Hello BP! We are looking at a SFR that has been split into two units. It has only one water, gas and electric meter (i.e.- one furnace and one water heater). Wondering how this would work with having two separate tenants.
The water (as long as the water heater is large enough) and electric bill I could just include in the cost of the rent (one option) but the one furnace is what I think I would need to figure out. One unit is on the main level and the other is the basement so the temperature difference could be around 8 degrees based on our personal home.
I am sure I am not the first person who has come across this. Just wondering what ideas people have. Obviously, another furnace would solve the problem but any other ideas?
Thanks in advance.
You could charge both tenants more $ to include the common utilities so you, as the landlord, are responsible for it. However, I don't recommend it. If tenants know their utilities are included in the rent, most of them don't bother to conserve. Especially heating bills in the winter time.
How old is the 1 furnace? The biggest question is the ductwork. If you were to install a 2nd furnace with separate gas lines, how much ductwork do your HVAC contractor have to redo?
Ask the seller for the last 2 years of utility bills so that you can factor that into your cashflow.
Another option if you don't feel like buying another furnace is installing a zone control system off of the one furnace. It allows you to have two thermostats controlling each unit. Your local HVAC contractors can install it for under a grand, you would just have to cover the gas bill.
I agree that tenants that don't pay their own utilities do not conserve. I am not exactly how old the furnace is. If I had to guess I would say about 15 years old. We have not been in the house yet and are just running our preliminary numbers. The current owner has family living in the basement therefore most likely ok that there is one furnace.
The additional HVAC Duct work may be extensive since it is a finished basement. Thank you for making me think about other things.
I am not familiar with a zone control system. Two thermostats and one furnace I am guessing the duct work would need to be separated so that if only the basement unit was calling for heat it only goes through the duct work to the basement? I will look into that as it would (or could) mean duct work but if I can keep the same furnace at least for awhile then that would help. I would still have to pay for the heat along with water and gas so that is something else to consider as well.
Thank you both for helping me think outside the box. This would be our 3rd and 4th unit and deals are hard to come by in our area so I want to be creative but reasonable.
They work with existing duct work in place assuming you have ductwork running throughout the basement unit. They just install dampers within the duct work to open and close when needed. Not a hvac pro just know it's possible, good luck!
Thank you for the information. I was just reading about the dampers. This could be a possibility based on our knowledge of the existing system. Our neighbor owns an HVAC company. I will talk to him soon and get his opinion. Thanks for the suggestion!
You could install electric baseboard heaters and then try to split the electrical system into separate metered systems. I think the electrical would be easier to split in a finished house.
That is another option I didn't consider. Thank you for the suggestion. I will have to look into the cost of installation and the cost of running electric baseboard heaters. Typically in our area there is gas forced air and water baseboard heat. I will take a look at all options.
It's good that you have taken notice of this BEFORE purchasing the property, so many people do not. I would consider this when making your offer, this place is worth less than it should be the way the heat is setup currently.
Even if you separate the heating system into zones, you still have one bill, and how do you divide that among tenants? Nobody is happy with a 50/50 split - the other guy is always using more. If you pay for it you're just burning your profits. Same with hot water.
It really depends on how the place is setup, but the ideal setup is to have a completely separate furnace and water heater for each unit, even if it means going all electric. This is not that great of a cost, all things considered, however, it can be difficult to integrate into an existing building.
Another option to think about would be a mini split heat pump, this would give you A/C for each unit also and cost less to run for heat than pure electric. They are relatively easy to install in existing buildings.
I would contract a HVAC guy for bid for system, a electrician for separate panels / meters. and a Plumber for separate water heater and gas meters if needed. before you submit a bid. I think you will be shocked and just go and figure out shared utility costs and add to rent. People love all utility included rentals and we had a 6 plex that was as such, we were able to adjust and keep the heat set at a set temp with a aqua stat, we had radiator system and control was in basement by boiler and water heater in area we kept locked.
We charged extra if tenants used A/C units in their windows by the month during the summer.
Large complexes adsorb the cost of heat,water, and factor that into rental costs.
The electric can also be estimated and figured out.
Just let tenant's know your watching use and if it sky rockets you will adjust rent in future to cover extra for utility usage.
It is never a good idea to not have tenants paying their own utilities directly. Tenants are utility hogs when they do not have them in their own name and for this reason many investors avoid properties that do not have separate utilities.
I would not purchase this property but if you do I would install two electric meters and separate the two units. Have the lower unit on all electric with base board heaters and it's own electric hot water heater. The upstairs would use the furnace, have it's own electric meter and pay for the gas.
Originally posted by @Thomas S. :
many investors avoid properties that do not have separate utilities.
Exactly. Same with tenants. People avoid places where they cannot set the thermostat where they want. People avoid places where the utility bill is not through a meter.
If you are buying this as an investment, this is a major thing to consider. If you do not separate the utilities out it has a lower value. Even if it cost you $10,000 to separate the utilities out, you could easily recoup that in property value.
Thank you all for your input. I agree that tenants do want to be able to control the thermostat, which I understand....as we were renters at one time.
I will take a look at some options and talk to the appropriate people to get estimates on different scenarios to get separate meters and the ability for each unit to control the heat and meter each utility separately.
Thank you all again!
The fact that there are not two meters now is a red flag. Check with the City and/or utility companies to see if separate meters are possible. Also, check with zoning and code compliance to make sure this is a permitted legal duplex.
Thank you for the suggestion. I have checked with the Town and I was told it was ok to rent. I do need to do some more research (i.e.-zoning and what is allowed) because I need more than it is "ok".
This specific property went under contract today while I was doing my research. It was not for nothing though. I feel like I know a little more what to look for and possible options when I run into it again on another property.
Thanks for your help!
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