Looking for some advice regarding my extremely high heating bills. I own a 14 unit apartment building located in Commerce Michigan. I currently pay the gas and water for my tenants while they pay for their own electricity. On average I see anywhere from $500 - $800 monthly heating bills during the winter months. 10 of the 14 furnaces that are in the units I've been there since 1968 when the building was erected. I don't have a whole lot of problems with them other than occasional pilot lights going out and making minor repairs.
My question is do I replace these gas units with electrical units? This way I pass the Bill back to the tenants where they would be less likely to have their heat on full blast and their windows open, which is always a joy to see.
The price of gas is supposed to be going anywhere from 15 to 20% higher in the near future. I truly don't have a clue as to what the cost would be to take out the current wall unit furnaces and replace them with the electrical units. Are they safe?
Any and all help is much appreciated
Why are you paying for them if they are separate? What am I missing here. Can you just have them pay for it? here in mass as long as things are separate and they can have their own utility bill they pay it. If its one system, the landlord pays it.
In my experience electrical heat is far more expensive.
800 / 14 = $57.14 per month, per unit. Honestly that doesn't seem too bad.
Would it be possible to raise rents that amount to offset the cost? If not, can you implement some type of RUBS system?
Have you considered implementing a RUBS system? In short, this would help you split utility bills among tenants based on occupancy factors like sq. ft., # of tenants, etc. This is a rather common system and often your electric/heating company will help you set up a plan.
RUBS is an option I have used on multifamily buildings with one water/gas meter. You have to make sure the area will support it though - if nobody else with similar units is doing utility billbacks, your tenants will likely resist and move to other properties.
All electric furnace units are an option for sure, but you will likely have to factor in the electrical upgrade cost per unit as well since your existing panel likely won't support another 220 circuit. You could also look at mini-splits as an option, which are generally much more efficient than electric heat/AC.
I agree with Anthony though - $800 per month for 14 units is not all that high. My sewer/water/gas bills on some of my 4 plexes run $300-400/month in the winter months...
How is your rent price compared to your competition? Like many others have said the cost of the heat for the size sounds pretty reasonable. If you have long term tenants I would not suggest having them start to pay for the heat if they have not up to this point. However, if their rent is much lower then your local competition or if your competition has similar rent but also has their tenant pay for their own heat you may be able to raise your rent to compensate. If the heat units are all separate as it sounds like they are you can start to have new tenants pay for the heat as old tenants move out and new ones move in.
Thank you guys I appreciate all the input . So let me clarify . I pay the gas and water which is not separate for each individual unit but rather on 1 meter. If I replace the current gas furnaces with electric then yes they would be separated and each unit would be responsible for paying their own electric bill which they currently are. Actually that gas bill is pretty high and it's going to jump 20%. The total square footage of the building is just under 7000. When I bought the building half of the tenants have been there for 15 years plus and still are. My tenants are little old ladies on Social Security which truly I don't mind based on my lesson 1% vacancy rate that was only cuz one died.
I'm going to plead ignorance here and ask for help on better understanding RUBS. Up until about 3 hours ago that's the first time I heard that term could you help a brother out.
So there are separate furnaces but only one meter? Your Provider should come out and separate that, and it will prob cost you some cash to get it re-plumbed so gas goes from the right meter to the right furnace, but I would do that instead of anything. This then also will be write off and lower your expenses.
I didn't read all the other responses, but if the units have heat in them, can you just have them metered to the tenant? I have a 12 unit building that has a similar setup and we pass the gas price to the tenants this way.
I wouldn't recommend moving to electric since this is more expensive and may make it harder to push rents if the tenants are taking on this expense as well.
"My tenants are little old ladies on Social Security"
You threw that in there pretty casually. I personally would have trouble passing the burden on to them. But that's me. Many landlords would cut off their left pinky for 15+ year residents. Were you aware of the utility structure/costs when you bought the building? Do you calculate the turnover costs as these older residents move on?
I will assume your rents are not below others in your area. Leave well enough alone. Your in Michigan!! While counting your nickels, dollars will fall out your back pocket. At the most increase the rents some to offset heating cost.
Example: (500/800 x 6= 3000/4800) (25 x 12 x 14= 4200)
With some tenant training and controls and a small investment in efficiency improvements, you could even come out ahead).
Yeah, I would demand a decrease of rent if it heat is passed down. at least 75.
Get each of the units separately metered. You can have all the gas bills sent to you, but you need to be prepared to eventually charge the costs to the tenants. You can set up a split that makes sense and gradually increase the tenant ownership of the gas bill until they are at 100%. Any new tenants should pay their own gas bill on day 1.
Im in Miami, so I cant speak about furnances. But I can assume that Miami's AC can equate to Michigan's heating.
I just bought a six-plex and replaced all the mechanicals (AC and Water heater) and appliances (Washer/dryer/refrigerator/ Dishwasher/Stove) in each unit. Went Energy Star and high efficiency all the way. Also replaced windows and doors to higher efficiency. When I did it, I warned the tenants that rents would go up alot. (from an average of 600 to 800). They were not happy, but I told them to bear with me. Tenants pay water and electric individually.
It's been tough on my wallet, but it has been a raving success for the tenants and me. They send me texts with their much lower water and electric bills. What it really comes down to is that inefficient appliances and mechanicals help no one but the utility companies. And trying to figure out how to spread the cost of inefficient mechanicals is pointless. Stop the bleeding. When I told the tenants the rent was going up, I simply told them that the decrease in utilities would nearly offset the increase in rent. And they would have new appliances and mechanicals to boot. If they were willing to walk, then so be it. I'm not trying to run a low rent housing building. I bit the bullet and rents are up, NOI is up, ARV is up. Capex will be low and maintenance will be low for the next few years. Its all tax deductible and you get misc credits from the federal and state government. Win-win for the landlord and tenants. A loss for the utility companies and repairmen.
Add insulation, replace furnace.
I wouldn't assume you could just switch over to electric heaters. Electric heat takes a good amount of amperage. Your units panels may not be able to handle that load, then times 14 furnaces, your main lines into your building may not be able to. There's a reasonable chance you'd have to upgrade some wiring in order to handle it.
You can check to see if anyone has their windows open while the heat is going and set a temperature that is the max you will heat the apartments to and pay the bill.
You can write up a notice and give it to all tenants saying if you heat your apartment above 72 degrees or have the window open while the heat is on you may be held liable for a 25 dollar fee or something along that line.
Check to see how your insulation is in your attic. Check for drafty windows. Replacing windows takes a long time to recover the money and sometimes you don't see any savings long term.
Wait, $500-$800 TOTAL, not per unit? In Michigan? I remember $200-$300 gas bills in the winter in PA and WI. On one house.
Say you get elec units installed, 14 of them at 2-3k each (cheapest I can imagine.) Whats your yearly gas bill? How long will it take to get your money back, if you're assuming no one leaves, no rent reductions for adding $100 to each elec bill, etc? Seems insane.
How wouldn't it be cheaper, if you were dead set, to get meters put in for each gas line? Is that impossible?
Originally posted by @Peter S. :
Im in Miami, so I cant speak about furnances. But I can assume that Miami's AC can equate to Michigan's heating.
Heat is way more expensive in MI than AC in Miami. One quick shortcut, look at government recommended mins for insulation. Also, we have aluminum framed windows down here. That's crazy talk up north with the heat loss.
Not sure how your building is set up, but did you increase attic insulation? That was insane how much I saved. If I knew then what i know now, I would have filled my entire attic (save a small space for air circulation) with blown in insulation up north.
Seems like you got good amount of replies. I have a 12 unit in Cincinnati, which is probably a similar concept. the previous owner placed electric baseboards in each unit, and since the electric is separate, they effectively transferred the heating commitment and costs onto the tenants. Now, there are some advantages and disadvantages. Let me count a few:
Advantages: you don't pay for heating; tenants would presumably be more judicious and responsible with usage
Disadvantages: based on what i'm told, baseboards are the lease effective heating method; if your building is low income, that is another cost your tenants have to absorb, which may stretch them; it may cap your rent and may you a bit less competitive vs a similar unit with free heat
Also, there may be more efficient furnaces in the market. If you change them over time and the costs make sense to do so, it may slowly trim your expenses.
I would say that the baseboards seem to work based on my very limited knowledge. You can get newer ones with digital thermostats and that could make them more accurate. They are also pretty cheap to replace.
if the furnaces are individual you can split the gas meters. The other option is just to put a wet bulb in the wall with no thermostat and keep the heat at the min required temp
There's another issue about separate meters.
I looked into the issue for a co-worker once that complained everyday about his landlord splitting a gas bill and have him pay half. He wondered if it would be more fair if there's 2 meters and each pay their own. In your case, it would be 14 meters. That's assuming it's even possible re-piping everything
Out of curiosity, I checked into it, because I owned rentals where 2 units share the same meter. I was a good 15 years ago so prices might be different. Turns out that for electric and gas, the utility charge for providing a connection to the unit, and on top, charge for usage.
In my co-workers case, the landlord where split the gas bill with him. This meter is only for cooking gas, and runs $30.00 to $40.0 a month. But if you dissect the bill, about $15.00 has to do with providing the connection, and if the bill was $40.00/month, it's $15.00 for the services (meter, connection, billing etc), only $25.00 in gas usage for both, or $12.50 of gas usage per unit.
Let's say the landlord is tired of his complaint, add a meter, what happens? If their gas usage stays the same, each would pay $15.00 for their own gas connection and meter plus $12.50 for gas usage or $27.50 each (that's 15+ 12.50) for gas.
Wait a minute. If the owner spells hundreds of dollars to add a meter, piping, and instead of him paying $20.00/month splitting the gas bill, he'll be paying $27.50 only for his half? How could this be? So I show him the calculations and told this guy to stop bugging his landlord.
Now I read many posts here about adding meters and splitting bills. Obviously adding meters is not the way to go if you're looking for the utility to put the extra meters in and have them bill each tenant separately, assuming it even makes sense from the plumbing standpoint. The only ones that makes out is the utility.
Also, for gas and electric usage, they charge so much for the 1st so many kilowatts and therms, a little less for the next, on a graduated scale. So for 14 units if your utility charges the same as mine, they not only get $15.00 each for 14 meters, but each tenant would pay more per unit. If your unit cost now is say $60.00/unit, separating meters would run the cost per unit to over $80.00
Let me throw one more idea out there that I have been considering: buy your own meters and put them in the gas lines at each furnace. You could read them and "cost share" at a ratio you could change based on when they began their tenancy or something similar (since they will compare notes).
That way you could maintain the cost advantage of gas and insulate yourself from added gas company infrastructure cost/policies. I would stay away from electric heat purely because it is a high cost and if I were a tenant, would perceive it as "mean spirited"
Good luck! in my 3 family my bill got over $500 last winter for just heat...
Finally decided my tenant was worth more than a couple high bills so just kept my mouth shut. I'll probably just deal with it by switching out the thermostat when they move.
Install separate meters for each unit and have the utility put in the tenants name.
Any other option is simply a Band-Aid approach to the problem. Long term your best option is having tenants pay their own heating costs.
Bite the bullet and fix your problem.
@Mike Cotter I see your point that is the only reason i was not able to proceed with smaller apartment complex. Utility is the problem my Suggestion
1. off course separate billing is one option try to do that.
2. putting more energy efficient things like windows etc
3. If the tenants is the sole issue raise awareness and include some incentive for saving the gas and pass it on to tenants.
4. I am not an expert but there should be a IOT device that you can install by the furnace by your self to know which tenant is the issue.
Hope it helps