Are Home Warranties for Rental Properties Worth It?

Owning a rental property comes with its fair share of responsibilities, and unexpected repairs can quickly become a headache for the home’s owners. Purchasing rental home warranty coverage is a popular choice among homeowners and landlords to protect their long-term rental properties and finances from expensive, unexpected repair costs.

When it comes to rental properties, the decision to invest in home warranty coverage can be complex. Like any financial decision, there are pros and cons to consider when deciding whether to buy a home warranty for investment property you own.

Are Home Warranties for Rental Properties Worth It?

Whether you live in your home or rent it to a long-term tenant, the home’s systems and appliances inevitably fail from normal wear and tear. A home warranty for investment property — especially if you don’t live nearby — can greatly benefit both landlord and renter when something fails.

So, the answer to “Are warranties worth it for rental properties?” is a resounding “Yes!”

A home warranty from First American can cover single-family homes, condos, townhomes, mobile homes, and long-term rentals. However, short-term rentals (often referred to in the travel industry as non-owner occupied short-term rentals) typically are not covered by home warranties.

For property owners with many rental properties, First American also offers special warranty options that cover multiple properties. You can contact our Portfolio Management team at 855.851.3454 to learn more.

In this guide, we’ll explore the pros and cons of warranties for rental property and learn how a rental home warranty can offer peace of mind, save money, and possibly boost your property’s attractiveness to prospective renters.

Why Have a Rental Property Warranty?

In January 2021, U.S. mortgage rates fell to a historic low, prompting many people to buy homes to rent as investment properties or to supplement their income.

But being a landlord is different than living in your own home. You may not live nearby, or maybe you’re simply too busy to be on site very often. This makes it hard to closely monitor the condition of the home’s systems and appliances and help when things break.

And, as opposed to you living in your home, a renter may not have the “pride of ownership” you have. Your tenants may not be the best at maintenance or know how to deal with repairs. These factors may cause more wear and tear to appliances than if you lived in the home. 

With a home warranty, you have a simple solution to help protect your investments in rental properties.

Pros of a Home Warranty for a Rental Property

Budget Protection

Nobody likes dealing with pesky repairs — and it can be even more stressful if you’re not on-site to examine a problem firsthand. One of the primary advantages of a rental property warranty is the potential cost savings.

As a homeowner or landlord, a warranty can save you hundreds and even thousands of dollars on repair and replacement costs when a covered appliance or home system fails. Instead of dealing with unexpected repair or replacement bills out of your pocket, you can buy a home warranty plan to protect many of your rental’s covered items.

A First American home warranty is a service contract that can be renewed every year. Your home warranty can cover appliances such as washers, dryers, dishwashers, refrigerators, ovens, ranges, and built-in microwaves, as well as plumbing and electrical systems and more.

Without warranty coverage, you’re on the hook for repair and replacement expenses, and if you own multiple homes, those bills can add up quickly. The cost to replace many home systems and appliances can range from hundreds to thousands of dollars.

In contrast, for about $1 a day, a rental property warranty offers comprehensive home protection for those appliances and systems. With a fixed annual cost, property owners have a plan for potential repairs that can help them avoid being caught off guard by sudden, large expenses.

Convenience

With a rental home warranty in place, you won’t need to worry about finding the right repair person for the job. Instead of having to search for a reliable service provider each time a repair comes up, you can simply contact your warranty company. The company will arrange for a prescreened qualified technician to set up a visit with you at a mutually convenient time when they can assess and solve the problem.

Tenant Satisfaction and Retention

Tenants appreciate a landlord who is responsive to their needs. As a landlord, having a home warranty in place allows you to address covered repairs. This can provide tenants with a sense of security and peace of mind, contributing to tenant satisfaction and retention.

Property Value

Maintaining your property and promptly taking care of breakdowns or failures helps keep your rental units in top shape. Warranty protection can also forestall bigger problems because maintenance or repairs are not left to linger.

Cons of a Home Warranty for a Rental Property

Coverage Limitations

Home warranties don’t cover every potential repair or replacement in a rental property. As with any contract, there are limitations and exclusions in a rental property warranty. Make sure you understand what your warranty covers.

Service Call Fees and Annual Cost

While home warranties cover repair or replacement costs for covered items, there is a service fee for each new request. Of course, the home warranty plan also has an annual cost, which is something you should factor into overall property expenses.

Choice of Service Providers

Home warranty companies have their own network of service providers, meaning customers don’t choose their own technicians.

Other Considerations for Rental Properties

Renters insurance and the potential tax considerations of rental properties are other issues one might want to think about when exploring whether to buy a home warranty for renters.

What Does Renters Insurance Cover?

Renters insurance and home warranty coverage are different — just as a home warranty is different than homeowners insurance.

Homeowners insurance may cover the structure from fire or storm damage, for example, but it wouldn’t cover a furnace failure. Renters insurance can help protect the tenant and their belongings from theft, storm damage, or even injuries a visitor may experience. But it also would not cover the failure of a major appliance.

This gap is where a home warranty for renters can prove valuable to you as the homeowner or landlord. First American offers multiple plans for different types of homes, including guest houses, duplexes, triplexes, and more.

Placing a claim for a covered appliance or system in a rental is the same service process as for an owner-occupied dwelling. The landlord — who also owns the home warranty plan — places a claim either online or by phone. Then, a service technician is dispatched to diagnose the problem and repair or replace the covered item.

Tax Considerations

Owning multiple homes or rental properties can have tax implications, which can include improvement projects and depreciation costs. You will want to explore these and may want to integrate the upkeep and maintenance of their properties into your decision to protect your investment property with a rental home warranty.

Benefits of Having a Home Warranty for Investment Property

Having strangers live in a home you own can be stressful — even if you screen them and feel comfortable with them as tenants. And when they call you to report the fridge has just died, it’s even more so. As an owner, you will be responsible for repairs. But a warranty can help you have peace of mind knowing that you can simply request service from wherever you are and have a solution for the issue with your covered refrigerator.

Making the Decision to Have Warranty Protection

Deciding whether to purchase a home warranty for investment property requires careful consideration of the property and your circumstances as the owner.

If you have asked yourself, should I get a home warranty for my rental property? you can learn more with a personalized quote from First American. When you weigh the costs of a home warranty against having sole responsibility for repair and replacement costs for a rental’s appliances and systems, you’ll quickly see why buying a warranty for your rental property makes sense.