2nd Floor Unit w/ Electric Heat Rented First?

Question

As some of you may know I am documenting a 4-family rehab my business partner and I are doing in the Investor Deal Diaries section.

There a 4-1 bedroom apartments, 2 on the 1st floor and 2 on the 2nd floor. The heat source in these units are as follows:

1st floor rear: gas

1st floor front: electric

2nd floor rear: electric

2nd floor front: gas

The first unit that we rented (before the carpet was even put in) was the 2nd floor rear and the second unit rented out was the first floor front.  We figured these would be the hardest to rent because of the electric heat as we are located in CT where it is the middle of the winter.

It just shows you never know what prospective tenants are thinking.  It turns out that both tenants are happy that all of their utilities will be on one bill.  Go figure, right?  It probably also helps that these are smaller 1 bedrooms that are renovated.

Eric Munson · Answer

@Michael Noto - The Farmington properties almost manage themselves:) My 2 bed units rent in the 1300-1500 range with great tenants(top school system). I realized the other day that I have not heard from one of my tenants in 11 months:) less cash flow than my NB rentals for sure but ease of management and potential appreciation makes it worthwhile. I found that property off line on Craigslist and the owner held a note for 94% of the purchase and i had an unsecured promissory note for the gap.

Yes, you can do no money deals in top areas too.

15 year balloon at 6% with 30year am.

Never met the owner face to face that held the note. He closed from Fl.

Gotta love that!

Ricardo S. · Answer

They like not having to pay a deposit to the gas company

Richard Villandry · Answer

I recently moved into a second floor apartment in Massachusetts (cold winters) with electric heat. I love the idea of being on the second floor for a few reason:

1) Security and comfort is a big one. I used to live on the first floor and felt like anyone could hop through the window at any time and also much loader with trucks/bikes right outside the window.

2) My girlfriend and I rarely have the heat on due to us working most of the day. With the heat rising from the first floor tenants our apartment stays fairly warm. I like the idea of someone else's heat heating our space. Forgot to mention we have other tenants above us.

Michael Noto · Answer

@Eric Munson  Project is going pretty well so far, fingers crossed though.  Still some things that need to get done.

Farmington must be a nice area to be a landlord.  We have a 2-family in Plainville and that experience has been good as well.

Jennifer T. · Answer

In my rental, I have both gas heating (wall units) and window units that are both A/C and heat.  A few months ago, the heat went out on the window unit (A/C still works).  I offered to buy a new one, but my tenants said it was fine, they prefer the gas heating anyway.

But, in my area, gas and electric come on the same bill anyway.

Eric Munson · Answer

@Michael Noto - Also, these units are in Farmington and the tenants are middle class professionals. This is a different situation than your four plex in NB but those small units should not be an issue(unless we get a significant rate hike again).

Great to hear you are getting the units filled quickly.

Eric Munson · Answer

Forgot to mention that the property was built in the late 80's and has 2x6 construction(heavy insulation) and top of the line Anderson windows. I like the fact that I don't have to repair, service or replace heating systems which lowers my annual and cap ex expenses.

Michael Noto · Answer

@Eric Munson  That's interesting.  I also find that tenants who are busy do not mind the electric heat because it is zoned and heats up relatively fast.  Maybe being with a busier lifestyle do not mind it cause they are not home as much?

The bottom line is, if you leave the heat cranked up when you are not in the unit your heating bill will be high.  If you aren't smart enough to realize that it is an expensive lesson learned.

Eric Munson · Answer

@Michael Noto I have a side by side townhouse style duplex with finished lower levels that are 1500 square feet of living space each. The units are all electric and the tenants love it. I installed digital t stats to make sure they had good temp control.

They love how many zones they have for control. I don't install programmable t stats to keep things simple.