Furnace vs Baseboard Heat? Central AC vs Window Units?

Question

Hello,

I currently have a 4plex in which I pay all heating and cooling costs, running about $300-350/mo by itself (two furnaces and two ACs). I'm thinking about converting to electric baseboard heaters and window ACs to pass that expense onto the tenants. For reference, in my area (Cincinnati), in all the apartments I've ever personally rented, having heating and cooling be landlord-paid is unheard of.

Would it make more sense to A. invest about $2,000 into baseboard heaters and window ACs, or B. simply begin raising rents with future tenants to cover this expense?

The downside I foresee with 'B' is that my rents would be higher than what normally goes in my area, and prospective tenants would be too concerned with the sticker shock to care that the extra cost is going towards central heating and cooling (which they'd otherwise pay themselves somewhere else).

What are others' thoughts? Has anyone been in a similar situation?

Patrick M. · Answer

If you are not doing a complete renovation I would look into doing mini splits.

We did a complete renovation and we place 2 separate hvac’s in the downstairs apartments. I pay gas they pay a/c. (We have a gap between floors (very old structure) so we have the furnaces in the ceiling.

Upstairs we will be utilizing the original basement furnace and replacing the upstairs baseboards. (No space for separate furnaces) But we will be installing central A/C. Our building is on the Main Street and we are replacing the facade windows with casements. I despised seeing those window units leaking down the wall and dripping onto the pedestrians.

I considered mini splits but everyone pays for heat in my area and I was also concerned that the heat pump would need to be supplemented anyway. Electric is way too expensive and even more so on the “house” meter rate vs. resident’s rate.

Joseph Cornwell · Answer

Ideally, you can run 4 separate HVAC systems that run on their own electric/gas. If that is not possible or cost effective, then baseboards may be a cheaper option. In my duplex in Deer Park my downstairs unit has central HVAC, with the electric and gas bill in their name. My upstairs unit has electric baseboards, and window AC units, again the separated electric is in the tenants name. Let us know what you decide to do!

Jim Adrian · Answer

@Tavari Keel

I would look at the cost of splitting the utilities or back billing for utilities.  I would not go with a heat pump system as this will still need secondary heat source.  These are great for the south where the winters are warmer.  Heat pumps stop working at like 35 degree range. You are in a climate where you have more heating days than cooling days in year when looking at hvac design factors.  Electric heating is ungodly expensive but can be done.  I am a fan of a central system like what you have but for each unit.  What is odd is you said you have 4 units but only 2 hvac units.  It would be ideal if each unit had its own unit and metering but the up front cost could be an issue.

Pat L. · Answer

Not knowing the layout is it possible to run each furnaces & a/c on separate utilities.

Give 2 of the apartments each a fce & a/c unit then look at mini splits for the other (upper) units. We have investors who install Mitsubishi cool/heat units (but they can install them).

The $4,000 your currently paying out should cover the mini splits in 18-24 months & it's more impressive for resale than window a/c units & baseboard heat etc.

Will Peters · Answer

My friends parents rent out a few low income houses and heat pumps seem to be the number one money pit as far as needing expensive repairs. If you think the window units will sufficiently cook the house I️ would go ahead and go with that

Jack P. · Answer

I have an older home that I eliminated the gas heat and wen't all electric.  It's in the south, so I thought I could get away from it, but the home is so drafty that it's really hard to heat up.  I've probably chased off a couple tenants because of the high electric bills they generated during the colder months ($500).  I've regretted that decision for a while, and am finally caving in and looking at reinstalling gas heating.  Really wish I would have done it when we reno'd the house to begin with.

As for the AC, definitely go with the window units and offset that cost to them.  You shouldn't be paying their electric bill!

I've seen a number of people here on BP mention charging "utility" fees to their tenants.  It doesn't show up as the advertised rent price, but it's included in a second bill every month.  It's a way to get around the sticker shock of higher-priced rents, but I always thought of that as a shady way to charge tenants more money.

Either way, spending $4k/year on utilities would make me cringe.  For upgrades, I use a 2 year rule for recovery, meaning that in two years, the improvement has to pay for itself.  Some people use other rules, but that works for me and my long-term plan.  By that metric, I would invest up to $8k to reduce or eliminate the utility expenses.

Hope that helps.

Johnny Hastings · Answer

That's kind of a tricky one. The reason for that is because the baseboard electric heaters are crazy expensive to run. I have a small basement apartment in one of my buildings, the rent is only $375, and when the tenant runs the baseboard heaters it'll easily make the electric bill approach $200. She couldn't afford to keep the place warm! I ended up solving it with a small gas wall heater unit, thankfully.

I guess if you get the tenants in there, and they run the bill up, that's their issue. The problem is that they likely won't hang out for more than one winter! I guess you could drop your rents if you passed those expenses on to the tenants, but that doesn't sound ideal from a landlord perspective.

I agree with you regarding sticker shock on rents. If potential tenants are seeing apartment listings, and yours has notably higher rents, they aren't likely to even come and look. They'll just move on to the next for rent ad.

On the AC side, the window unit is definitely the way to go! Perhaps you could continue to pay for heat, but have the tenants pay their own AC, as a short term play, while you consider the heat issue. You won't see much return on it right away, considering it's November, but it'll pay off within the year.