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James Albrecht
  • Investor
  • Minneapolis
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Installing second boiler for small 2-unit

James Albrecht
  • Investor
  • Minneapolis
Posted Apr 27 2023, 07:18

I'm curious to get feedback on whether it would be worth the expense to install a 2nd boiler / hot water heater for a small duplex so the tenants can be responsible for their own gas usage. There is currently one mid-1980's 84% AFUE boiler with separate zones for each unit and one hot water heater. I've been told this boiler is in good condition with no issues. The water heater is older (2008), but is still functional. There are separate gas meters and electrical panels for each unit.  The upstairs tenant pays for the cooking gas for his unit, but I pay the gas bill for unit 1, which includes the gas for the boiler and hot water heater.  The recent 12 month average for natural gas comes to approx. $125 / mo.   I'm currently leaning towards keeping the equipment for unit 1 and installing a natural gas high-efficiency combi system for the small, 600 square ft upper apartment and having this system connected to that unit's gas meter and having the tenants of each unit pay for their own heat / hot water.  The cost for such a system is high.  The bids I'm getting are in the $13,000 - $15,000 range.  However, I can finance this and depending on the financing option I go with can likely get the monthly cost down to about what I'm already paying for the average monthly natural gas bill.  Then my cost is fixed and not subject to rising natural gas prices or varying usage and weather conditions in the future and obviously once the system is paid off will significantly improve cashflow on this property. It would also add value to the property. The main downside I can think of is having two systems to maintain instead of one, although the new system will likely be under warranty for a while.  I've also considered billing the tenants for their portion of gas usage based on square footage using RUBS, but this sounds like a hassle. Just curious what other investor's thoughts are on the best move.  Thanks

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Bob Stevens
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Bob Stevens
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  • Cleveland
Replied Apr 27 2023, 07:20
Quote from @James Albrecht:

I'm curious to get feedback on whether it would be worth the expense to install a 2nd boiler / hot water heater for a small duplex so the tenants can be responsible for their own gas usage. There is currently one mid-1980's 84% AFUE boiler with separate zones for each unit and one hot water heater. I've been told this boiler is in good condition with no issues. The water heater is older (2008), but is still functional. There are separate gas meters and electrical panels for each unit.  The upstairs tenant pays for the cooking gas for his unit, but I pay the gas bill for unit 1, which includes the gas for the boiler and hot water heater.  The recent 12 month average for natural gas comes to approx. $125 / mo.   I'm currently leaning towards keeping the equipment for unit 1 and installing a natural gas high-efficiency combi system for the small, 600 square ft upper apartment and having this system connected to that unit's gas meter and having the tenants of each unit pay for their own heat / hot water.  The cost for such a system is high.  The bids I'm getting are in the $13,000 - $15,000 range.  However, I can finance this and depending on the financing option I go with can likely get the monthly cost down to about what I'm already paying for the average monthly natural gas bill.  Then my cost is fixed and not subject to rising natural gas prices or varying usage and weather conditions in the future and obviously once the system is paid off will significantly improve cashflow on this property. It would also add value to the property. The main downside I can think of is having two systems to maintain instead of one, although the new system will likely be under warranty for a while.  I've also considered billing the tenants for their portion of gas usage based on square footage using RUBS, but this sounds like a hassle. Just curious what other investor's thoughts are on the best move.  Thanks


 Its all about the numbers, Just do the math, or simple raise the rents by 50 bux a month to help offset. 

15k seems insanely high. 

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Matthew Irish-Jones
  • Real Estate Agent
  • Buffalo, NY
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Matthew Irish-Jones
  • Real Estate Agent
  • Buffalo, NY
Replied Apr 27 2023, 07:26
Quote from @James Albrecht:

I'm curious to get feedback on whether it would be worth the expense to install a 2nd boiler / hot water heater for a small duplex so the tenants can be responsible for their own gas usage. There is currently one mid-1980's 84% AFUE boiler with separate zones for each unit and one hot water heater. I've been told this boiler is in good condition with no issues. The water heater is older (2008), but is still functional. There are separate gas meters and electrical panels for each unit.  The upstairs tenant pays for the cooking gas for his unit, but I pay the gas bill for unit 1, which includes the gas for the boiler and hot water heater.  The recent 12 month average for natural gas comes to approx. $125 / mo.   I'm currently leaning towards keeping the equipment for unit 1 and installing a natural gas high-efficiency combi system for the small, 600 square ft upper apartment and having this system connected to that unit's gas meter and having the tenants of each unit pay for their own heat / hot water.  The cost for such a system is high.  The bids I'm getting are in the $13,000 - $15,000 range.  However, I can finance this and depending on the financing option I go with can likely get the monthly cost down to about what I'm already paying for the average monthly natural gas bill.  Then my cost is fixed and not subject to rising natural gas prices or varying usage and weather conditions in the future and obviously once the system is paid off will significantly improve cashflow on this property. It would also add value to the property. The main downside I can think of is having two systems to maintain instead of one, although the new system will likely be under warranty for a while.  I've also considered billing the tenants for their portion of gas usage based on square footage using RUBS, but this sounds like a hassle. Just curious what other investor's thoughts are on the best move.  Thanks


 You should look into a heat pump.  No radiators, no duct work, and built in AC.  Then the tenant cay pay it through their electric bill as long as the electric is separated. 

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Nathan Gesner
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  • Cody, WY
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Nathan Gesner
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ModeratorReplied Apr 28 2023, 05:41
Quote from @James Albrecht:

Not worth it. Look at your bill and add up all the base fees, taxes, etc. If you split the utility and each unit has their own bill, you will both be paying those base fees on your own, which can often add up to 50% of the bill. So you end up paying a ton up front to split the utility, then you pay more each month thanks to base fees. It's not worth it.

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

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Jeff Schemmel
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Jeff Schemmel
  • Real Estate Agent
  • Saint Paul, MN
Replied Apr 28 2023, 08:13

@James Albrecht I recall one BP podcast episode where the investor basically cut out all the boilers and installed baseboard electric heat. That's an option for that unit that could be more cost-effective. Alternatively, a mini-split with both heat/cooling is also an option; I would reserve this only if it's a nicer (75% quality small apartment unit). Honestly, for 15k, just do the RUBS method or advertise heat paid by the owner and raise the rent accordingly.- I understand you have two meters, but small places should take less effort to heat and for a 600sqft apartment I can't make sense of that from an ROI perspective. I tend to favor the baseboard option if you want to keep your hands off the RUBS thing.

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