What's the Cheapest Way to Heat Your Home?

Real estate investors may be keen on the BRRRR method—but you definitely want to skip the brrrr method. Choosing the right heating systems for each of your property is a matter of availability, convenience, and (of course) cost. Some options offer monetary savings, and others are appealing due to their convenience.

However, trying to determine which option is the most cost effective for your properties can be frustrating, and solutions will vary depending on your location and the current market prices. Sometimes, the cheapest ways are not the best ways. In some areas, heating costs can have a major impact on your cash flow.

So what’s best way to heat your house? Here is information for the five ways to heat your home, updated with information from the U.S. Energy Information Administration’s (EIA’s) 2020–2021 winter fuels outlook.

Tips and tricks for energy savings

No matter what system you choose, these steps reduce energy costs. By making smart choices now, you and your tenants will save time and reduce energy costs down the line. Yes, sometimes upfront costs are required—but the long-term savings are tremendous, especially if you’re paying to heat an entire building. Here are some things to consider:

Insulation. Properly insulating your walls and attics prevents cold air from entering and hot air from escaping. (And vice versa during the summer, which helps with AC costs, too!)
Smart thermostat. Modern thermostats can adjust the home’s temperature based on the weather—or even whether the residents are home. Even upgrading to a programmable thermostat offers big benefits—such as automatically turning down the heat at night or maintaining a timer
Energy audit. Many energy companies will perform a free “energy audit.” This may involve looking at your chimney, doorways, and windows for air leaks and looking for cost-effective ways to reduce your energy bill. They may even provide free LED lightbulbs or a smart thermostat.
Creature comfort. Blankets, fans, curtains, rugs, and cozy sweaters all make lower temperatures feel more comfortable.

1. Natural gas

Natural gas is the main source of heating fuel for all U.S. regions except the South. A gas furnace is considered a clean, environmentally benign fuel that contains fewer impurities and results in less pollution.

It’s also getting cheaper. In the Northeast, for example, costs decreased 8% between winter 2019 and winter 2020. Because it’s so inexpensive, a natural gas furnace can often be the cheapest choice for heating—although installation or replacement can be pricy. Furnace replacement can cost between $1,800 and $2,000.

About 90 percent of all natural gas is delivered as useful energy, making it a highly efficient fuel when compared to electricity, which utilizes only about 30 percent.

Natural gas heat can be delivered in a few different ways. Radiators are the most common—gas is used to boil water, which then is distributed to radiators in different rooms. This allows for zoned controls. Don’t want to warm up your sunroom unnecessarily? Just turn off the radiator.

Annual winter expenditure: $572

Popularity: About 49 percent of the U.S. population uses natural gas to heat their homes.

2. Electricity

Electricity is most popular in the Southern region of the United States. It is available in many forms, from whole-house heating units to baseboard and space heaters. Because of its generation and transmission loss, though, it can be one of the more expensive ways to heat your home.

For warm-climate investors—or investors with solar panels—electric heaters may be a good choice for a home heating system. And it’s certainly a popular choice throughout the country, with 40 percent of Americans opting for an electric furnace or heating system.

A heat pump allows for more efficient use of the electricity. It can cut usage by as much as 50 percent. Expect lesser savings in Southern and Western states, though.

Annual winter expenditure: $1,209

Popularity: About 40 percent of the U.S. population uses electricity to heat their home.

3. Oil

Heating oil is used more in the Northeast region of the United States and is debatably one of the more expensive heating options. Why? Perhaps because these systems last a long time—as much as 30 years or more if properly maintained—and existing systems rarely run efficiently. And if you’re trying to avoid fossil fuels, this won’t be your best bet.

Oil is a clean, renewable resource that with current technology, burns cleanly, producing almost zero emissions. Oil is also considered a safe fuel source with an ignition point of 140 degrees, making the danger of explosion unlikely.

Prices for heating oil are pegged to the price of crude oil—which remains very low. In fact, the EIA predicts homeowners with oil systems will spend 10% less to heat their homes than they did last winter. But accordingly, if oil prices rise, homeowners will spend more.

Annual winter expenditure: $1,221

Popularity: About 5% of the U.S. population uses oil to heat their home.

4. Propane

Propane is most popular in the Midwest region of the United States. It’s a safe, nontoxic fuel that will not contaminate soil or groundwater and is delivered from either a surface or underground tank that sits on your property. You can purchase your own tank or rent one from the fuel company.

Propane varies in cost depending on demand and availability. A pre-paid autofill schedule can alleviate winter price increases. But real estate investors looking for a cheap solution should search elsewhere. Propane costs are growing. The EIA expects Midwesterners to spend 12% more on propane in winter 2020 than in winter 2019.

Annual winter expenditure: $1,383

Popularity: About 4% of the U.S. population uses propane to heat their home.

5. Wood

With the growing popularity of homesteading and the desire to find more sustainable energy solutions, wood has seen a 33% usage increase since 2005.

While wood appears to be one of the least expensive options, there may be other considerations. Many insurance companies increase prices for homes that have wood stoves or fireplaces. And quite frankly, wood can be a pain. Not all of us are cold-weather lumberjacks or enjoy hauling wood. Plan to store it inside? Expect spiders. Plus, if you’re used to a traditional oil- or electricity-heated house, wood heating provides a very different feel

One option to help stave off these higher premiums could be an outdoor wood-fired boiler. Outdoor wood-fired boilers work with your existing duct system, but because they are outside, they aren’t considered a fire hazard like an indoor stove.

Annual winter expenditure: Varies, depending on the system and whether you purchase or cut your wood. Wood costs, on average, $230 per cord to purchase.

Popularity: Approximately 2% of the U.S population uses wood as their primary heat source, and eight percent use it as a secondary source to heat their home.

There are many factors that go into choosing the best heating option for you. Your location, your existing system, and the availability of each fuel type are all determining factors when making your decision.

Feeling overwhelmed? Bring in the pros. A heat and air professional can help assess your options and make sure you have all the information you need to choose the most effective way to heat your property.

What heating options have you found to be best for your home or rental?

Leave your comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.