Multifamily- Prorate or switch from boiler to electric heat

[Dave Reeves]

I recently purchased a Multi-family 4 unit that currently has a new gas boiler. Property managers in my area are telling me to eliminate the boiler and install electric baseboard heat in the units and have the tenants absorb the expense through their own electric bills instead of supply on the house.

1. What are your thoughts on this approach?  
2. Would prorating from the utility company on an Equalized Bill based off historicals and leaving the boiler/system in place be a better strategy?  
3. I'm worried about fire risks with baseboard heat, meaning that tenants would need to be knowledgable about drapes, bedding, furniture, etc being in close proximity to the baseboard units. 
4. It's an underperforming property, so any fair strategies to eliminate expense and pass on to tenants to make them accountable I am wanting to do. Currently my thoughts are as follows:
   
   • 4 stall detached garage (solution:  charge $50 per stall)
   • Add coin laundry (solution:  ~$1200/yr)
   • Raise rents to market area  (past owner hasn't raised in 12 years)
   • Optional fit out for 5th unit that is currently used as owner storage
   • 4 separate storage units in basement that are in use, but not being charged for

[Luc Boiron]

I'm not sure what the regulations are in your area, but where I am, you can't start charging tenants extra for heat if it was included when they started renting. You could charge for new tenants.

Here in Ontario, if you wanted to, you could estimate how much the heat would cost them, reduce the rent by that much, and have them pay the rent themselves. Obviously, this nets out, so doesn't make much sense.

I would absolutely recommend you stay on the gas boiler. It is significantly more effective. I wouldn't just be worried about the risk of fire, and the cost of installing the baseboard heaters. You could more than double the heating costs of the property by switching from gas to electric heat. 

I think the key here is to increase the rents when you can. Tenants tend to pay more for a space where heat is included, rather than one where they need to pay heat on top. And at least in my market, units where there is electric baseboard heat and tenants pay the hydro have significantly lower rents. Keep including the heat, and make sure it's clear in your advertising for units that heat is included. Price accordingly.

Your other ideas seem great. be careful taking something away from a tenant that they had for free and trying to charge them, such as the basement storage. If they were allowed to have it when they moved in for free, you might be better off just charging new tenants when they move in rather than existing tenants.

Good luck!