boiler replace - yay or nay
Hi There, I'm a newby investor that ventured into my first multifamily that I am working to stabilize.
The property is out of state for me (also a first!) located in Cincinnati. The property is a 4 units - 2/bed, 1/bath each. I pay the gas, sew and trash.
It is heated with a gas boiler system that is about 15 years old but still in good condition. It does not have a thermostat that can be adjusted regularly like modern day tech. It is either on or it is off and I'm told it is about 60% efficient. The gas bill was $500-800 p/mo over the winter. Average p/mo for the year is around $400. I talked to 3 different HVAC companies - one of which did substantial work and research to figure out best option to cut cost. Sounds like most cost effective approach would be to replace the unit with a new system that is 96% efficient. Quotes from 2 companies was $14k-16k (based on photos). The 3rd company (did the research and toured the property) was $19k - This is actually negotiated down from their initial quote of $23k.
I am trying to decide if this is a good idea or not. It is hard to know how much the cost savings would be. From what I can determine it is anywhere from $900-2400 p/year.
I do intend to hold onto the property long term 10-15 years maybe longer but by my calculations it could take that long to recover the cost.
The only real pros that I can think of are 1) that I will have the ability to control it remotely, which could add to my savings and 2) the unit will need replaced eventually anyway.
Thoughts? Anyone have experience making this switch? was it worth it?
It is far cheaper to replace it now when you can take your time than an emergency replacement when the boiler dies.
Given your expected hold period and a typical boiler life of 15-20 years, it looks like you will be replacing the existing unit during your ownership. You can do it now or wait and hope you can replce it before it dies.
On another note, the price seems a bit on the high side unless they are upgrading your boiler. Are the units heated by radiant heating? We have separate furnaces, so that could easily explain the difference.
I would personally replace it, especially if I was going to hold onto it long term. However, it might make sense to replace it later after you've recouped some money from rents. If this is a BRRRR situation, though, I'd replace it now.
That quote stuck out to me as seeming to be a bit high if this is for a single furnace system. I could be very wrong though, as I focus on SFHs. Either way, I know you've received a few quotes from professional companies... consider contacting your local supply house and asking if they have any recommendations for HVAC contractors, as well as asking if they could price you for HVAC materials. For example, in my area and for the properties I purchase, it's not unusual to get quotes from professional companies ranging from $6500-$9000 for a 96% furnace and 1.5 ton AC installation. Instead, I call Banner Supply (my local supply shop who also gives me 10% off as a contractor/landlord) and they were able to quote me $3400 for the materials, and then put me in contact with a couple of HVAC installers that they recommend who offered to do the job for me for $800-$1,250.
Again, I'm not too familiar with multifamilies, but I imagine you'll be able to save a decent chunk going a similar route. Also, it may require you to be more involved.
I would replace it. If you had three quotes in that same price range this is a good indicator nobody is far off. I would be afraid of a bid coming in way low. You can not just look at operating cost on the lower efficiency unit. You will also need to look at service expenses versus having a warranty on the new unit. I do own investment properties along with a plumbing, heating and air conditioning business so I look at it from a couple different angles. Good luck
Quick suggestion if it makes sense, can you get a quote to potentially separate units with their own boilers? For a smaller compact boiler, should be anywhere from $5k to $8k, and while you may pay more initially, you will completely pass those heating costs to your tenants saving you tons of money in the long run.
On another note: How do you like this market? I am looking to get into larger multifamily and Cincinatti is on my short list to start focusing on.
Quote from @Greg Scott:
It is far cheaper to replace it now when you can take your time than an emergency replacement when the boiler dies.
Given your expected hold period and a typical boiler life of 15-20 years, it looks like you will be replacing the existing unit during your ownership. You can do it now or wait and hope you can replace it before it dies.
On another note, the price seems a bit on the high side unless they are upgrading your boiler. Are the units heated by radiant heating? We have separate furnaces, so that could easily explain the difference.
agreed. I certainly would prefer to avoid an emergency situation! The bids are to replace an old boiler with a new fangled model. Sounds like they would need to replace a lot of the piping - just to the unit itself, not throughout the building. The apartments are heated with a radiator in each room. None of them have thermostats or are able to be regulated.
Quote from @Alex L.:
I would personally replace it, especially if I was going to hold onto it long term. However, it might make sense to replace it later after you've recouped some money from rents. If this is a BRRRR situation, though, I'd replace it now.
That quote stuck out to me as seeming to be a bit high if this is for a single furnace system. I could be very wrong though, as I focus on SFHs. Either way, I know you've received a few quotes from professional companies... consider contacting your local supply house and asking if they have any recommendations for HVAC contractors, as well as asking if they could price you for HVAC materials. For example, in my area and for the properties I purchase, it's not unusual to get quotes from professional companies ranging from $6500-$9000 for a 96% furnace and 1.5 ton AC installation. Instead, I call Banner Supply (my local supply shop who also gives me 10% off as a contractor/landlord) and they were able to quote me $3400 for the materials, and then put me in contact with a couple of HVAC installers that they recommend who offered to do the job for me for $800-$1,250.
Again, I'm not too familiar with multifamilies, but I imagine you'll be able to save a decent chunk going a similar route. Also, it may require you to be more involved.
I have done this approach once last year for a small garage to ADU conversion that i put in a mini split I got off amazon and it saved me about $1K. It worked out really well. Although at the time i found it very challenging to find a contractor willing to install units they did not know or sell themselves. I was able to get someone i had a long standing relationship with who said they would do it as a favor... It might work better getting a referral from a supplier. I'll look into that. thanks!
Quote from @Jim Spalla:great point! thank you
I would replace it. If you had three quotes in that same price range this is a good indicator nobody is far off. I would be afraid of a bid coming in way low. You can not just look at operating cost on the lower efficiency unit. You will also need to look at service expenses versus having a warranty on the new unit. I do own investment properties along with a plumbing, heating and air conditioning business so I look at it from a couple different angles. Good luck
Quote from @Ceasar Rosas:
Quick suggestion if it makes sense, can you get a quote to potentially separate units with their own boilers? For a smaller compact boiler, should be anywhere from $5k to $8k, and while you may pay more initially, you will completely pass those heating costs to your tenants saving you tons of money in the long run.
On another note: How do you like this market? I am looking to get into larger multifamily and Cincinatti is on my short list to start focusing on.
This is an interesting option i did not consider. Passing it to the tenants is certainly preferable!
The tenants pay for their own electricity so i started my research looking at electric furnaces and mini split systems. Both options were $50-100k. Problem is the building only has 200 amps which is why those options are budget busting. I'm not sure how much power draw boilers have and if adding 3 more would be problematic. I will definitely be looking into this. thanks!
So far so good although the market has changed so much since we closed on this property last July. There was a lot to choose from at the time but today its a different story. I think it is a good area with lots of potential for growth both in cash flow and eventually appreciation, especially with how much attention its been getting from investors the last few years. The competition is getting tough out there. I think there is room to find good properties still but it will be interesting to see how it shapes out in the next 5-10yrs.
Hello There,
I'm a real estate broker in Cincinnati specializing in multi family property. I have had multiple owners switch from boiler to electric baseboard heaters to save money. None of them have so far regretted do so. The newer baseboard heaters seem to work very well and the added bonus is that the electric is paid by the tenant.
I personally installed electric baseboard heaters in a single family property that I owned. Nothing ever went wrong and it was still working when I sold the house 12 years later!
is the current furnace oil or gas? Do you have gas on the property?
#2 Contractors Contributor
- Severna Park, MD
You can use 1 boiler and have each unit have their own thermostat . It is done by zone valves . There would need to be piping work done , this part is the unknown due to the layout of the property . Each unit would control their temps .
3 boilers ? NO that would use 3 times the fuel , possibly add 2 more chimneys .
A quality boiler can last 30 years easily . And a good service guy can tune it to its max effiency
And 15 grand for a new one is not a bad price .
@Alissa Hyder, I would not replace your boiler. Boilers get a bad name that they don't deserve, in my opinion. They can last for a really long time. I do not believe the new boiler will make that much of a difference in your monthly bill. I also don't think you'll sell the building for that much more in 5-10 years just because you replaced the boiler in 2023. Heck, if you're going to sell in 10-15 years, you'd be better off replacing the boiler closer to when you sell. Don't replace it now when you're having no serious issues!
- Rental Property Investor
- Boston, Massachusetts (MA)
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@Alissa Hyder sounds about double what replacing (just) the power plant should be. See if there are any credits for upgrading energy efficiency? If you haven’t I might try just an aggressive servicing and see if that boosts performance. 15 years isn’t that long for a good system. Might run inefficiently forwver
What is the main driver for the replacement? Maintenance or costs?
If it is trying to keep your costs lower, implement RUBS and pass the cost of heating to the tenants from the next lease onwards. That will be your highest ROI.
Quote from @Victor Patel:
Hello There,
I'm a real estate broker in Cincinnati specializing in multi family property. I have had multiple owners switch from boiler to electric baseboard heaters to save money. None of them have so far regretted do so. The newer baseboard heaters seem to work very well and the added bonus is that the electric is paid by the tenant.
I personally installed electric baseboard heaters in a single family property that I owned. Nothing ever went wrong and it was still working when I sold the house 12 years later!
The ideal thing is to move to an electric system of some sort as that is the only thing that the tenants each pay on their own. Do you know how much power draw this option would need? The property currently only has 200amps. Mini splits were a hard pass because it added $$$ to upgrade the panels. Seems like these would use less juice so maybe it would work. What is a ballpark cost for install for something like that in your area?
Quote from @Percy N.:
What is the main driver for the replacement? Maintenance or costs?
If it is trying to keep your costs lower, implement RUBS and pass the cost of heating to the tenants from the next lease onwards. That will be your highest ROI.
The main driver is monthly expense but also comfort. Since the system is not able to adjust with a thermostat by unit, some units run hotter than others. They are leaving their kitchen windows open in the winter because it gets too warm. Money going out window - literally. I don't think i've heard of RUBS. Will you tell me more?
@Alissa Hyder, RUBS = Ratio Utility Billing System in short you bill back the residents for the utility charges you incur based on a formula/ratio such as their square footage, etc. Some localities allow you to charge a fixed amount, while others do not. Most allow you to bill back 90-95% if you have some common areas. This can include water, sewer, electric, gas, oil, etc but check your local regulations.
There may be a thermostat option available that allows you to control the hot water valve coming into the radiator. In the "old days" there was a manual value you could adjust on the radiator.