Home Warranty instead of a Property Manager?

Question

I still have not pulled the trigger on my first real estate investment. I recently had lunch with a buddy who is a Realtor and owns a few properties he rents.  We were talking shop, I mentioned I would 100% need a Property Manager, as I am not in a position to take calls about clogged toilets and such.

He said for one property, don't use a property manager, just purchase a Home warranty, and give the tenant the repair number.  Like "Don't call me, call this number."  He said the service is like a maintenance portion of a property manager, where they contract with various trades such as electricians, plumbers, carpenters, etc. and send out whoever is needed.  Often they respond in 24-48 hours.

It sounded too good to be true.  I tried to think of a situation that his theory would fall apart.  The best I could come up with is burnt out light bulbs, this repair service isn't going to want to come out for trivial stuff, that a normal homeowner would take care of, but a tenant might feel entitled too.  I don't want to pay $150 to have a light bulb changed.  He said you just write a clause into the lease about normal maintenance items such as light bulbs, items with batteries etc.

It seemed pretty iron-clad but still sounds too good to be true.  The maintenance/repair part is really the only service of a property manager that I just don't want to deal with. I don't mind screening tenants and dealing with contracts, etc.

Has anyone done this before? Is it crazy, am I missing some reason why this wouldn't work?

Thanks

Nathan Gesner · Answer

No offense, but your buddy is a bad source of information. First, who is going to market your propert? Handle showings? Screen applications? Chase rent? Deal with noise complaints? Drive by and ensure the yard is mowed?

A lot of people, including your buddy, seem to think it doesn't take much to manage a property. He's naive. I manage hundreds of rentals for people that thought it would be easy to be a Landlord, then they come to me after 5-10 years of losing money and beg me for help. Most of them make more money after paying my fees because I save them from the major losses they used to suffer.

The home warranty programs have issues. Use the search bar for "home warranty" and you'll see a lot of opinions on this. Here's mine in a nutshell:

1. There are a lot of things they don't cover. It looks good on paper but read the fine print.

2. All repairs must be scheduled through them which can cause serious delays. You (or the tenant) call to report the problem. They call around to find a technician interested in the job. Technician contacts you (or the tenant) to schedule a visit.

3. They pay about half what a technician would be paid on a regular call, so it's usually only the lowest-quality technicians willing to take the job. In my area, an appliance repairman charges $60 an hour and the home warranty programs pay less than $30 an hour. Oh, and there are extra expenses for the technician to be "qualified" by the home warranty company. I have two appliance techs in my town and neither of them will work with home warranty companies.

4. They do the bare minimum to fix the problem.

5. There is a cost for the home warranty program and a deductible for every repair trip.

Home warranty companies are in the business to make money, not make your life better. They only make money by doing the bare minimum. Research it.

Hunter Vigneault · Answer

Tenants are normally responsible for light bulbs and other minor repairs like that.

As your friend said, the home warranty company "often" responds within 24-48 hours but they don't always. Unaddressed or slow repairs makes for an unhappy tenant. The tenant may decide after a number of unsatisfactory calls to not call them again for something that seems like a minor inconvenience to them but becomes a larger issue to you.

Also, a home warranty will not help with every issue you might face. It might be an ok alternative when compared with a bottom tier property manager, but a good to great property manager will provide you with much more value beyond just scheduling contractors.