Why You Should Not buy a Home Warranty for Your Rental Property!
Owners considering a home warranty for their Saint Augustine or Jacksonville rental home should know what property managers do and why you are better off not using one for your investment property.
When you own a rental property, your top priority is to keep it in good condition to attract tenants and get the highest NOI. While homeowners insurance covers damage caused by lightning, fires, and other natural disasters, a home warranty claims to protect your appliances and systems. However, are home warranties for rental properties worth it?
What is a Home Warranty?
A homeowner warranty is a service contract that allegedly protects the homeowner from costly repairs or replacements by covering appliances and systems. This home warranty plan mentions major appliances such as water heaters, air conditioners, refrigerators, dishwashers, clothes washers and dryers, incorporated microwaves, heating, and electrical systems, garbage disposal, and many more. A landlord's home warranty protects all types of homes, whether townhouses, single-family homes, or multi-family homes, but the pricing and coverage differ depending on the house type and plans. Many Property Management Companies in Jacksonville and St Augustine have stopped using home warranties.
8 Drawbacks of a Homeowners Warranty on Rentals
There are a few home warranty success stories, but there are far more horror stories. Numerous experienced property managers don't even manage a rental property with a home warranty because the warranty company designs them in such a way to benefit only them. It's the only way they can make a living, while in the process doing your property and residents a huge disservice .
1. They select their Jacksonville and St Augustine Home Warranty vendors by the lowest bidder.
Home warranty companies are a business and their purpose is to collect fees while repairing as little as possible to stay profitable. By all appearances they select their vendors by the lowest bidder and from our experiences the lowest quality. Home Warranty vendors are not usually customer service oriented (average hold times when making a claim range from 45 minutes to 3 hours, yes we’ve experienced this at Nest Finders) , because they don’t need to be. They don’t work for the homeowner, the property manager or tenant, and they tend not to aim to please any of the above. This is where the real difference comes in, and why we struggle with wanting owners to have choices but also wanting to maintain our personal level of customer service as well as adhere to landlord/tenant law.
2. They Rarely ever use the same vendor (even on repeated repairs)
Rarely do Home Warranties in Jacksonville or St Augustine have the same vendor service the same system twice. This results in “blame games”. In 2016 I had one HVAC vendor state a system was low on Freon (never covered under warranty) then the next vendor out stated there was too much Freon in the system which needed to be removed (Freon removal is also not covered). Later that season a third vendor insisted the coils were too damaged to hold Freon at all. Meanwhile, the tenant had an awful summer, hated the owner and us. Thankfully for us, warranty disputes are always for the owner to address with their provider.
3. They put you in a position of potential liability.
Home Warranty Companies are notoriously horrible in contacting tenants and scheduling timely repairs. The Florida Landlord Tenant Law is very clear on making timely repair. In the wise words of Harry Heist, Esquire of Evict.com “Judges and Juries don’t care about your home warranty, or that the home warranty company has been called. Many times Warranty vendors may not be available for several days, we have even seen weeks, and landlords are required to make timely repairs and on necessary, especially heating/cooling and appliances which are the most common repairs. Warranties are never an option for emergencies like gushing water or leaking or failing HVAC systems, unless you don’t mind costs like secondary damages, insurance deductibles or possible claims of personal injury like heat stroke or other safety issue. Our agreements at Nest Finders actually prohibit the use of home warranties for emergencies, in order to protect both the property and the tenants. If a repair is not made within 7 days, a tenant can void a lease under Florida Law.
4. Vague Terms
One significant disadvantage of a home owners warranty is that it does not cover items inadequately maintained. Unfortunately, proper maintenance can be a grey area, causing many disagreements between home warranty companies and warranty holders. In the worst-case scenario, unethical warranty companies may use the improper maintenance clause to deny valid claims. In other cases, the homeowner and the contractor who comes to the house may disagree about what constitutes proper maintenance.
5. Many Exclusions
Another common issue is that when a homeowner buys a used rental property, it may come with a 10-year-old HVAC system that the previous owner neglected to maintain. By then, no matter how well the new homeowner tries to care for the HVAC in the future, the previous neglect is invariable, and any damage is irreversible. Furthermore, warranties have a slew of exclusions as well as dollar limits per repair and year.
6. Money Loss
Home warranties are not expensive when compared to the cost of repairing or replacing a home's most essential components, and this is one of the major selling points of a warranty. However, many years may pass when nothing significant in the rental property breaks down or wears out. During these years, the homeowner receives nothing in return for their premium. If the homeowner had put that money into an emergency fund, it would have earned some interest. Furthermore, a homeowner who attempts to use the warranty and has a denied claim will likely feel that they wasted the money spent on the premium and the service call fee.
7. Racking Up Those Deductibles
We saw this red flag pop up when one of the home warranty vendors had to make repeated trips to a property to deal with an HVAC issue, each time collecting the deductible. The tenant was becoming very agitated with this cost and the fact that his AC kept failing in the middle of the night. I was becoming equally agitated with the fact that the home warranty’s policy was clearly to continue to apply cheap band-aid “solutions” rather than to repair properly or replace the HVAC, which was obviously at the end of its useful life.As time progressed, I came to realize that the home warranty simply used substandard contractors. No matter what specialty area I needed service in, that was the case.
8. Limited Choice
A homeowners warranty eliminates the need to look for a contractor when something breaks in your home. However, it takes away your ability to choose your expert if you want the warranty to pay for the repair or replacement. You're stuck if you don't like the contractor or the work they do. Also, the owner may have little or no say in the model or brand of a replacement component, even though the warranty contract should offer an item of comparable or equivalent quality. Furthermore, when a third party (the home warranty company) is involved, the entire process may be more complicated than if a homeowner deals directly with a contractor
In closing Owners that have tenants that stay for long periods of time enjoy more stability and make more money with higher returns. Tenant turnover is costly all by itself. If you have a well-qualified tenant that takes good care of your home, pays rent on time and follows the terms of your lease, it is not wise to torture them with a bad warranty service that likely doesn’t even save you money.
Nest Finders Property Management
9889 Gate Parkway N #402
Jacksonville, FL 32246