Central AC upgrade and increase rent?

Question

I have two properties which I'm currently thinking of installing central AC in.

The install, unit and labour is about $2500-3500 through my GC.

Now of course IF I install the unit I will increase rents. From other landlords experience's how much have you bumped up rent afterwards that tenants will not cry?

James Mc Ree · Answer

I settle on the unit Thursday.  It already has a finished basement.  My improvements were replacing the furnace, adding c/a and adding duct work to bring basement returns back to the furnace and a/c.  The returns just empty into the basement and we need them to connect to the furnace and a/c.

The old furnace still worked.  I thought now was a good time to replace it since I wanted to add c/a and a new furnace would require ductwork for the returns to comply with code anyway.

My spending drivers are improved resale value and rent competitiveness, as suggested above.  The seller is motivated and price below market in a nice area.  The ROI for the c/a is 2 years or less.  It is harder to assess for the furnace since I don't know when it would actually fail.  Murphy would have it fail at the worst possible time giving me some stress ROI too.  8-)  Otherwise, I don't think a tenant cares if there is a new or old furnace if they are warm.

Jim.

James Mc Ree · Answer

I am about to replace a 1950 gravity gas heater with a modern unit, add c/a and do a little basement duct work to a unit all for $5,800.

Around here (Delaware County, PA - near Phila), a "3Br, 1Ba, unfinished basement and no c/a" is the "base unit" for the row homes I buy.  Upgrades add a powder room, finish the basement and add c/a.  The base unit typically rents for about $1,000 - $1,100 while the fully upgraded unit rents for about $1,200 if you can ignore everything else that affects value for an over-simplified comparison.  That is very hard to do.  Condition, location and maintenance needs are very important.

One tenant factor you may run into is the affordability of c/a.  Lower income tenants may not be interested in c/a as it will increase their electricity bill and rent if you charge more.

James Mc Ree · Answer

The unit currently has window units and forced air heat.  Window units come out.  New c/a in.  The return ducts that empty into the basement are extended to the furnace and a/c which are on the other side of the basement.

I am buying the property for $72,000.  Most similar properties in the area are selling around $85,000 with central air.  Many of those have fully upgraded kitchens which mine lacks.  Mine is more of an "upgrade in place".  I am adding some cabinets to avoid a kitchen remodeling.

Jim.

Todd Plambeck · Answer

Are you adding AC where there was none before or replacing window units with central?  How much cheaper are your units now than those in the neighborhood that have central air?

JD Martin · Answer

Not to answer for James, but I think that's very reasonable - the life of a good furnace can easily be 25-30 years or more (I'm at 24 on my own furnace at home), and adding the central air will help him attract tenants more easily. If you consider that replacing the furnace he has now, from the 1950's, is really just a capital expense that probably should have already been done, he's probably recapturing those costs in a little over a year (for the added cost of the AC unit).

Federico Gutierrez · Answer

James how much is it costing you to finish the basement?Seems like a lot of work for only an extra $200 on a good day. How long does it take to get your money back on all those upgrades?

Thomas S. · Answer

It depends on who is paying for the hydro.

The rent will depend on market rates not a arbitrary number you choose but recouping your investment should be within 2 years max.

JD Martin · Answer

I always install it when I buy a new unit, so I can't say what kind of increase is warranted, but I will say that I estimate my houses would rent for $100-150 less per month if they did not have CHA (comparing them to the market where CHA is not installed).

Central AC upgrade and increase rent?

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