How Home Service Plans Can Help Protect Your Investment
The Importance of Implementing A Risk Management Plan
By: Brett Worthington
In the world of real estate investing, finding the right property at the right time is just the tip of the iceberg when it comes to building and protecting your portfolio. Successful investors understand the importance of implementing an effective risk management plan along with strategies focused on value appreciation, expense management, occupancy and many other critical functions.
For those in the residential space, solving for maintenance and repair issues is likely near the top of the list of priorities. Unexpected breakdowns to components of major home systems and appliances can lead to time-consuming, costly and frustrating experiences for tenants and owners alike. No matter how thorough the inspection or how well-maintained the property, minimizing the risk associated with ongoing repairs and maintenance is vital to managing expenses, minimizing gaps in occupancy, and protecting the value of the property.
Home service plans (also known as home warranties), are a cost-effective and budget-minded option for investors who do not want to build their own network of repair services and technicians. Originally introduced 50 years ago to help give homebuyers peace of mind when purchasing a pre-owned property, home service plans ensure that if a covered item breaks down, the owner enjoys the benefits of budget protection and convenient, professional repairs. Members simply pay a pre-determined fee when placing a service request, and the company taps its network of qualified service contractors to diagnose and repair covered items that have malfunctioned due to normal usage. And, if a covered item can’t be repaired, it’s replaced, or they find an alternative solution.
Relieving property management headaches
Today, a home service plan can also help property investors manage their own budgets for repairs. The ability to be onsite or remotely manage the repair process can be challenging, especially when your portfolio is geographically distributed. Recruiting and onboarding a network of service providers to do the work is a labor-intense proposition and resolving maintenance issues in a timely fashion for your tenants is critical.
Adding value by simplifying
Along with protecting your cash flow and helping to alleviate operational headaches, partnering with the right home service plan provider can drive value in a variety of other critical areas, too. Some home service plan companies are expanding the scope of services to cover recurring maintenance concerns like HVAC and furnace tune-ups, or re-key services required when changing tenants.
An additional benefit of a home service plan is that, while it can be purchased at any time in the lifecycle of property ownership, it can also be paid for as part of escrow, simplifying your list of payments to track, and ensuring that you won’t have a waiting period for coverage to start. Some companies offer a choice of a two-year plan as well.
Do your homework. Providers and plans vary significantly.
A one-size fits all approach rarely works in life, and it’s certainly not the way to find the partner that’s right for you. You likely have a trusted team to work with throughout a real estate transaction: your real estate professional, title company, and inspector. Consider adding a home services company to that list. Talk to your real estate professional to get more details on the home service plan options available to you and do your homework. Here are a few additional – and very important things to keep in mind:
- Comprehensive coverage: It sounds simple – a plan covering systems and appliances should cover all systems and appliances in the home. But coverage can vary widely. Review a sample contract and make sure your plan has the per-item coverage you expect, and no surprise limitations on “wear and tear.”
- Property types covered: Some home service plan companies cover more than just single-family homes; make sure the types of properties you invest in can be covered by your home service plan partner, whether condos, duplexes, or new construction.
- Customizable options: Consider the add-on coverage and other services available, like roof protection, maintenance services like HVAC and furnace tune-ups, or convenience services like re-key.
- Innovation: Some home service plan companies are keeping things “business as usual,” requiring a phone call to request service and check on status, while others are focused on leveraging technology to simplify and improve the member experience. When it comes to requesting service, look for those not only offering obvious conveniences like an online portal to submit a request and track status, but also those offering remote troubleshooting and diagnosis. This minimizes the number of onsite visits required to resolve your repair, possibly eliminating them entirely, keeping your to-do list short and your tenants happy.
- Track record: Make sure the company you’re considering has a proven track record – a partner worth considering should have a sizable number of service requests and claims paid worth bragging about.
With this checklist in hand, talk to your real estate professional and find a company and a plan that offers the most comprehensive coverage and works best for you. When you find your next investment property, you will be ready to order a home service plan prior to closing and be confident that your budget line for maintenance and repairs won’t be a guess anymore.
