32 Unit Deal - Heat bill is killing it...

17 Replies

Looking at a 32 unit deal in Milwaukee. However, the heating bill is 33K/year. They are newer, but it definitely hurts the investment. It has been sitting for a bit, and I think that number has been their big obstacle in seller the place. 

Has anyone retro-fitted a multi-family to have furnaces in each unit? How much does it usually run per unit? I work in the land of A/Cs (Florida), so I haven't done anything like this.

Thanks for any input,

Steven

Don't know if anybody has done this before or if it would even be legit, but what about taking the bill and dividing it equally to each unit. If it was 33k that runs about $86 per unit for the year. Just a thought.

Oops, yes per month. Sustainability would be key but might provide a creative solution to a killer heating bill. 

It sounds more like it is just not a good deal and you are thinking, "If it just weren't for that heating bill."

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The cost will depend on a ton of factors. Is it gas? Forced hot air? Baseboard? How big are the units?
Is your real name Steven Segal? If so. That's awesome.

Wow, that's a lot! I hope there's a premium included in the rent for the heating bill. I have solar panels installed on my SFR. The total electric bill went from $150 to $7. Works well in sunny California. You can either lease or purchase them.

Gas furnaces heating 600-700 sf units.

Not a bad deal with the bill. Motivated seller who is just liquidating. I bought two from him last year which he took 70% of asking in cash. He will also do financing. I can get it for 8-9% cap with current rents (can push them $50).

Seems like a I decent value ad play. Spend 50K (huge guess) and break-even on it in two years. Sell for 10% cap at then current conditions. 

I am currently going through 34 unit property where the 

owners paying for everything except electric.

Are we talking about the same property ?

Owner is paying about $1500 gas per month

                                  $1436 water usage per month

Not including monthly rental expenses for water heaters.

It must be a better way to control expenses for larger multi-family properties.

@Jenkins Ramon :

I don't think so - this is a 32 unit. Our expenses are a little different too.

I am looking into baseboard heating which puts the bill on the tenants. However, it is expensive to operate. I don't want to have to lower rents.

I think it could be a good value add play if you could retrofit them with furnaces. I can't see the cost of putting them in all units not having a 10% ROI if it saves you 20K+ per year.

Can the rents simply be adjusted to cover most of the expense?

what you are talking about is called a,RUBS program. You can do,a,google,search for it. They will take your total bill and divide it by square footage and bed rooms. There are several companies that provide this service.

We found that, unlike rich landlords, the majority of tenants qualify for Govt. (heating) assistance & that cushions their heating costs, thus avoiding a rental impact. The tenants also have more skin in the game when it comes to opening windows in the middle of winter.

If the installation of stand alone systems are economically viable we definitely do it.

Not knowing who your HVAC person or firm is up here, I'd be very curious as to IF the city of Milwaukee DNS (Dept of Neighborhood Services-where all of the inspectors, city planners, etc work) or even the state of WI in any capacity has any other suggestions OR if there's any outside chance that when someone mentions "yeah, we're going to replace the current central heating system (which I'd sure as heck assume must be gas or MIGHT be still heating oil if it was never retrofitted or replaced since way back when) with electric baseboard heat" if they're going to suddenly have steam pouring out of their ears or some other cartoon character type reaction, because as I'm sure everyone knows, it gets damn cold up here every winter (especially compared to Cape Coral where it is warm enough to have all of those canals all over) 

Not only is electric heat WAY more expensive than gas heat now, IF the new EPA regs that are blatantly designed to make life hell and skyrocket bills for states heavily reliant on coal for generating electricity (like here in WI!) go into effect as proposed, those tenants are going to be getting some MASSIVE heat bills and as I think someone did mention, we also have what sure sounded like a nice, do gooder type program here where they by law cannot shut off your gas and electric during the winter till Apr 15th for nonpayment of your bill.

That sounded great and yes, it would make is all look and feel like a bunch of heartless bastards to shut off heat during the winter, problem is though that for whatever reason a fair amount of people then run their heat literally at 80, 82, 85 degrees all winter long AND have a few windows open or even my personal favorite I've seen a million times, its -8 degrees and some goof has their main front exterior door OPEN with just the flimsy glass storm door shut to block the cold. So, every April 15th the do gooder social service agencies like one where a friend works are totally flooded with clowns and their massive bills, $2500, $3k, $4k or more-FOR LIKE FOUR OR FIVE MOTHS MAX! 

So, this is a big behind the scenes issue here already and I just would make darn sure no one from any govt agency with veto power (or just other powers to use to make a damn clear its a BAD idea) is going to flip out on that electric baseboard heat idea, especially since electric heat up here in WI is about as common as a Brontosaurus!

I have some commercial multifamilies in Milwaukee. As a point of reference, my 1930s 8-units have hot water radiators and each one costs me about $4-4.5k/year in heating costs. So about $500/unit/year. You are looking at double that.

Some possible reasons:

- Inefficient heating system

- Leaky building - old windows and no attic insulation

- Tenants leave windows/storms open

To me, the heating expense problem is a huge plus for your investment. If you can identify a way to cut the bill in half you will save $16k/year in operating expenses, which will drop straight to the bottom line.

I don't touch anything with seller paid utilities of any kind. It's not worth it to me for dealing with that. Dealt with it in the past and not again.

The key element questions are:

1. Can all utility be separated out to the tenants directly?? No bill backs, sub-meter where the landlord is still on the hook if they do not pay etc.

2. How much will it cost to do so and time involved??

3. Are tenants conditioned in the area for landlord to pay utility included in rent?? If that's the case you are wasting time trying to offload onto tenants as they will move down the street. 

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