If you’re like most other investors — especially those managing properties out of state — you might have given some thought to getting a home warranty. These warranties help cover the costs of repairs and replacements in your rental properties, which means you can end up saving on maintenance costs and maximize your net income.
In this article, we’ll explain exactly what a home warranty is, why you might want one for your investment property, and some downsides to getting one that you might not have thought about.
What Is a Home Warranty for an Investment Property?
A home warranty is like a homeowners insurance policy but with a few key differences.
Includes Coverage of Smaller Items
First, it covers smaller repairs and replacements. While an insurance policy might cover foundation damage, damage caused by falling trees, floods, and fires, a home warranty covers appliances and/or home systems.
This might seem like a minor distinction, but a home warranty will often come in handy more often than an insurance policy, as you’re more likely to experience the issues it covers.
No Deductible
Second, a home warranty doesn’t include a deductible. That means that if you have an issue with a covered item and it needs to be repaired or replaced, your out-of-pocket costs will be minimal. Where you might pay a few thousand dollars for a homeowners insurance deductible, you’ll only pay a small service fee — around $85, on average — with a home warranty. Ultimately, that means greater savings and increased investment profits for you.
And No Penalties for Filing Claims
Finally, your homeowners insurance premium will likely go up with each claim you file. On the other hand, filing claims with a home warranty will not cause your annual cost to increase, despite the total being much lower than homeowners insurance, to begin with.
What Are the Upsides of Getting a Home Warranty?
There are several benefits to getting a home warranty in place for your investment properties, but here are a few of the primary pros you should know.
Lower Maintenance Costs and Greater Profits
First, and most importantly, home warranties will very often lead to lower property maintenance costs. Like all investment property owners, you probably spend a lot of time looking to decrease maintenance costs to maximize profits. A home warranty lets you do just that.
Warranties will often cover replacement and repair costs for some of the things that see the most use and abuse in your rental properties. These include major appliances — like refrigerators, stoves, dishwashers, washing machines, and clothes dryers — and major home systems — like heating and cooling equipment, water heaters, and electrical systems.
The money you save by choosing a home warranty can often be well worth the investment.
Peace of Mind
Whether you own one or a dozen investment properties, managing rentals can be stressful. This is mostly because you never know what will break down when and cost you hundreds or thousands of dollars. Home warranties provide peace of mind that you’re covered in the event of an issue.
Home warranties can be incredibly helpful for providing peace of mind when you buy a new investment property. They help protect the older systems and appliances that you have minimal information about.
Built-In Property Management
Finally, home warranties can help reduce the time investment in your properties. Rather than responding to a call from your tenants about an issue yourself, you can file a claim with your home warranty. The company will automatically send out a technician to check on the issue, saving you time and providing you with a professional opinion about the problem.
Are There Any Drawbacks?
Of course, home warranties aren’t perfect. There are a few downsides to getting one for your investment properties that you’ll have to consider when deciding if a home warranty is a good option for you.
Cost
Home warranties aren’t free. You’ll end up spending an average of around $500 per year to maintain coverage. While the warranty can save you more than this over time, this is an additional expense to consider.
Coverage Caps
Most home warranties have coverage caps, which limit how much money the company will pay out for each covered item. For larger repairs or replacements, you might have some out-of-pocket costs. Still, you’ll likely end up spending less than you would if you didn’t have coverage.
The Bottom Line: It's Your Choice
Home warranties are an outstanding option for maximizing the profits you realize from your investment properties. They aren’t perfect solutions by any means, and there are some drawbacks. However, the majority of rental property owners see immense upside from protecting their properties with a home warranty.
