Home Warranties are Rental No-No

What is the worst rental property investment you can make? Buying a home warranty product.

As the owner of a property management company, I have not once seen a home warranty company pay out. They are in the business of turning down claims and from a property management company point of view, I have seen tenants wait months for the home warranty company to send someone, who merely states the issue is "a preexisting issue" and denies the claim.  Watch the video on home warranties to experience my rage!

Navigating the complex landscape of property management and real estate investment in Philadelphia, I've encountered countless questions, concerns, and strategies aimed at protecting investments and ensuring the longevity of rental properties. A recurring theme, particularly amongst new and seasoned real estate investors alike, revolves around the value and efficacy of home warranties. Given the frequent inquiries and discussions within our community, I felt compelled to address this topic head-on, drawing from both personal experience and the collective wisdom of the property management industry.

The Great Home Warranty Debate

Home warranties often appear as a safety net, promising peace of mind to property owners by supposedly covering the cost of repairs and replacements of appliances and systems within the home. However, the reality of these warranties, as echoed by real estate investors, property managers, and participants in real estate forums like BiggerPockets, is starkly different. The consensus? Home warranties are often seen as more of a hindrance than a help, labeled by many as outright scams.

Why Home Warranties Fall Short

The primary issue with home warranties lies in their execution and the fine print that accompanies these contracts. From a property management perspective, the challenges are multifaceted:

  1. Limited Coverage: Despite the promise of comprehensive protection, home warranties frequently exclude numerous scenarios and components through clauses stipulating "pre-existing conditions" or "normal wear and tear," leaving many claims denied.
  2. Delayed Response Times: When a repair is needed, especially in urgent situations, the response time of technicians dispatched by home warranty companies is notoriously slow. This delay is unacceptable from both a property management standpoint and the tenant's perspective, compromising the habitability of the property and tenant satisfaction.
  3. Subpar Service: The technicians sent by home warranty companies often hail from the bottom of the contractor pool, chosen not for their expertise or reputation but for their availability and willingness to accept lower compensation. This arrangement seldom results in quality service or repairs.
  4. Cost Inefficiency: The cost of maintaining a home warranty, coupled with service fees or deductibles paid for each repair visit, can accumulate quickly, often surpassing what direct repairs or replacements would cost without warranty interference.

A Property Management Perspective

In my experience running a Philadelphia property management company, the implementation of home warranties has invariably led to frustration, both on our end and among the tenants we serve. The allure of a home warranty's promise quickly dissipates when faced with the reality of non-covered claims, long waits for service, and inadequate repairs. It's a lesson learned through trial and error, leading to a firm stance against relying on home warranties as a viable property management strategy.

The Alternative Path: Preparedness and Quality Maintenance

Instead of depending on the uncertain protection of home warranties, a more effective approach involves proactive property maintenance and the establishment of a reliable network of skilled, reputable contractors. By investing in regular upkeep and building relationships with professionals who can respond promptly and efficiently to maintenance needs, property owners can ensure their investments remain in top condition, all while providing tenants with the safety and comfort they deserve.

Conclusion: Heeding the Call of Experience

The collective voice of the real estate investment and property management community is clear: home warranties, more often than not, do not fulfill their intended purpose. As we navigate the challenges of managing rental properties in Philadelphia, let's lean on the lessons learned from those who have walked this path before us. By focusing on direct, effective maintenance solutions and steering clear of the false security offered by home warranties, we can protect our investments and uphold our commitment to providing excellent housing to our tenants.

To my fellow Philadelphia property managers and real estate investors, let's continue to share our experiences, learn from each other, and strive for the highest standards in our industry. Here's to successful investing and property management, grounded in reality and informed by the collective wisdom of our community.

Author:

Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

View all posts by Joe White