Home Warranty Decision(s) for entire portfolio

29 Replies

We were just yesterday looking at some options for home warranty type of services and I think crowd-sourcing this one may help:

The provider we were looking at specifically was HomeServe, however there are numerous other companies.  Details in the fine print do matter, for instance a typically large and padded, profitable expense for HVAC companies is their crazy markups on their refrigerant, and there's a max of 1lb of charge that would be covered under the HVAC portion of the plan.

Our biggest pain points given where we are (7 rentals currently) has been finding competent and trustworthy people in the HVAC and plumbing fields.  We are in that middle ground where we don't have enough stuff come in where we can keep the good people locked in/engaged, but we've got enough stuff that we need help.

The two strategies that we think are most viable are to evaluate doing a piecemeal (a la carte) approach to the use of these warranties, or to just pay for all for all properties.  For instance, of our 7 rentals perhaps the ones with 10+ year old water heaters, we pay the $7/mo or so for the water heater repair/replace plan.  The available options for warranties break down into things like:

  1. exterior main water line coverage
  2. exterior main sewer line coverage
  3. interior plumbing line coverage
  4. HVAC (cooling system) coverage
  5. HVAC (heating system) coverage
  6. hot water heater coverage
  7. electrical system coverage

We broke down two viable options:

Option 1:  Evaluate Risk/reward likelihood on each property as to whether we get individual coverage, total yearly cost of this is ~$2100/yr which comes to approximately ~2% of our gross rents

Option 2: Go with full coverage on every property we own, total yearly cost of this is ~$5100/yr, which comes to approximately 4.5% of our gross rents.

We usually work off a 15% goal/assumption (of gross rents) that allows for costs tied to vacancy/maintenance/capEx items, which so far (been operating for 3-4 years) we have been significantly under that. Barring a few major CapEx items like new furnace/ACs, we have been fortunate and doing well based on this. Our rents are towards the top of market.

I'm often cranking on actively managing a project, as I am now - the cost/hit to profitability is big but it does feel like we are at a point to absorb it and it makes business sense.  I'm getting pulled in enough directions that evaluating options for property management has already been 

We enjoy the tenant management side of things, think that the rent pricing is absolutely critical to keeping things on the up-and-up, and we also think managing the turns is something that makes sense for us over time - so I think getting the help per the above makes some sense.  I would say I'm leaning towards pulling the trigger on the Option 2, but I wanted to crowd-source other thoughts from the community.

Going this route wouldn't completely excuse us from the 'hands on' management, however things like roofs, wrapping windows, and other maintenance items I've found the ability to provide a lot of value between using our bucket truck and metal break.  Other past maintenance items that may come up that we've had would include things like:

  1. Garage doors/opener issues
  2. Bugs
  3. Roofs
  4. Exterior maintenance items (gutters, fascia, soffit, etc)

I'd be really interested in any thoughts from the community from going down this road. To me this seems like a reasonable other option for the current point in time given that we are in the area and still actively manage our properties. It seems that retail rates for property managers have us give up too much - we usually are looking at terms like : 6% of gross rent, 1st month rent for tenant placements, and that's not even counting costs and markups from the actual work (ie: Capex, maintenance etc)

Thanks in advance!!!!!!!!!!!!!

Jim

It appears as though you have put alot of thought into this.  However, picking apart a warranty for ala carte items may prove to be more expensive in the end.  Look into Old Republic Home Protection, or maybe Fidelity.  They both offer basic to premiere coverages with add ons for things like appliances, roof leaks, pools, etc.

And don't be tricked by that 1 lb refigerant coverage.  It usually takes more than that when an HVAC guy comes out.  They can have 1 lb just sitting in their hose while evaluating your system.  So, that line item is like, "thanks, but really?".  You would be better suited to find a company that LIMITS the amount they can charge for the coolant, rather than covering a minimal amount.

I understand your dilema.  My husband and I had similar conversations.  It seems like once you go over 8-9 properties, the annual fee is so expensive that you are tempted to just put that money in an account as a reserve for something going wrong.  The problem is that if all 8-9 HVACs go out, you're stuck.  What's the likelihood of that happening?...probably MINIMAL, but like ANY type of insurance, do you want to take that chance?

I wonder if any of these home warranty companies have a blanket policy for multiple units...??  May be a good question when you do your evaluating.

One last thought.... insurance is just that.  I have paid my car insurance for almost 30 years, and I have been in only 2 accidents where I was at fault.  It sucks to pay that every year, but I wouldn't be caught without it!  I feel like home warranties are the same way.

@Cara Lonsdale

Great to hear of some other options/companies out there that offer warranties.

One benefit to Homeserve that we found was that there's no deductible whereas for instance an American Home Shield has a $75 co-pay deductible for the folks to show up.

However, on the downside there are a max number of calls/year (I think 2) per warranty category. And then, like you say, the 1lb charge is a joke.  From my experience those companies just say that you need some, put some in, and that gives them a chance to get a $100-500 padding for profit with little ability to verify what they've done in most cases.

So Cara, out of curiosity, have you gone with a home warranty?

Also, and we aren't wired to file many insurance claims but my assumption is that actual home insurance doesn't cover typical items that require maintenance over time?  IE a water heater goes out - insurance would be more for catastrophic items such as a windstorm blows a big branch down on to the roof, or a fire, or something?

Originally posted by @Jim Goebel :

@Cara Lonsdale

Great to hear of some other options/companies out there that offer warranties.

One benefit to Homeserve that we found was that there's no deductible whereas for instance an American Home Shield has a $75 co-pay deductible for the folks to show up.

However, on the downside there are a max number of calls/year (I think 2) per warranty category. And then, like you say, the 1lb charge is a joke.  From my experience those companies just say that you need some, put some in, and that gives them a chance to get a $100-500 padding for profit with little ability to verify what they've done in most cases.

So Cara, out of curiosity, have you gone with a home warranty?

Also, and we aren't wired to file many insurance claims but my assumption is that actual home insurance doesn't cover typical items that require maintenance over time?  IE a water heater goes out - insurance would be more for catastrophic items such as a windstorm blows a big branch down on to the roof, or a fire, or something?

 We have home warranties on all of our properties.  Most of them have Old Republic.  On our last 3, we tried American Home Shield.  We are not as impressed with them.  I have had professional experience with Fidelity, so we are going to try them on the next one.

To speak to your concern about filing claims, I would suggest a change in the mindset.  My husband and I joke that it's like our unintentional PM or Superintendant.  Filing a claim online is easy, you go over all the categories, and then narrow by symptom, then submit.  Immediately, a contractor is assigned, and you get their contact info.  They are supposed to call you, but I always call them right away to get the clock going on their response and scheduling.  

It does cost $65/$75 to file a cliam.  We consider this like a trip charge that most contractors charge anyway.

Additionally, we have made some really good contacts through the home warranty.  So, it can be a great way to build your "team" of contractors for your flips.

To speak to your question of covered items, here are a list of the last few claims we had:

Water heater leaking (x2) - Replaced with new.  in 1 of the 2 claims, we had to pay our drywaller to strip the stand of the old water-damaged drywall that was on it, and replace it, texture it and paint it prior to the water heater guy coming to replace the new one.  So, there ARE things that they don't cover like that.  They cover the broken item, but not the damage that the broken item caused.

HVAC not cooling (x2) (older units) - Replaced with new after 2 attempts to repair were unsuccessful (only 1 $65 trip charge assessed on each one since it is the same issue within a 30 day period).

Garage door not opening - replaced broken spring and rollers (we had some supplemental cost in this, but not the whole bill.  Warranty covered the lion's share)

HVAC not getting to temp - Replaced thermostat.

You get the idea.  So, it can be for items in everyday use, and not just catestrophic.

Also, it wasn't this year, but about 2 years ago, we had a pool filter leak (it was an old unit).  The warranty company wanted to repair it, but we wanted to replace it since it was so old, and the cost to replace was only a couple of hundred dollars over the repair cost.  So, we settled with the warranty in order to have it replaced.  They sent us a check for their portion of the repair cost, and we used it toward replacement.  People don't realize that this can be done, but it actually worked out nicely.

@Cara Lonsdale

Super helpful - thanks.  Great to hear a first hand example of using these types of services successfully.  Good anecdote that supports moving in that direction for us.  I'm kind of 'over' running down drain clogs and fiddling with non working garage doors.  It's not beneath me or anything - it's just I'm rolling on very aggressive rehab projects and I feel like my time should be more valuable than that stuff.

Still would appreciate any other feedback you and others may have, though!!!

@Jim Goebel Let me offer some free advice regarding Home Warranties:  You should run,  not walk in the opposite direction. 

It befuddles me how seemingly intelligent people fall for the free lunch fallacy sold by home warranty companies.  Well meaning people continue to get sucked in year after year when they hear an anecdotal story from someone about how they got a "free HVAC system" replaced by home warranty. Think for a second; do you think that home warranty companies stay in business by paying out claims left and right? You cannot buy "insurance" that gives you something for nothing. 

I'm glad to finally hear one good home warranty story.

I think home warranties are good for a new homebuyer who knows nothing about anything having to do with a house.  For anyone else who is comfortable calling a contractor or finding someone on thumbtack, I don't think it's worthwhile.

Say you have a home warranty for 10 years.  In that time, you're probably going to have a major system/appliance fail.  So whatever you pay, will by definition of a for-profit company, you will have had to pay more for the warranty than they've paid for fixing your house.

Insurance companies only get away with it because most people don't have car accidents, or house fires.  So in the end, they make money.  If you do the math, there's no way a home warranty can be a good deal.

I'm pretty ambivalent about home warranties. They're a waste of money until they're not.

I have one anecdotal story, which I'll call "The Tale of Two Sisters." I had two sisters from California as clients. They both owned a rental condo in Houston, and they both had home warranties.

The AC in sister 1's condo went out a couple of years ago. Upon inspection it was discovered that the AC motor went out in the compressor outside. That was about a $500 job. The warranty covered it minus the $50 service fee.

The AC in sister 2's condo developed a drain pan leak. It had basically rusted out around the edges. The warranty would not cover it because it was a "leak" which was excluded in the policy. They call that a maintenance issue rather than a mechanical issue. This was one of those Goodman apartment-style units. It was no longer being produced and we couldn't find a replacement part. Ultimately, we ended up replacing the unit for $1180.

My question is how much do you actually spend on repairs in a given year? These warranties are running close to $500 and up. You would be better off to set the money aside in a reserve account to pay for repairs as they come up.

We went ahead and made the plunge. Our whole portfolio is now backed by a combination of HomeServe for the main water and sewer lines, and then American Home Shield at a cost of roughly $60/mo per property total. I will try to do my best to document how this goes for us. This comes out to roughly 4-5% of our gross rents (not including deductible costs) and still allows us to try to maintain the rest of the 15% assumption for CapEx/maintenance/Vacancy that we have allotted as a goal/assumption.

We plan to keep a very, very close eye on this over the next half year and re-evaluate as it is a major cost item.  What we are planning to do is to evaluate American Home Shield's deductible options ($75, $100, $125) on a per property basis.  The lower deductible entails a higher monthly amount and would make sense for a more frequent service call type of house.

The main thinking/reasoning for this choice was that we should be doing things more valuable with our time than handling service calls.  At times, that has definitely seemed to be the case.  We should be in shape middle of 2018 to really scale if we want, taking on multiple new equity properties and some major project(s) simultaneously.  My wife Rachel has been getting more and more involved and capable and although she still works full time, 

Another consideration is that we have been evaluating more turnkey property management type of options that again might provide more flexibility with our time.  We have made the decision that the prospect of a warranty type of solution will save us tons of money compared to turnkey prop management.

We also think our portfolio/product mix/fit may be better offering for these companies than many people's portfolio (better tenant mix, likely to have less frequent calls but more of the major CapEx type of stuff than the 'average' portfolio)

@Robert Gilstrap

Thanks for the perspective.  I'd be curious to hear if this is personal and/or if you have any anecdotal evidence to back this up?  FYI I hadn't read some of the more recent comments on here until after we already made the decision and moved forward.

@Mike McCarthy

I understand what you're saying and agree with the premise but not the conclusion.

I think by your logic - should we not pay for an iPhone because they are a for profit company?  

I'm of the opinion that there's nothing wrong with making money and there's nothing wrong with a company getting profit if they are offering value - and in our case the overriding considerations we have used to justify this decision are that:

  1. We should be doing something more valuable with our time than handling service calls (and we have those opportunities in the hopper)
  2. We have higher 'costs' (lets call them transactional costs) associated with constantly trying to maintain a network of competent service suppliers.  These costs include: 
    1. risks associated with non vetted yahoos coming over and doing work, 
    2. time associated with scrambling to find someone when calling a home warranty company is much easier (heck we can even have our tenants do it), much of this time is often going out and walking the site with people.  This time would no longer be needed given that it would then be the job of the warranty company to take care of the item.

@Jim Goebel Thanks for the update and I'm really curious how this turns out for you.

To clarify, my issue wasn't the 'for profit' side of it. I have no issue hiring someone to do a job and getting paid well for it.  I would have no issue hiring a PM to handle the coordination of it.

It's the question of whether a company who isn't doing the work, nor coordinating the work, stating that "if you pay me $10/mo, I'll cover the $500 outlay you may have at some point".  

But like I said - I'll be curious how it works out for you and if it 

1) Reduces the cost of managing your houses/appliances

2) Reduces the time and effort that you and your team/wife invests.  

If either are reduced, it will have been worth it!

Definitely let me/us know!

@Jim Goebel My experience is not anecdotal at all and comes from managing hundreds of properties over the last 25 years and having dealt with a dozen or more Home Warranty Companies through probably a thousand home warranty claims.  I would never buy one for any of my personal properties because I realize it's such a scam. 

@Robert Gilstrap

I feel like there's got to be a back story here - why did the properties you were managing have a home warranty?  Did you initiate that or did the homeowner you were managing on behalf of?  It just seems a little redundant to have a property management firm also relying on a separate home warranty company.  Ideally a property management company has reached the scale to employ their own network to handle things?

I'm not trying to get personal here Robert just trying to understand why you have such a negative impression of these companies.

@Jim Goebel The back story is that well meaning home owners who bring their property to a professional manager to have it managed are sold a bill of goods by home warranty companies that having a home warranty will eliminate the huge cost of maintenance during the management relationship. so they buy one before handing over management. Over the years (before I knew any better) we would take the properties on with the intent of working in good faith with the warranty companies should any issue arise but it just doesn't work that way and any experienced professional manager will echo what I'm telling you.

HW companies can only attract the lowest skilled techs in the marketplace because of how little they pay. Then they take 3X's longer to accomplish a repair than is necessary, many times with multiple trips. For instance a part that is readily available at any local supply house that costs $83.00 there well the home warranty company doesn't allow that in their effort to save costs they want to have the part shipped from a warehouse somewhere so they can buy it at $78.00. Not a big deal right? Except when it's the dead of winter, your tenant has no heat and daily they are more and more angry at the property manager who seemingly is supposed to be in control of all this but sadly isn't. So now a simple repair that could have been completed in 2 hours takes 2 weeks and 2 trips. Yes you didn't have to pay for it but the cost is a highly pissed off renter who remembers that when it comes times to renew their lease.

Just to file a claim and initiate the process can sometimes take 3-4 hours of telephone calls between the HW company, the PM and the assigned technician. Handled internally this could have been accomplished in a few minutes. 

Then don't forget the issues where the underlying "cause" is determined to not be a "covered event" under the policy. So now you have back and forth arguing trying to get them to pay but they only pay partial or nothing. 

I'm not trying to convince you because it doesn't matter to me what you do but here is an example for you:  When I get ready to buy an appliance I never go shopping in the store. First I call up my appliance repair guy who has been doing this for 30 years and we have a conversation. I take his experience day in and day out to guide me as to how something really performs. He's the inside guy who actually knows how it works. In rental Property Management, the Property Manager is the inside guy who actually knows how it works. Take that for whats it worth I guess.

@Robert Gilstrap

That's helpful to understand your perspective.

The take away for me is that we'd use that as a data point to avoid using BOTH a home warranty company and a property management company.

From our vantage point, that doesn't make sense because of some of the logistical items you're pointing out, but also because it seems the homeowner would then be double paying and there are some redundant services.

@Cara Lonsdale

It seems Cara has had a good experience with warranty companies and from what I recall she is employing a more active management approach.  That would be our approach although we would possibly back-fill specific tenant facing and management services separately (as we continue to look for ways to free up our time and step away) from the maintenance items.  That's the current plan, anyways.

Our outlook for remote management is to hire specifically the services that are required, not to work with a turnkey kind of prop management company.  We've found their rates and value proposition(s) to be pretty squalid, to be honest.

Originally posted by @Jim Goebel :

@Robert Gilstrap

That's helpful to understand your perspective.

The take away for me is that we'd use that as a data point to avoid using BOTH a home warranty company and a property management company.

From our vantage point, that doesn't make sense because of some of the logistical items you're pointing out, but also because it seems the homeowner would then be double paying and there are some redundant services.

@Cara Lonsdale

It seems Cara has had a good experience with warranty companies and from what I recall she is employing a more active management approach.  That would be our approach although we would possibly back-fill specific tenant facing and management services separately (as we continue to look for ways to free up our time and step away) from the maintenance items.  That's the current plan, anyways.

Our outlook for remote management is to hire specifically the services that are required, not to work with a turnkey kind of prop management company.  We've found their rates and value proposition(s) to be pretty squalid, to be honest.

 I have had good experience.  

To some of the posters' point, it is true that I may have a property with a warranty on it that I renew year after year, and nothing has needed repair for a couple of years before something does.  I also have properties that need new water heaters the week/day after closing, or garbage disposal or HVAC.  So, there is a balance there.

For the record, I have been an investor since 2002 holding a portfolio of rental properties.  So, I am not a newbie investor as a previous post might have suggested.

@Jim Goebel I don't know if I mentioned this, but many of the warranty companies have a tenant interface.  So, for Tenants we trust, I set them up on the warranty interface so that they can submit claims directly.  I get an email when a claim is submitted so I am 'in the know'.  I can step back on it a bit and don't have to be so actively involved, which helps during vacation times.

I think that there are many home warranties that may not have worked well for some people, AND not ALL home warranty companies are alike, so they really need to be judged individually.  However, I think that if you look at it like car insurance or home owner's insurance, it can be a great tool of protection for you.  I wonder if the people complaining about warranties also complain about their car insurance that doesn't cover their oil changes or tires?  Of course Home Warranties are limited.  EVERY insurance policy is.  You just need to know what they cover.  

For people who think they are a waste for years of payments, think about this....an HVAC system is $7K (in my area).  It would take me 14 years of paying $500 per year in order to get to $14K.  I GUARANTEE I will use the warranty for SOMETHING else along the way, but even if I don't, it would only take the warranty replacing 1 unit in 14 years to be a wash on the money spent.  And to continue with that example, I have had 2 properties each need NEW HVAC units within a year of owning them, and 1 property that had 2 HVAC systems that needed to be replaced within 2 years of owning it (they both went out within a month of each other).

So, just like any kind of insurance, it just makes sense to add that layer of protection....IMHO.

@Cara Lonsdale

@Jim Goebel

Caras comments are exactly what I was referring to and I'm not jumping on her by any means but read the last paragraph. She, like many others somehow thinks that insurance companies are stupid and they must pay out more in claims than they take in, It's just a complete fantasy. Folks, there ain't no free lunch and if you think you can somehow get over on an insurance company then you are no different than the gambler who thinks they can win in Las Vegas. Insurance companies build multi-million dollar buildings and hire thousands of employees by losing money. By the way I'm a licensed insurance broker telling you this.

Originally posted by @Robert Gilstrap :

@Cara Lonsdale

@Jim Goebel

Caras comments are exactly what I was referring to and I'm not jumping on her by any means but read the last paragraph. She, like many others somehow thinks that insurance companies are stupid and they must pay out more in claims than they take in, It's just a complete fantasy. Folks, there ain't no free lunch and if you think you can somehow get over on an insurance company then you are no different than the gambler who thinks they can win in Las Vegas. Insurance companies build multi-million dollar buildings and hire thousands of employees by losing money. By the way I'm a licensed insurance broker telling you this.

 Robert, do you carry car insurance?  How about Homeowner's insurance?  Do you think either of those are non-profits?

Of course they make money.  No one is under any type of misconception about that.  Insurance provides that safety net that should something big come up, it will be covered.  It's one thing to take the chance on 1 property.  What about the person who has 10 properties?  If even 4 of them have HVACs go out, what would that do that investor?  It's much easier to pay the $500 per year as INSURANCE for those items that to take the risk and have to come out of pocket for 4 at one time.

As with ANYTHING insurance wise, unless you have enough $$ saved up to self insure, you are safer to HAVE the insurance than not.

My one experience with home warranty was that we had purchased it for 1 year one of our rental properties at the suggestion of our realtor. It’s a 90+ yr old house so thought it was a good idea at the time. Paid about $350 for the home warranty (fidelity)
Within a couple of weeks we called in for service because drains were backing up. $65 service call and the plumber snaked the drains and the clean out. So I guess I saved about $100. 2nd time it happened within weeks, they determined it was in the sewer line (tree roots) not the drains in the house so they wouldn’t cover it. So eventually I ended up spending big bucks for camera scope, service, and eventually replaced much of the sewer line. Next within the same year, hot water heater went out, they couldn’t sent their plumber out so they charged me $65 for “service call” and told me to get my own plumber and they would reimburse.
That cost $235 to repair and the plumber recommended replacement as he felt that the repair wouldn’t hold for long. Final result was they agreed to reimburse me for the $235 but refused to pay for replacement although two weeks later the hot water heater went out again. The plumber even sent in his recommendation for replacement at the time of the first repair but I was told they would replace it until there was a “total failure” (which would have resulted in additional damage to floors and drywall, according to plumber) So I ended up paying $1500 to replace hot water heater. So basically it was a wash or really a slight loss. So to me it didn’t seem worth it so I did not renew.

Like I said, I'm not trying to convince anybody either way, just giving my two cents. That being said; my two cents doesn't come from 1 or two houses or one or two warranty companies. My experiences are from 25 years, thousands of claims, hundreds of properties and dozens of different home warranty companies. My opinion as a professional Property Manager is that only a fool would buy a home warranty but fortunately this is America so you can take that and do what you want with it.

@Robert Gilstrap

Thanks for the perspective, Robert.  You got this by being a property manager.  I would think there'd be some redundant/competing offerings between a property manager and a home warranty company.

Also to speak to your previous response - you as well as others on here are essentially implying that the 'make vs. buy' decision is largely informed by whether you are buying from a company that's in the black.  I think this is really misguided - personally.  I assume you are not using an iPhone, or any other well made phone from a profitable company if this was the case.  I think the 'make vs. buy' decision is a bit more complex than that.  I don't think you're framing this as much as a 'make vs. buy' decision as much as a 'hire a property manager vs. buy a warranty' but please consider... For us, this is a 'make vs. buy' type decision.  We are either going to self manage, or we are going to utilize some combination of a la carte service offerings including home warranties.  We own 10 properties currently and honestly property manager rates at market (6-8% of rents plus first month rent for tenant procurement) are simply too high and we're giving up too much.

There are plenty of cases where another company has specific capabilities, scaling effects, etc where it makes plenty of sense to pay a profitable company (insurance companies included) for value they have figured out how to provide.

Just out of curiosity - do you not use health insurance then, either?

Car insurance?

Because the providers are making profit?

@Jim Goebel   So I'm lost here a little; I never suggested that you should hire a property manager to solve all your problems I simply gave you a perspective of how home warranty companies operate and my personal experience with them. Nor did I ever suggest that companies should not be in business to make money, quite the contrary. But your questions about do I buy health insurance or auto insurance the answer is I absolutely do,  but I don't pay for health insurance that doesn't have good coverage or auto insurance that doesn't pay out on claims and my entire suggestion is that home warranty policies are akin to buying extended warranty coverages. They sell it but that doesn't make the purchase decision a smart one. 

Everyone "in the business" knows they are a bad decision but people still buy them. 

@Robert Gilstrap
@Joni Chin

@Cara Lonsdale
@Mike McCarthy
@Fred Heller

OK sorry for the many tags if any of you are NOT interested in following this, please let me know.  I for one have gotten a great deal of value on threads that follow up and provide info over time.  So here goes....

About 3 months ago we converted our ENTIRE portfolio (we're at 9 units, with 10 doors - one is a duplex and the rest are SFHs) to a complete Home Warranty - and went with American Home Shield, with supplemental coverage for the main sewer and main water lines offered through Des Moines Water Works (they work through a company called HomeServe).  Our 'typical' or 'model' affords some nice cash flow and for the most part we are VERY happy with our tenant mix so I think this may be relevant for our decision justification.  I have some friends where they are operating a 'different' rental business where their margins are a lot thinner so that roughly $60/mo added cost per property would not be tenable.  Note: the duplex they hit us for the premium on a per unit basis.

So, it's not an insubstantial cost going out the window every month - roughly $500 let's call it.  We're 3 months in and have initiated 4 calls (work orders etc) to date.

Here have been our data points, with both financials and some more 'color' on how they've gone:

Early April 2018: First Call in was a Stop Box failure where it failed in the open position and tenant had not been paying Water Bill for entire tenacy.  I was disappointed in the responsiveness of DMWW with regards to providing us notice of the situation.  It wasn't until 5 months after this all started (and they tried to shut off the tenants' water) that we got a letter letting us know the situation.  (by the way, this is our last BAD tenant and he's out now).  Anyways, this was a HomeServe call and they initially indicated that they were unsure/doubtful they needed to respond to the situation because it was non-emergency.  We had some back and forth about what constitutes an emergency, and she did relent and agree to dispatch someone.  The company they dispatched it also mentioned the word emergency and I again had to push back and state our case that it WAS in fact an emergency.  They did do it, however, and they did a great and quick job.  I don't know how much stop box replacement projects cost and we typically don't pay retail prices for anything.  However, there was NO deductible on this and they did a great job.  I'm guessing we would have been out $500 and 2 days of my time to manage this project, or average (just got that from an article from Des Moines Register) labor cost of $1183 if we were to do it more 'turnkey'.  In either case especially given the timing of this item I'm thrilled with how it went.

Late April 2018: We initiated a call also to HomeServe when we had a severe (nasty) backup with a lateral floor drain on one of our rentals.  We aren't sure of the cause but suspect one possibility was a day laborer from Ghana (really nice young man) that just didn't know what was appropriate to go down the toilet.  This was during a turn period and we actually let a new tenant for another house stay in the house for a week while we completed updates on their permanent home, when this happened.  Again, HomeServe this time on the sewer side, dispatched (with no fighting this time) a Drain type plumber.  They came in, did a great job, and we haven't had any more issues.  No deductible there.  Guessing this would have been a $150-250 type call if going with a Roto Rooter (don't ever hire them by the way) and I can't trust them as far as I can spit so who knows it may have turned into a disastrous main sewer line replacement if my one experience with them was representative...  

Early May 2018: Got an AC call on a house owned under an IRA. Called AHS and they dispatched local company. Diagnosis was that the compressor was gone, in the condensing unit. After a couple frustrating conversations with AHS trying to explain the difference between a diagnosis and prognosis (I was frustrated they just wanted to replace the compressor or rather that's all they would pay for - when because this is an R22 unit and older unit, we felt it was about time to replace the coil and condensing unit). As a side note, the 'trump card' for the companies that work through AHS is their crazy markup on refrigerant. AHS only covers $10/lb of this stuff and that gets you like 5% of what these companies charge... At something like 400-500% markup, by the way... Anyways, we had to learn a bit more about AHS's process and we learned you can request what's called a cash in lieu amount. The catch is that they apparently want to 'kind of' stay involved in the project at least in terms of verifying something was done and they have communicated they want someone licensed and insured to do it. Largely because of all this we decided to go with the company they originally dispatched. They came in at $3700 less the cash in lieu amount of $775 so just under $3k for this project. Sucks paying retail and I feel.. Middle of the road when just looking at this project in terms of AHS. I feel confident I could get the project done for closer to $2000 total if I was managing it, however both because this house is under IRA and there's additional rules and possible scrutiny there, but because AHS was insisting on essentially verifying the licensed/insured part, we pulled the trigger on this one.

Yesterday: Initial call from tenant was AC not working.  We had it charged recently so that's peculiar.  Upon further examination, something weird is happening electrically on condenser unit circuit.  Like, something I've never seen before - it makes a violent rattling sound when the AC condenser is running, and that circuit breaker (a 30A/2P) is closed.  Sound is right above the panel.  This work order is in process and they dispatched a company that has experience/licenses on both the AC and the electrical side.  My suspicion is that the panel 'should' be replaced as it is a Federal Pacific and such... We will see on this one.

In total I feel with this pretty steady outflow of $500 / mo we are at roughly $1500 cost for these services.

My analysis on this decision goes something like this:

Let's sum our costs, and compare to our benefits.. Which consist both of money saved, and time saved (I have to put some assumption of what my opportunity cost of time is)

On the Cost side, we're at the $1500 total roughly.

On the benefit side, we'd be at $1183 + $200 + $0 (I think this outflow is pretty 'in line' with a turnkey AC replacement option given the above constaints...  + (not sure we'll see how the most recent electrical / AC one turns out) + my time saved which I'm estimating would be at maybe 2 days total to deal with these items one way or another (either actively manage or vet/bid stuff etc)...  Which I'd put my time at invaluable :)  Maybe $300/day, I don't know....  

So I'm getting something like a $1500 cost vs a $2000 benefit.  With HomeServe really being the star of the show mostly just because of the data points we've had so far.   Yes, I'd do it again, as of right now.  Will try to follow up every so often.

@Jim Goebel that's great feedback, and to be honest, I'm actually really surprised.  Not only about the cost/value, but that you were able to work with them to get the work completed reasonably easily.  (figuring that it would be time consuming to find a contractor, get them in for a quote, etc etc anyway).

Thanks for the details.  Please keep us updated on how it goes!

Originally posted by @Jim Goebel :

We were just yesterday looking at some options for home warranty type of services and I think crowd-sourcing this one may help:

The provider we were looking at specifically was HomeServe, however there are numerous other companies.  Details in the fine print do matter, for instance a typically large and padded, profitable expense for HVAC companies is their crazy markups on their refrigerant, and there's a max of 1lb of charge that would be covered under the HVAC portion of the plan.

Our biggest pain points given where we are (7 rentals currently) has been finding competent and trustworthy people in the HVAC and plumbing fields.  We are in that middle ground where we don't have enough stuff come in where we can keep the good people locked in/engaged, but we've got enough stuff that we need help.

The two strategies that we think are most viable are to evaluate doing a piecemeal (a la carte) approach to the use of these warranties, or to just pay for all for all properties.  For instance, of our 7 rentals perhaps the ones with 10+ year old water heaters, we pay the $7/mo or so for the water heater repair/replace plan.  The available options for warranties break down into things like:

  1. exterior main water line coverage
  2. exterior main sewer line coverage
  3. interior plumbing line coverage
  4. HVAC (cooling system) coverage
  5. HVAC (heating system) coverage
  6. hot water heater coverage
  7. electrical system coverage

We broke down two viable options:

Option 1:  Evaluate Risk/reward likelihood on each property as to whether we get individual coverage, total yearly cost of this is ~$2100/yr which comes to approximately ~2% of our gross rents

Option 2: Go with full coverage on every property we own, total yearly cost of this is ~$5100/yr, which comes to approximately 4.5% of our gross rents.

We usually work off a 15% goal/assumption (of gross rents) that allows for costs tied to vacancy/maintenance/capEx items, which so far (been operating for 3-4 years) we have been significantly under that. Barring a few major CapEx items like new furnace/ACs, we have been fortunate and doing well based on this. Our rents are towards the top of market.

I'm often cranking on actively managing a project, as I am now - the cost/hit to profitability is big but it does feel like we are at a point to absorb it and it makes business sense.  I'm getting pulled in enough directions that evaluating options for property management has already been 

We enjoy the tenant management side of things, think that the rent pricing is absolutely critical to keeping things on the up-and-up, and we also think managing the turns is something that makes sense for us over time - so I think getting the help per the above makes some sense.  I would say I'm leaning towards pulling the trigger on the Option 2, but I wanted to crowd-source other thoughts from the community.

Going this route wouldn't completely excuse us from the 'hands on' management, however things like roofs, wrapping windows, and other maintenance items I've found the ability to provide a lot of value between using our bucket truck and metal break.  Other past maintenance items that may come up that we've had would include things like:

  1. Garage doors/opener issues
  2. Bugs
  3. Roofs
  4. Exterior maintenance items (gutters, fascia, soffit, etc)

I'd be really interested in any thoughts from the community from going down this road. To me this seems like a reasonable other option for the current point in time given that we are in the area and still actively manage our properties. It seems that retail rates for property managers have us give up too much - we usually are looking at terms like : 6% of gross rent, 1st month rent for tenant placements, and that's not even counting costs and markups from the actual work (ie: Capex, maintenance etc)

Thanks in advance!!!!!!!!!!!!!

Jim

 Home Warranty companies are in business to make a profit. So think about it. What are the odds you'll start making more money if there is now another hand in your cookie jar?

@James Wise

Not sure I follow your line of reasoning.  Every company is out to make profit.  You, and your agency/brokerage is out to make a profit.  Does that mean I shouldn't work with you or that there can't be a win win?

How about insurance companies?  Same question - does it not make sense for people to use insurance given the same question and realization that those companies need to be profitable to be in business?

Anyways I'll keep following up with our experiences here over time and people can judge for themselves.