In the realm of property management, it is crucial to be aware of potential risks and take proactive measures to mitigate them. One aspect of property management that can provide peace of mind for both landlords and tenants is the use of home warranties. But do home warranties cover rental properties? And are home warranties worth it for rental properties?

While a home warranty for a rental property offers certain advantages, it’s important to carefully consider whether they are worth the investment. 

One benefit of a home warranty for renters and landlords alike is it provides an added layer of protection.

In the case of a covered repair or replacement, the home warranty can help offset the cost. Additionally, home warranties can help you attract and retain tenants. By offering the assurance of a home warranty, you demonstrate your commitment to maintaining the property and addressing any necessary repairs in a timely manner.

Moreover, home warranties can also help you budget for maintenance and repairs. By paying a monthly or annual fee for the home warranty, you can have more predictable expenses and avoid unexpected financial burdens that may arise from major repairs.

Understanding home warranties

If you have a mortgage, you are required to have homeowner’s insurance. Your homeowner’s insurance is there to bring your home back to its pre-emergency state when something unexpected — like a crime, an accident, or a natural disaster — causes damage.

A home warranty is different from an insurance policy. A home warranty covers the expected challenges that crop up.

Home warranties come in three basic variations:

  • Appliance coverage
  • Home system coverage
  • Appliance and system combo

Appliance coverage

This type of warranty covers your home’s major appliances. You pay a premium for this coverage and then a service fee, defined by your contract and usually between $75 and $125, when a technician comes out to make repairs. If your appliance cannot be repaired, the cost of replacement is covered, generally up to a specific dollar amount.

Home system coverage

This type of warranty covers your home’s internal systems like plumbing and electrical. The same principle applies — you pay a service fee for the technician to come out and repair or replace the system.

Appliance and system combo

In this situation, you are covered if either an appliance or a system breaks down. Of course, your premium for this coverage is likely to be higher.

Home warranties and rental properties

Home warranties are a valuable tool for homeowners, providing peace of mind and financial protection when it comes to the repair or replacement of major appliances and systems.

But do home warranties cover rental properties? While home warranties are typically associated with homeowners, they can also be applicable to rental properties.

How home warranties apply to rental properties

 If you’re a landlord, a home warranty may allow you to make repairs faster and with less effort on your part. For example, if your rental property is covered by a home warranty for appliances and the refrigerator goes out, you simply put in a service request, and a qualified technician will go to the home and diagnose the problem. They will either repair the refrigerator or you will be entitled to a replacement if it can’t be repaired, up to your appliance limit.

Home warranties are the same whether for your primary residence or rental property: You own the home, so your warranty will cover issues with appliances or systems, depending on your policy. Most policies allow flexibility so you can get the base coverage you need and add on systems, for example, if you have a pool or hot tub on the property you’re renting out.

So what are the benefits and limitations of a home warranty for rental property?

Benefits for landlords of having a home warranty for rental properties

There are several benefits to having a home warranty for your rental property. First, you don’t have to make repairs on your property yourself. Not every property owner is handy or knows how to fix an electrical problem. With a home warranty, qualified technicians do this work, which comes with a guarantee. That’s a lot of stress taken off your plate. 

Second, it’s easy to get service. Your home warranty provider contracts with service technicians in your area, so finding someone to do the work is not difficult. All you do is call the service provider, and they take care of the rest.

Finally, you won’t have major out-of-pocket costs when something goes wrong at your property. Without a warranty, you have to budget for the eventuality that appliances or systems will break down.

Now let’s examine the limitations to see if home warranties are worth it for rental properties.

Limitations in home warranties

Not everything in your rental property is covered. In fact, a warranty only covers mechanical issues. Nothing structural, like windows, is covered. It’s best to thoroughly examine the coverage you would be getting with a warranty to see what you would still be paying for out of pocket.

High costs

Home warranties add a cost, and once you add on additional systems, you may be paying a fairly high annual premium for coverage. Then you will pay between $75 and $125 for a technician to come out and diagnose the issue.

New appliances and systems are already warrantied

If you’ve put new appliances into your rental property, they already come with a manufacturer’s warranty. If you add a home warranty on top of that, you are paying for double coverage.

Home warranty for renters

So what would your tenants think about you having a home warranty? For many, it represents peace of mind because they know if a covered item breaks down, it will get fixed.

How renters benefit from a home warranty

 Renters benefit from home warranties and are more likely to renew their leases if they have positive experiences with repair and maintenance requests. For a landlord, keeping that property off the market means more return on investment.

While renters cannot acquire a home warranty themselves, they can look for landlords who provide this added benefit to their tenants.

Evaluating the worth of home warranties for rental properties

So are home warranties worth it for rental properties? It depends.

Weigh the benefits carefully

It is important to carefully weigh the costs and benefits before purchasing a home warranty. While home warranties offer advantages for rental properties, they may not always be worth the investment. Factors such as the age and condition of the property, the tenant’s level of responsibility for maintenance, and the cost of the home warranty itself should all be taken into consideration. In some cases, the cost of the home warranty may outweigh the potential savings from covered repairs. Additionally, you should also review the terms and coverage of the home warranty.

Some home warranties may have exclusions or limitations that could make them less beneficial for rental properties. For example, certain items or systems may not be covered, leaving you responsible for their repair or replacement. If you live a long distance from your rental or if the rental is an older unit with systems and appliances that have seen some wear and tear, a home warranty is almost a no-brainer.

If your rental is a new condo with new appliances still under the manufacturer’s warranty, a home warranty might not make financial sense.

The most important step when deciding whether to get a home warranty is to read the contract thoroughly so you know what’s covered and what isn’t. The last thing you want is to call for service only to find out the appliance or system is not covered. Many home warranties don’t cover HVAC, so you need to know that before signing on the dotted line. If HVAC isn’t covered and you go forward with the warranty, be sure you have enough money set aside to repair that system in case something happens.

Financial implications of home warranties for landlords and renters

A home warranty can save you a significant amount of money on repairs because your service fee covers the entire cost of diagnosing and fixing the problem. You don’t have to have a collection of contractor business contacts to get things done. And you don’t have to worry if those contractors are available to do the work. Just be sure you understand any gaps in coverage.

Also, with a home warranty as part of the rental package, renters will understand that they won’t get stuck with repair costs.

Here’s one example: Bob and Susie live in a quaint old Victorian flat, which they adore. Their appliances are older, which is part of the place’s charm. Except when a heat wave hit — one like they had never experienced before — and the ice maker in their refrigerator stopped working. Fortunately for this couple, the landlord had a home warranty, so all they had to do was call the landlord, who called in for a service request. The issue was fixed, and they survived the heat.

Home warranties can save landlords money and provide tenants peace of mind under the right circumstances. The important point to remember is to weigh the benefits of a warranty against the costs to see if it’s worth the investment. Read the fine print of the warranty contract, understand any gaps in coverage, and assess the appliances and systems in your rental unit to see if a manufacturer’s warranty already covers them. 

Especially if you don’t live near your rental or have an older one, a home warranty can be an excellent solution to ensure your tenants have a positive experience and stay in your unit.