This One Thing Saved Me $6,050

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When buying a new investment property investors are left with the decision of whether to purchase a home warranty in addition to all of the other fees and expenses we face.  Often, in an effort to save money during closing time, where it feels like all you are doing is digging into your pockets, we have to decide whether to shell out more money on a home warranty.  Speaking from experience….although you think you are saving money up front in not buying it, it could actually cost you double, triple or more down the road.

What Is a Home Warranty?

A policy that protects against things that break in the house.  For example, your hot water heater explodes, your washer/dryer breaks or your garbage disposal kicks out.  These issues would be covered under a home warranty.

This differs from Home Owner’s Insurance in that insurance protects more of the structure of the property from things like fire, theft, wind and storm damage.

How Do You Get It?

Typically, if you are working with a realtor they will talk to you about purchasing this protection.  If you aren’t working with a realtor, go to a company- like Old Republic, HMS, First American-that offers warranties and purchase it.

Sometimes, you can even negotiate the sellers paying for a warranty into the contract.  This may help the sellers ratify a contract quicker.  It shows the buyer that not only are you buying this house, but they are helping you be protected if anything were to go wrong in that first year.

Why Buy It?

This is the proof is in the pudding part.  We purchased a town home a few years back that we knew would need some work.  It was showing age and normal wear and tear.  My husband and I decided that we would rent it, bank some of the cash flow and then when the tenants moved out we would update it.  Because it was an older town home that showed wear we decided it would be best to purchase a home warranty.  Boy were we right.
While in the process of getting quotes from contractors for some of the work needed to be done, we had an HVAC professional from a company like come in and check out the system.  Low and behold, he said that we needed a whole new system as well as a furnace replacement.  If you don’t know anything about this system they aren’t cheap, running around $5,000.  However, because we had the home warranty, a $6,500 brand new reliable ducted heating system was installed and all it cost us was $450. We plan to perform regular heating maintenance to make sure it stays in good condition for a long time of course. The main point is, had we not had that home warranty, our $5,000 renovation budget would have been completely blown with that one update.

What Did We Learn?

If you do your due diligence when you buy a property in paying attention to the age of the property and whether or not big ticket items have been recently updated, then you can make a smarter decision of whether or not a home warranty is necessary.

Although it may require a little more money up front, it can pay off big time in the long run.

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