Home Warranty Coverage or Self Coverage on your Rental?


There can be pain associated with the high cost of repairs to rental properties. Repairs on rentals are inevitable and a landlord should be prepared to meet the needs. There are basically two options to help meet the inescapable certainty of repairs to rental properties.

One, you can purchase a home warranty policy. A home warranty policy is not unlike insurance that covers the malfunction and breakdown of all major systems and appliances in a house. A home warranty policy can be purchase for varying costs, depending on the type of coverage. Between $400 and $500 per annum is a typical cost. Home warranty policies are purchased to cover the repair and replacement of items such as the garage door opener, plumbing hardware, HVAC systems, dishwashers, refrigerators and more. There is typically a deductible associated with each service call. The cost of deductible may range from between $50 and $100 for each item and for each time the warranty company is called into service. All costs for home warranty coverage depend on the type of coverage. As expensive as it may sound to purchase a home warranty policy, measure the cost against the replacement cost of an HVAC system, which can cost thousands of dollars, or any other appliance that may need repair or replacement.

Something to know about home warranty coverage is that no policy will cover everything and the warranty companies sometimes decline coverage on such things as HVAC system repair if certain conditions have not been met, i.e. semiannual maintenance and proof that service was performed. Home warranty policies do not cover routine maintenance. They only cover repair/replacement.

A lot of times, not every time, it is more costly to pay for home warranty coverage than to insure your rental yourself by saving the cost of a home warranty policy and placing the money into an escrow repair account. It depends on what kinds of repairs are needed. For example, dishwashers can be purchased for less than the cost of an annual premium for a home warranty policy. So can a lot of other appliances and fixtures.

An HVAC system cannot typically be purchased for an amount of even 5 or 6 times the cost of a home warranty policy. So, if a landlord insures himself, he should consider saving a minimum of 10% of the monthly rent in an escrow account for maintenance and repair to start, and 5% per month after the 1st year of savings.

It is expected that houses will have increased maintenance costs as they age. A house only 10 years old will be no exception. Houses and equipment are generally considered as aging at about 7 years old.

As a final note, the best way to look at taking care of ongoing repair and maintenance of your rental property is to plan ahead. Realize and accept that there is no way to get around coming needs for repair. They will crop up. It’s guaranteed. Whether you obtain a home warranty policy, insure yourself, or make up a combination of plans, don’t delay. A repair need is just around the corner.

Until next time,


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