Home Warranty Decision(s) for entire portfolio

[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