off budgeting for capital expenses and maintenance and having some reserves either in the form on savings or even an open line of credit to access in case a significant issue arises. This will be a savings in the long run even though when issues happen it may not feel that way in the short run. 

    3Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    2y

    Home warranties are good for the company. They charge you fees up front. They charge another fee any time they respond to a request. They are slow to respond. They send low-quality contractors. They don't cover nearly as much as you think they do. They make slow repairs rather than replacements.

    Get rid of them. Keep a reserve and you'll be better off.

    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    4Reply
  • Jonathan Bock
    Accountant 路 Bryn Mawr, PA 路 Member since 2023 路 409 posts 路 321 votes
    2y

    Hopefully, you can get a prorated refund!  The majority of these companies are more marketing organizations; I have never had a great experience with them.

    Direct ownership is capital intensive no way around that if you are in the space long term.  

    2Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Glen Wiley Haha, very true. Good lesson learned then, I guess

    1Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Kevin Sobilo True true. I just thought that while we are dealing with the $120,000 tuition bill it could help things financially. I've got money saved though. It's tuition or maintaining the rentals. I think we'll take out private loans for tuition. Don't qualify for enough FASFA subsidized loans

    1Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Nathan Gesner Wow, you could not have more succinctly summed up exactly what happens with home warranty companies if you were your own PR manager! That was the perfect description!! Thx!

    2Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Jonathan Bock Oh, I know, and believe me, I've spent over $200,000 in remodels, maintenance, mold remediation, flood remediation etc.. since 2004 and I only own 3 homes!! (10 doors total). I do have savings but was hoping to give us some financial breathing room while we deal w/the $120,000 tuition bill. Good lesson learned. Thx!

    1Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y
    Quote from @Glen Wiley:

    I have never heard anyone have a good long term outcome from home warranties. I ignore them when sellers want to include them in closing terms for houses we buy.

    This may have been tuition in the school of real estate investing.


     I haven't bought home warranties personally but from what I've heard, this seems to be a common experience. 

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  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Account Closed. Well, my tenants has been without a heater for over 6 months now, and one couple has a baby! I've got 6 different tenants. Something's gotta change and for now, I think it's gonna have to be me ; ((

    0Reply
  • Kevin Sobilo
    Realtor 路 Hanover Twp, PA 路 Member since 2018 路 3k+ posts 路 3k+ votes
    2y
    Quote from @Julia Hagen:

    @Account Closed. Well, my tenants has been without a heater for over 6 months now, and one couple has a baby! I've got 6 different tenants. Something's gotta change and for now, I think it's gonna have to be me ; ((


    A tenant without heat for 6 months over the winter?!? Even in a warmer climate that sounds no good! I would not have waited and you're lucky to be still getting rent. In many places that would be grounds for a tenant to break a lease and get their deposit back.

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y
    Quote from @Julia Hagen:

    @Account Closed. Well, my tenants has been without a heater for over 6 months now, and one couple has a baby! I've got 6 different tenants. Something's gotta change and for now, I think it's gonna have to be me ; ((


     Wait wut? 6 months with no heat? 

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  • Glen Wiley
    Investor 路 Richmond, VA 路 Member since 2023 路 459 posts 路 474 votes
    2y

    This latest revelation makes me think that you should reconsider how you are approaching landlording - can you explain 6 months without heat? This is neither decent nor legal in many states.

    2Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y
    Quote from @Glen Wiley:

    This latest revelation makes me think that you should reconsider how you are approaching landlording - can you explain 6 months without heat? This is neither decent nor legal in many states.

    Yeah that's wild. Home warranties aren't going to help with letting your tenants go without heat for 6 months!

    Podcast Guest on Show #121
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  • Scott Mac
    Austin, TX 路 Member since 2019 路 5k+ posts 路 5k+ votes
    2y

    Well for only $200 more you could have bought her a Red Convertible Porsche 911.

    $120k to a school.

    $7k to an insurance outfit.

    Hopefully she gets more  benefit out of this major purchase than the many others who have not.

    Just my 2 cents.

    3Reply
  • Kevin Sobilo
    Realtor 路 Hanover Twp, PA 路 Member since 2018 路 3k+ posts 路 3k+ votes
    2y
    Quote from @Scott Mac:

    Well for only $200 more you could have bought her a Red Convertible Porsche 911.

    $120k to a school.

    $7k to an insurance outfit.

    Hopefully she gets more  benefit out of this major purchase than the many others who have not.

    Just my 2 cents.


    Or that $120k could have been the down payment on maybe 5 duplexes in a cash-flowing market providing the child a basic income for life!
    3Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    *I am providing these details because the question of our abilities as landlords has been raised.  I hope this answers all the questions. If anyone has advice, I would welcome it!

    @Glen Wiley, @Kevin Sobilo, @Andrew Syrios
    We finally figured out what the problem was and solved it. Now we are making sure it doesn't happen again!

    It鈥檚 a complicated property. It鈥檚 in a rural location in the Napa Valley and we are, literally, the cheapest rent in town! It鈥檚 a large, remodeled home with an attached studio and a granny unit. We also walled off the master suite and turned it into a studio (because it has its own bathroom, entrance, and parking), resulting in 4 individual units. We didn't get a single complaint - from anyone until the furnace completely stopped working. That鈥檚 because everyone who lives there pays a fraction of the rent they would otherwise in Napa Valley. So, no one complains, until things are desperate.

    As soon as we heard what was happening we filed a claim with our home warranty company and paid cash to have the furnace inspected by two companies we have already done business with. (It took 3 months for the home warranty company to find someone because of the rural location!) But no one could figure out what was wrong. Half said just replace it, half said there wasn鈥檛 a problem (the furnace was completely disassembled and the interior portions were scoped with a camera). Finally, one of the guys checked the filter, it had never been changed. It had to be at least 4 yrs old and went through all the wildfires in the Napa Valley, without being changed!

    This is how we found out that the tenant wasn't changing the air filter, which is his responsibility (we supply the filters) and he also couldn't figure out how to properly use the new thermostat.

    The filter was so clogged it almost broke the furnace! Our PG&E bill is 102% higher this year than last! Once the filter was replaced and we hired a handyman to teach the tenant how to use the thermostat all problems were resolved. We paid over $1,000 cash, just to find out the tenant was not complying with the lease.

    (Two of our tenants have been with us for over 10 yrs. We undercut market rent and keep our tenants very happy in order to avoid vacancies)

    0Reply
  • Glen Wiley
    Investor 路 Richmond, VA 路 Member since 2023 路 459 posts 路 474 votes
    2y

    I usually give my tenants 12 filters at lease signing and then bring them more from time to time in follow up years.

    1Reply
  • Ned J.Pro Member
    Investor 路 Manteca, CA 路 Member since 2017 路 1k+ posts 路 2k+ votes
    2y

    Home warranties are a scam....Nathan spelled it out perfectly.... they tack on fees for every claim, hire crap companies to bandaid the issue, take forever, crappy customer service and communication. Their business model is just like any insurance model.... take in the most $$ and pay out the least... its that simple.

    Keep reserves and find your owner repair companies to do business with...

    And it took 6 months and multiple companies and visits to even look at the filter? That's step one on just about every troubleshooting guide for an HVAC unit....

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y
    Quote from @Julia Hagen:

    *I am providing these details because the question of our abilities as landlords has been raised.  I hope this answers all the questions. If anyone has advice, I would welcome it!

    @Glen Wiley, @Kevin Sobilo, @Andrew Syrios
    We finally figured out what the problem was and solved it. Now we are making sure it doesn't happen again!

    It鈥檚 a complicated property. It鈥檚 in a rural location in the Napa Valley and we are, literally, the cheapest rent in town! It鈥檚 a large, remodeled home with an attached studio and a granny unit. We also walled off the master suite and turned it into a studio (because it has its own bathroom, entrance, and parking), resulting in 4 individual units. We didn't get a single complaint - from anyone until the furnace completely stopped working. That鈥檚 because everyone who lives there pays a fraction of the rent they would otherwise in Napa Valley. So, no one complains, until things are desperate.

    As soon as we heard what was happening we filed a claim with our home warranty company and paid cash to have the furnace inspected by two companies we have already done business with. (It took 3 months for the home warranty company to find someone because of the rural location!) But no one could figure out what was wrong. Half said just replace it, half said there wasn鈥檛 a problem (the furnace was completely disassembled and the interior portions were scoped with a camera). Finally, one of the guys checked the filter, it had never been changed. It had to be at least 4 yrs old and went through all the wildfires in the Napa Valley, without being changed!

    This is how we found out that the tenant wasn't changing the air filter, which is his responsibility (we supply the filters) and he also couldn't figure out how to properly use the new thermostat.

    The filter was so clogged it almost broke the furnace! Our PG&E bill is 102% higher this year than last! Once the filter was replaced and we hired a handyman to teach the tenant how to use the thermostat all problems were resolved. We paid over $1,000 cash, just to find out the tenant was not complying with the lease.

    (Two of our tenants have been with us for over 10 yrs. We undercut market rent and keep our tenants very happy in order to avoid vacancies)


    OK that makes more sense. I think I would just recommend replacing the furnace in cases such as that. While that sounds like it was an ambiguous situation, furnaces aren't that expensive so it would probably be best to just bite the bullet. 

    Podcast Guest on Show #121
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  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Andrew Syrios Yes, I agree that a replacement right now would be ideal. However, in the last two years, we've replaced two air conditioning systems, added a window unit to another property, and have two furnace replacements coming up. We are currently working on how we are going to budget for these additional replacements.

    0Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    PS

    If I didn't mention it before, this house is in California, in Napa Valley. We have mild winters and we provided space heaters to all of the tenants while we tried to get the problem figured out. We pay all the utilities and our PG&E heating costs have substantially increased but we did not pass that on to the renters.

    0Reply
  • Julia Hagen
    OP
    Lodi, CA 路 Member since 2021 路 34 posts 路 19 votes
    2y

    @Ned J. Couldn't agree more!!!  A large part of the property is its rural location. Companies didn't want to travel that far if they were not going to get a replacement job and when the warranty company requested things like detailed photos and written, itemized replace vs repair estimates they quit answering the phone altogether! It's been a tough predicament all around but a good lesson learned!  It will never happen again!

    0Reply
  • Aaron Cowan
    Member since 2018 路 8 posts 路 1 vote
    2y

    I own an HVAC company and 99% of my work is for home warranty companies. HWA, Choice and Select. Know this, those companies only provide equipment and do not pay the contractor enough to install it. This leaves the policy holder with that cost. If you need your a/c condenser replaced expect to pay an extra $1200 to $3000 to the contractor. It is about half of what you would pay without the warranty. The only benefit is with simple repairs like motors and other parts. they will cover 100% of that.  

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant 路 San Diego / Phoenix 路 Member since 2021 路 12k+ posts 路 15k+ votes
    2y

    Well I never thought I would be the one saying something like this......but I have a recent good news story about a warranty company.

    Based on an experience over 30 years ago, I have been on the anti-warranty bandwagon and even run them down on this forum, but:

    I bought a house last summer (primary home) and the sellers agent threw in a Home Warranty. I ignored it figuring it was just BS. 

    #1 - Then the cooktop starting acting up and I figured, hey why not call and give them a chance? Imagine my surprise when a guy showed up promptly, said he couldn't get parts for the Jenn Air model any longer (18 yrs old), and few days later I get an email from the warranty company offering me a replacement cooktop that was far more expensive than an exact replacement! Of course I said yes and the tech returned and installed the new cooktop. I was blown away to be honest, I was expecting a run-around....

    #2 - A month later the dishwasher starting leaking. The tech tried replacing the door seal, and it still had a very slight leak, so he recommended a new one to the company. A week later I had a brand new DW. Once again, they did not go cheap...they could have spent $400 ish dollars to buy me a cheap DQ (I still expected as much) but they offered $1500 as a top limit and said go ahead and pick a new one! Once again, a brand new high-end (GE Profile model) DW

    #3 - One of the water heaters went out and within a couple days it was fixed (new thermostat)

    My co-pay was $85 each for all three of the above.....for about $3000+ worth of product and labor. I'll take that deal all day long. I'm not sure how they make any profit to be honest... :-)

    I plan on renewing the plan when it expires in July. One of the smartest financial moves I've every made, Lol.... The AC condensers are both 18 years old so they can be expected to pass on in the next few years.

    @Julia Hagen Be aware though that they will not just buy you a new unit. Their first effort (of course) is to attempt a repair. But at least those company will quickly shift their focus to new without hassling you for months.

    So my final take is that - IF you get the right company, a warranty plan is actually a smart financial move - and I never thought I'd be the one saying that!

    I have not disclosed the name of the company on here to avoid the appearance of impropriety :-)

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