Buying a quadplex with an old HVAC system? Homewarranty? Advice

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Buying a quadplex with an old HVAC system? Homewarranty? Advice

Jon Dang
Investor · Houston, TX · Member since 2018 · 41 posts · 15 votes

Hello BP Family,

I have found this quadplex that looks like a great deal. This will be my first deal that I plan to house hack and acquire via FHA. Numbers work out at ~$600/month in cash flow after all expenses. Saving 5% Repair, 5% Capital, 10% Property management, and 8% Vacancy. This is in Baton Rouge, Louisiana so there are hot summers. Also, tenants pay electric so I wont imagine they blast the AC like crazy.

3/4 units have very old HVAC, 12 year old. One unit has a new HVAC replaced in 2017. So the old units still use R-22 as well.  My concern is that if the HVAC goes bad i'm looking at $15,000 - $20,000 in replacement. Seller is offering 1st year of home warranty. Has anyone dealt with a similar situation. I.E buying a home that they know would need a large capital expenditure within 2-3 years. Also, any advice on homewarrarnty.  I talked to america home shield and they replace if they cannot repair and pay 10/lb freon. However, I always hear that 9/10 times they repair items that need to be replaced! I read conflicting things. 

Just looking for advice from anyone who has been in a similar simulation. Thank you!

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Kris L.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
7y

Here is how I would anticipate that goes with the warranty:

If an older AC breaks, they will try to repair it.  It will take them a minimum of 2 weeks to get a tech out to you, where your tenant will have no ac.  The tech will attempt to repair it for the $75 charge, but they will have to drain the R22 to work on the unit.  The warranty will pay $10 a pound for the R22, but because it is no longer made, it will actually cost $100+ per pound, meaning you are out of pocket $1000 min.  If you are lucky, that will put a band aid on the issue, but that ac unit will break again, and you will go through the same rigamarole ad nauseam. 

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  • Matthew Reichert
    Manassas, VA · Member since 2019 · 56 posts · 29 votes
    7y

    That's a huge expense for A/C replacement. Is that just what it costs in your area? Is that for one MFH unit or all of them? In my last duplex, when the larger unit's heat pump and blower went to crap, I replaced both the blower and outside unit for under $5000 (and with great equipment).

    That said, it may not hurt you to spend the $600 or whatever it is for the home warranty YoY, if you want a little extra peace of mind and can afford it, since you're fairly sure things are going to need replacement soon. Once you repair everything that needs it, maybe you can chop that expense off. 

    I know those are kind of ramble-thoughts, hopefully they make sense to you.

    1Reply
  • Jon Dang
    OP
    Investor · Houston, TX · Member since 2018 · 41 posts · 15 votes
    7y
    Originally posted by @Matthew Reichert:

    That's a huge expense for A/C replacement. Is that just what it costs in your area? Is that for one MFH unit or all of them? In my last duplex, when the larger unit's heat pump and blower went to crap, I replaced both the blower and outside unit for under $5000 (and with great equipment).

    That said, it may not hurt you to spend the $600 or whatever it is for the home warranty YoY, if you want a little extra peace of mind and can afford it, since you're fairly sure things are going to need replacement soon. Once you repair everything that needs it, maybe you can chop that expense off. 

    I know those are kind of ramble-thoughts, hopefully they make sense to you.

    I got baseline quoted an HVAC replacement of $4000 (inside and outside) per unit, this isn't including ductwork and not knowing the interior. If you don't mind me asking old was your hvac and did you have a homewarranty? 

    0Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    7y

    Here is how I would anticipate that goes with the warranty:

    If an older AC breaks, they will try to repair it.  It will take them a minimum of 2 weeks to get a tech out to you, where your tenant will have no ac.  The tech will attempt to repair it for the $75 charge, but they will have to drain the R22 to work on the unit.  The warranty will pay $10 a pound for the R22, but because it is no longer made, it will actually cost $100+ per pound, meaning you are out of pocket $1000 min.  If you are lucky, that will put a band aid on the issue, but that ac unit will break again, and you will go through the same rigamarole ad nauseam. 

    4Reply
  • Matthew Reichert
    Manassas, VA · Member since 2019 · 56 posts · 29 votes
    7y

    @Jon Dang It was over 20yrs old, unit built and installed in the mid-90s. I did have new ductwork put in up in the attic, but not the rest of the house (it was already there and in decent enough shape). Since your price is both inside and outside per unit, then that actually sounds about right and might serve you well - maybe see if the company does no-interest payments or something (I'm a military vet, so the owner said that added "trust" in his eyes and I paid his work off over several months).

    0Reply
  • Matthew Reichert
    Manassas, VA · Member since 2019 · 56 posts · 29 votes
    7y

    @Kris L. I guess I got lucky with my warranty company then - when one of the water heaters went bad, they actually replaced BOTH of them for the same $100 charge because the second one was apparently on its way out also (hadn't broken yet though).

    0Reply
  • Kenneth Bullock
    Specialist · Los Angeles, CA · Member since 2016 · 61 posts · 32 votes
    7y

    12 years is not old for an HVAC system, that has been maintained. HVAC systems are similar to cars, if installed correctly. 

    If you service the system and change the filters, they last for ever.

     Like Mr. Reichert stated, are they R-22 or R-410A systems?  If R-22, replace as soon as possible.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Johnny Dang I would question this deal all together. 600 a month on a quad isn’t that great.

    Are you buying this long distance? What's the ARV?

    1Reply
  • Matthew Reichert
    Manassas, VA · Member since 2019 · 56 posts · 29 votes
    7y

    @Kenneth Bullock That was Kris who said that :-)

    0Reply
  • Jon Dang
    OP
    Investor · Houston, TX · Member since 2018 · 41 posts · 15 votes
    7y

    @Caleb Heimsoth   Cash flow is close to $800 if I don't include PM. I was going off the $100/unit rule. Any idea what is a good baseline?

    I am not buying long distance. ARV is $220,000 based on MLS, the home is particularly distressed per my inspection report.

    1Reply
  • Jon Dang
    OP
    Investor · Houston, TX · Member since 2018 · 41 posts · 15 votes
    7y
    Originally posted by @Kris L.:

    Here is how I would anticipate that goes with the warranty:

    If an older AC breaks, they will try to repair it.  It will take them a minimum of 2 weeks to get a tech out to you, where your tenant will have no ac.  The tech will attempt to repair it for the $75 charge, but they will have to drain the R22 to work on the unit.  The warranty will pay $10 a pound for the R22, but because it is no longer made, it will actually cost $100+ per pound, meaning you are out of pocket $1000 min.  If you are lucky, that will put a band aid on the issue, but that ac unit will break again, and you will go through the same rigamarole ad nauseam. 

    That's what I figured. With R22 getting phased out the prices will be insane for any replacement. 

    0Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Johnny Dang

    I love seller purchasing 12 month warranty at close. I ask for that all the time. Most of the time you can identify problems in first several months, and you avoid major repairs while just getting reserves funded.

    Another option I have done is up my purchase offer in exchange for new Hvac. In essence, you’re paying for new Hvac, but you get to spread cost over life of the loan.

    3Reply
  • Steven TaylorPro Member
    Investor · Lorain, OH · Member since 2016 · 78 posts · 47 votes
    7y

    @Johnny Dang home warranty’s don’t pay out. Don’t waste your time

    1Reply
  • George W.
    Investor · NJ · Member since 2018 · 869 posts · 921 votes
    7y

    The only time you need to worry about r22 getting phased out is If your system has substantial leaks. If you haven't had to ever add any refrigerant, there's no leaks and I wouldn't worry so much about it. There are other refrigerants that are similar to r22 and need relatively little or no retrofitting if you can find a small leak and repair it. 

    A system that is in good shape can definitely last several more years at 12 years old. As long as the condenser, compressor and evaporator still work with no major leaks. The rest is all small electric parts capacitors, contactors, etc. Most HVAC problems I see at work are acutally electrical issues not refrigerant related. 

    1Reply
  • Heath M.
    Rental Property Investor · Chattanooga, TN · Member since 2017 · 203 posts · 188 votes
    7y

    I just did 3 of 4 HVACs at my 4plex and it was just shy of 14k (mini splits).  They weren't heat pump units, so add a couple thousand if you went that route.

    0Reply
  • Jon Dang
    OP
    Investor · Houston, TX · Member since 2018 · 41 posts · 15 votes
    7y
    Originally posted by @Heath M.:

    I just did 3 of 4 HVACs at my 4plex and it was just shy of 14k (mini splits).  They weren't heat pump units, so add a couple thousand if you went that route.

     Heath, I got quoted around the same 4.8k per hvac. If you dont mind me asking how old were yours and why did you replace 3 at once? Rehab? Thanks.

    0Reply
  • Kevin Manz
    HVAC Tech · Fort Wayne, IN · Member since 2015 · 423 posts · 223 votes
    7y

    @Johnny Dang. You can get great real estate advice on BP. Don't listen to anyone trying to give HVAC advice. Just treat like any other expense.

    0Reply
  • Heath M.
    Rental Property Investor · Chattanooga, TN · Member since 2017 · 203 posts · 188 votes
    7y

    @Jon Dang, I negotiated an extra 15k during due diligence.  I used some of that for closing costs and the remaining was in the form of a cashier's check made out to my contractor at closing.  I basically had a pot of money that I needed to spend with that contractor, everything else I was doing myself.  The 3 I replaced were all mid 90s models and 2 needed a shot of freon (R12).  Figured that was the best bang for the buck.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    Literally every single property you attempt to buy is going to have some sort of capital expenditure on the horizon.  (Unless it is new construction.)  The systems in a house all age at different intervals, so somethings always going to need replacing in the somewhat near future. This is simply part of buying houses.

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  • Andrew Cornstubble
    Rental Property Investor · Sedan, KS · Member since 2016 · 125 posts · 92 votes
    7y

    @Johnny Dang

    Since you are in a hot environment i hear split units are fantastic and far more affordable than full on HVAC replacement.

    0Reply
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