Many property owners ask us if they should buy a home warranty for their investment properties. It's a question that comes up most often during the sale of a property.
So, is a home warranty worth it for rental properties? What is a home warranty exactly? How does it compare to homeowner's insurance? Let's explore the answers to these questions and more.
What is a Home Warranty?
Repairs are inevitable, whether it's your rental property or your own home. Faucets leak, washers break, and HVAC units seize in the middle of a heat wave. To alleviate the stress and financial burden of these common home repairs, some people opt for a home warranty.
A home warranty is a renewable home service plan that provides discounted repair and replacement services for household systems and appliances covered by the policy.
What Does a Home Warranty Cover?
The extent of the coverage you get depends on the type of warranty you choose. Most plans will cover the service, repair, and replacement of major components of a home, such as the HVAC, water heater, plumbing, and electrical systems.
The National Home Service Contract Association dictates some standard coverages for appliances and home systems to be adhered to by home warranty companies. Some policies may include the coverage of key appliances, such as washers, dryers, stoves, and refrigerators. At an extra cost, you can often opt-in for coverage of a swimming pool, spa, pumps, septic systems, garage door openers, and more.
However, most home warranties do not cover roof leaks, significant structural damage, damage to structural elements such as windows, doors, and foundations, and normal wear and tear.
How Does a Home Warranty Work?
Depending on the location and condition of the property, for a fee of about $350-$600 per year, you can cover your property with a basic home warranty plan. In many cases, property owners can pay these costs in monthly installments.
If something goes wrong, you log a service request with your home warranty provider. They send out a licensed technician to come to address the issue and require a service fee for each call (in addition to the premium you pay for the warranty service). However, if the repair falls within your coverage plan, the repair person will repair or replace the system or appliance for the cost of the service fee.
Home Warranty vs. Property Insurance
Is a home warranty different than landlord insurance? Yes! Homeowners' insurance provides financial relief for damage or loss caused by a major storm, fire, theft, or if for an owner-occupied home. However, landlord insurance is critical to protect your property occupied by tenants. It will often pay out for issues with plumbing, roofing, or other significant damage (where a home warranty will not).
Landlord insurance also does not respond to service calls for repairs when something goes wrong.
Is a Home Warranty Worth It?
The value of a home warranty depends on several factors, such as how old the property is and whether you have set money aside for emergencies. However, there are a few factors to consider to decide whether a home warranty is the right choice.
Advantages of a Home Warranty
In some instances, a home warranty can be worth it. For example, in a buyer's market, a seller may pay for a home warranty as an incentive to seal the deal. This gives the seller and the new homeowner peace of mind about the cost of any repairs that may need to be made to major home systems or appliances in the first year after the sale. It is also a boon when buying a new build that comes with a warranty for a specific amount of time.
Further advantages of a home warranty include:
- Peace of mind when you own an older home or aged appliances
- Coverage for out-of-pocket expenses on unexpected repairs
- A convenience if you don't want to source your own service providers
- Peace of mind if you have used up your savings to buy the property and don't have an emergency fund for unforeseen expenses
While these benefits can seem worthwhile, property managers also recommend considering the drawbacks of paying for a home warranty.
Disadvantages of a Home Warranty
The cost of adding a home warranty to an existing property often doesn't pay off long-term. A home warranty may fall short of your expectations when:
- It doesn't cover specific repairs (and property owners must pay out of pocket for a service provider to fix an issue)
- The warranty doesn't cover pre-existing conditions and improper installation, and misuse
- Home warranty companies don't cover the cost of repairs if an appliance has not been properly serviced.
- You don't receive reimbursing for damage from pests or pets
- The warranty limits the number of repairs per unit per year
- The approved contractors don't deliver the quality of work you would like, which could mean that you will pay another service provider more to fix the issue to your satisfaction.
- The cost of the home warranty could be more than what you would spend on repairs in that year.
- There are delays in a servicer coming to your property and making the necessary repairs. This is not ideal when your HVAC is on the fritz during a San Antonio, Texas, heat wave.
When considering a home warranty for a rental property, research how the company responds to service calls, all fees, and the types of repairs the warranty covers.
Home Warranty vs. the Best Property Management Company San Antonio Offers
As experienced property managers, we usually recommend skipping the home warranty and instead setting that money aside in a maintenance fund to handle repairs as needed. It's a better use of your cash flow!
Plus, with the help of a property manager, you get better pricing and better-quality vendors and contractors to do the work. In addition, you don't have to wait on a home warranty company to approve the repair, which can create delays, make tenants unhappy, or leave you with an extended vacancy for your property.
Choose Professional Property Management Instead of Home Warranty Companies
With your investment property entrusted to the right San Antonio property manager, you don't have to worry about the inconveniences of broken appliances and HVAC units.
At MHN Properties, we have regular maintenance checks and schedules to keep your properties in good working order. In the eventuality of major repairs, or big-ticket appliances reaching the end of their life, we help you budget a portion of your rental income so these expenses don't put you out of pocket. Instead, waive the home warranty and set aside the capital to accrue interest in a savings account!
Contact MHN Property Management today to find out how we can help you make the most of your real estate investment.