There has never been a better time to begin investing in real estate. Home prices remain low, while mortgage interest rates are also very reasonable. However, the housing market remains a buyer’s market in many areas. Many real estate investors wonder if a home warranty will give them an advantage in selling homes and turning profit quickly.
When Should Real Estate Investors Get a Warranty?
Home warranties can be purchased for any home, and can be valuable for different reasons, but they are especially valuable to real estate investors who want to sell an older home. This is especially true when a home inspector has deemed it past its prime and in need of a great deal of maintenance. A home that has not been properly maintained is at high risk for devastating repair costs. If the repairs are needed before sale, this will cut into your profit. In addition, home warranties have been proven to decrease the amount of time a home is on the market.
How Will a Warranty Make My Investment Home Easier to Sell?
Many prospective home buyers balk at buying an older home because they are concerned about it becoming a money pit. This is especially true if a home has older appliances or has not been well maintained. Buying a home is expensive and home buyers may not be able to afford major repairs in the months immediately following the sale.
A warranty policy assures buyers that they will be covered in the event of a major repair in the near future. This resolves their anxiety and makes them more likely to decide to purchase a home that is not new and in perfect repair. One major expense for real estate investors is maintaining a property and paying the mortgage in the period while it is on the market. A warranty will lessen the amount of time you have these expenses.
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What Kind of Warranty Is Best for an Investment Property?
It’s important to read the fine print carefully, because many home warranties will specifically only cover the seller or the buyer. A real estate investor specifically needs one that covers both parties. If the air conditioner fails a few days before closing, you may be on the hook for repairing it out of pocket.
Some policies will cover the seller for up to six months, even before payment is made. If you are concerned about necessary repairs in the period before closing, you should look exclusively at these policies.
What Do Home Warranties Cover?
Home warranties generally cover the costs to repair or replace appliances, systems, and other components of a home that commonly break down with time. However, the exact repairs that a warranty covers will vary widely from policy to policy. For instance, some cover appliances only and charge extra for HVAC systems. Others cover everything from the roof to the foundation. Some have additional riders you can purchase that cover things that are physically outside the home, such as wells and septic tanks. Before you purchase a policy, it is important to look at many different providers and evaluate which is the best deal for the cost.
Aren’t These Items Covered by Hazard Insurance?
Home warranties cover different circumstances than hazard insurance, although there may be some overlap in the exact items they cover. In general, hazard insurance covers repairs and replacements needed because of fire, storms, or other events specifically listed in the policy. Home warranties, on the other hand, cover appliances and systems that fail on their own, due to age or malfunction. These are two different kinds of insurance that cover different causes.
Can I Afford a Warranty For My Real Estate Investment?
The cost of home warranties varies widely, according to the company holding the policy and the types of expenses covered. You will need to investigate carefully before purchasing one of these policies. However, home warranties are usually very affordable compared to the cost of major repairs or the cost of a house remaining on the market longer than expected. The question is not so much whether you can afford a policy, but rather whether you can afford to be without one.
If you are trying to invest in real estate, it is important to understand home warranties and how various policies differ. Home warranties can make it easier to sell a home quickly while also protecting you from expensive and unexpected repair expenses in the months before closing. For many real estate investors, purchasing a warranty policy is an important way of keeping expenses down.
