Avoid This Costly Home Warranty Mistake

In this blog post, I want to expand on a topic I've touched on in a previous video—why home warranties might not be the best option. If you haven’t seen that video, check it out for an in-depth discussion. In this post, I'll offer a real-life example to illustrate the pitfalls of relying on home warranties.

The Home Warranty Dilemma

You’ve probably heard me mention my grievances with home warranties before. They often seem appealing at first glance, much like insurance—they promise to cover you in case of emergencies, whether it be medical, automotive, or home-related. However, the reality often is that when it’s time to pay out a claim, these companies find numerous ways to avoid doing so.

Real-Life Case Study: A Costly Delay

We were involved in a make-ready process for an owner who had just renewed their home warranty. Although we usually don't work with home warranty companies, we agreed to this one. On June 30th, while doing a make-ready, our team discovered an AC issue. We secured an estimate on July 1st, which pegged the fix cost at $1,000. Rather than proceeding with our contractor, the owner wanted to use the home warranty service.

Here’s where the delays started. Due to a recent hurricane and ensuing demand, the home warranty company took three full weeks to schedule an appointment. Repairs only got approved and completed a month later, on August 1st. This delay caused unnecessary stress and financial ramifications for the owners.

Calculating the Losses

The property, which rents for about $2,000 a month, sat vacant for the entire month of July. That’s a direct loss of potential rent. On top of that, there were costs for the home warranty’s service fee and trip charge, adding another $75 out-of-pocket expense. This doesn’t even factor in other costs such as utilities, lawn care, or potential vandalism risks associated with a vacant property.

The Value of a Reliable Network

The main takeaway from this scenario is simple: as you grow your real estate portfolio, building a reliable network of contractors, agents, and property managers becomes invaluable. This network obviates the need for home warranties, which often prove inefficient and financially unwise. Once you have a good team, the reliance on home warranties should diminish.

Conclusion

In summary, while home warranties may seem advantageous, their limitations often don't justify their costs. In the long run, developing a trustworthy team and contractor network provides more reliable and efficient solutions. If you’re just starting, a home warranty might serve a temporary purpose, but as your operations scale, consider this a temporary measure, not a permanent solution.

If you find this helpful, let me know. If not, I’d love to hear your thoughts and experiences. Remember, when it comes to home warranties—proceed with caution.