AC near the end of life expentancy when closing

Multi-Family and Apartment Investing
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AC near the end of life expentancy when closing

Chase Gu
Investor · Sterling, VA · Member since 2015 · 43 posts · 3 votes

Hi, Everyone! I am looking at a 4-unit apartment building. AC and water heater in all four units are over 25 years old. They are working but may need replacement at any time. Seller is unwilling to replace because they are working. What would you do in this case? Would you ask for credit? If so, would you ask for 50% of the total costs or some other percent? 

Also this property has a small retail space, with an existing tenant. Can I force the tenant out when I close? How difficult is it to evict a commercial tenant (this is in VA)?

Thanks!

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Chase Gu, you can't evict a tenant without cause and you must honor any existing lease when you buy the property. Once the lease is up you can choose not to renew, raise the rent, whatever as long as you're complying with local law.

    Regarding the A/C, I would get an estimate on replacing everything and take that into account when making my offer. You could also consider a clause in the offer, but I don't know what you'll realistically be able to get.

    Are all of the utilities split and the responsibility of the tenants? If not, this could be an opportunity to add value.

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  • Kevin S.
    Accountant · Tulsa, OK · Member since 2018 · 312 posts · 349 votes
    7y

    @Chase Gu The first thing I would do is get them inspected and get an estimated replacement cost. Then I would approach the seller about potentially lowering his asking price based on their condition, however if the seller has already stated they are unwilling to replace them, you may find they are also not open to the idea of sharing the cost of replacement. You may just have to evaluate whether the deal is worth it if you include the expense of you paying for the full replacement costs.

    Additionally, as a stop-gap measure, if the seller wont lower their sales price you could always request a home warranty (not sure if they do those for 4-plexes or not).

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Well, “near end of life” can be subjective.  I’m sure the seller feels the price reflects the building “as is”..... Obviously, you can Try to negotiate, but there’s no rule of thumb here, just how bad the seller wants to get rid of it..

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

    The age of HVACs and water heaters are easily identifiable upon visual inspection.  Any issue with them should be factored into your initial offer. On the listing side I never negotiate the HVAC, waterheater or roof as you can plainly see them without any sort of inspection.

    On small properties like you are describing, in our area, MD/DC/VA, the age of them does not really affect the value of the property.

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  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    Look into home warranties and determine how long you have to wait to file a claim. 

    But regardless, factor in the costs of replacing the A/C in your financial analysis.

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