Home warranties are value-added measures designed to provide coverage for home systems and appliances that stop functioning. Investors benefit from home warranty coverage in several ways. For starters, the costs associated with maintaining, replacing, or repairing home systems and appliances is greatly reduced with home warranty coverage. Then there is the comfort and convenience of calling just one company to deal with all issues pertaining to repair and maintenance work.
The home warranty provider will send out a technician to assess the malfunctioning system for a nominal fee, and conduct all necessary repair or maintenance work if deemed appropriate. Real estate investors can also benefit from the convenience of contacting home warranty providers 24/7, an unlimited number of times. As a new real estate investor, most home warranty systems provide appliance guarantees for some time after the deal has closed.
What is Typically Covered with Home Warranty Plans?
Home warranty insurance ads additional coverage to the inner contents of a home – the dishwasher, stove, refrigerator, washer, dryer, garbage disposal unit, etc. These systems are costly to repair, purchase, and maintain. In the absence of insurance coverage, any damage that occurs falls squarely on the owner’s shoulders. Not every US real estate investor requires home warranty coverage however.
If a new home has been purchased, with brand-new appliances, these will invariably be protected against malfunctions and defects by the manufacturers’ warranty. However, when appliances are at least 4 years old the home warranty coverage can be beneficial to investors. The benefits extend to all appliances and systems covered under the home warranty plan. It should be considered an umbrella plan that protects against defects and functional errors. With home warranty coverage, it’s no longer necessary to find individual manufacturer’s warranty cards for each system or appliance in the home. One plan covers all the listed items.
The Pros and Cons of Home Warranties for Real Estate Investors
The costs of repairing appliances and systems routinely runs into hundreds of dollars without a home warranty plan. However, these plans can be purchased for a once off annual fee, and the only other expense incurred by the homeowner is the call-out fee for the service technician to evaluate the appliance. Sometimes, repair work will be conducted, or the appliance may be replaced. Homeowners are not required to ask around for qualified technicians and service professionals – they all provided by the home warranty company. This is done at a nominal fee typically between $50 – $100.
The technician will schedule a call with the homeowner to evaluate the condition of the appliance and perform the necessary work. Real estate investors can benefit from home warranty coverage in other ways too. For example, if you are thinking of selling your property, there is much to be gained by having home warranty coverage when a new buyer is ready to sign on the dotted line. These home warranties are insurance policies against appliance malfunctions. They may not be required if your appliances are well-maintained and used with care – however, they can be a big money savings option. It’s always a good idea to use a trustworthy resource such as reviewhomewarranties.com’s calculator to determine how much a home warranty plan will cost, and how much you can potentially save by using one.
What to Watch for in Home Warranty Plans?
On the flip side, there are issues to consider with home warranty plans. For example, the average annual premium paid for coverage can range between $500 – $1,000. If appliances are new, and in good working condition, that money is probably best saved in an account for when your appliances malfunction. For the first 4 years, there is typically no need for home warranty coverage – since you could be saving between $2,000 and $4,000 in premiums alone.
It is estimated that for every $100 spent on an appliance, you should get at least 1 years’ worth of usage out of it. Once an appliance nears the end of its utility period, home warranty coverage becomes essential. Depending on the home warranty plan you choose, you can expect delays from service technicians. Sometimes, parts take a while to arrive, and technicians may be backed up with other work orders.
Always evaluate the quality and efficiency of the customer support and the processing department. If claims are processed quickly and effectively, you will benefit from home warranty coverage. However, certain companies put your work order requests on the back burner and may not attend to your queries in a timely fashion. Many home warranty companies prefer to repair faulty appliances, rather than replacing them. This is a cost-saving practice, but it may necessitate ongoing repairs to faulty appliances. Once again, the pros and cons of home warranty coverage should be evaluated carefully. Buyers certainly appreciate real estate deals where home warranties are included as part of the purchase agreement. This is deemed a value-added service in a US real-estate transaction
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.