US real estate investments—should you buy a home warranty?

The American real estate market has been generating great returns for investors since 2008. The principal price of real estate has doubled, tripled and quadrupled since then, and at the same time, the rental yield has been outstanding. There’s a lot of talk on the media about the stock market’s performance (maybe because of the U.S president’s obsession over it) but hardly enough attention to the strong performance of the real estate market.

Next year is in all likeliness going to be another good year for real estate in America, simply due to a case of increasing demand in a thriving economy. It’s true that the Fed’s decisions may have a great impact on the market, but a faster hike than expected will have much more of a negative impact on the stock market than the housing market.

When it comes to buying real estate in the US and maximizing returns, there is one particular product which really seems to stand out for investors—home warranties. A home warranty is a contract between the homeowner and a service provider which guarantees to fix any house system or appliance that breaks or to replace it if it’s not fixable. In return, the client pays a monthly premium based on the home systems and appliances he wants to insure.

While home warranties may appear like a simple thing, in reality, they aren’t: each company has slightly different terms and conditions, different coverage, different caps on replacing appliances, and varying levels of trustworthiness. Additionally, each company accepts clients from different states. So if you are in Missouri, you have one subset of companies to choose from, and if you are in Alaska, you have another subset of companies.

After you have made your decision on buying a home warranty that accommodates your needs, has favorable terms and conditions for your situation, and costs what you think you should be spending on it, you’re in the clear. You have a peace of mind that goes beyond the monetary value of the service—you know that if something expensive breaks, you are at least partially covered for it.

A home warranty can protect you from spending a big amount of money on unexpected repairs. (Source)

New home buyers love this product! Peace of mind is one of the first things they are looking for when buying a new home. No one wants to be in a position where he spends significant amounts of money, takes a mortgage, and then having to deal with more unexpected expenses. A home warranty that has been bought by a home seller can make a potential buyer more keen to buy, or pay a slightly higher price than he would have to a house that does not boast a home warranty.

The thing about home warranties is that they are quite cheap. The simplest and cheapest home warranty plan may cost as little as $30/month and the most expensive and comprehensive plans won’t cost anything more than $80 each month (and that’s for houses with Jacuzzis and SPA units). These are very marginal costs for home sellers. Let’s compare them to other things you can do to get a quicker sale in:

• If you wanted to paint your walls it would cost you up to $500 per room

• A professional cleaning service can costs between several hundreds of dollars to several thousands of dollars, depending on the house’s size and specifications for the cleaning

• Getting a landscape architect who will redo your yard may cost anything between thousands and tens of thousands

• Even polishing the floors would cost you $600 on average

All of the above is definitely recommended before selling a house because these are relatively cheap-ticket-items that can have an impact on the sale’s speed and price, but home warranty tops that list being the least expensive items with the highest psychological value.