Separating Heat and Hot water utilities for a 2900 Sq Ft 4-plex

New to Real Estate · Manchester, NH · Member since 2020 · 6 posts · 1 vote

I'm currently house hacking in the North East. The property that I'm looking at was a single-family one and it was converted to 4-plex: 1 Bed/1bath(400 SqFt), 2Bed/1bath(500 SqFt), 3Bed/1bath(1300 SqFt), 2Bed/1bath(700 SqFt). Currently, Heat and HW are paid by the landlord costs around 4500$ run with an OIL(15yrs old) based furnace and a 60 Gallon hot water tank, all rooms are equipped with baseboards. All units have their own thermostat. Electricity is already separated.

Please suggest to me some affordable ways of separating utilities for a better cash flow.

As the furnace is old, I'm looking at it to replace in a year or two with a natural gas furnace, I may be able to get it done with separation work if it's cheaper.

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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
5y
Is there natural gas in your area? You would need separate natural gas furnaces for each unit. What about electric do you have enough per unit to add on demand water heaters? do you have a place to put 4 seperate tanks? Minisplits would add AC but they are pricey. Electric baseboard is very expensive to run so I would not favor that.
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
5y
@Sravan Tatikonda based on recent experience with a similar size property you are looking at 25-40k depending on duct/pipe work what you can save, models etc. We were just under that for a reasonably easy split.
Look at state and federal rebates if available that could help.
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
5y
@Sravan Tatikonda depending on the nature of the deal your tax planning can and should influence the timing.
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Pat L.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
All rooms have baseboards so I assume you have hydronic heat???
We run a 5 unit MF with hydronic heat (included). It's supplied by a 2003 vintage NG boiler that I have learned to massage & tune. During the unit rehabs I have upgraded all of the old baseboard heaters, hydronic feeds & have also installed some hydronic heaters with blowers. For us foced air duct work would not only be a very expensive solution but a logistical nightmare.
Our NG heat runs about $2,000 a year & I just dropped in a new 30 gall HW tank (Yep the old 70gall burst @ 1am). That 30 gall feeds the entire building & no-one has complained & that's running $50/month during the months the boiler is not on. For us there is no logistical way to separate the heat & hot water, so we raise rents to compensate & we have done that successfully. In fact we just had 2 vacancies & without a hitch raised both rents $175 & $185/month respectively. This MF return >20% pa.
My next step is to upgrade the old boiler to a NG On-demand system incorporated with an on-demand HW system. Over the last 7-8 years I have installed the latter in a number of of properties without any issue & the tenants love them.
I do have a studio that's all electric & they say it costs them $75/month for both heat & a window a/c. We also have a 2 bedroom unit that is also all electric. During the rehab I installed 240v in-the-wall-blowers in series & they showed me their budget billing averaging $100/month. But they do cook a LOT, never turn their lights or TV off & run their window-shaker a/c units 24/7 all summer.
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Sravan Tatikonda
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New to Real Estate · Manchester, NH · Member since 2020 · 6 posts · 1 vote
5y
Originally posted by @Colleen F.:
Is there natural gas in your area? You would need separate natural gas furnaces for each unit. What about electric do you have enough per unit to add on demand water heaters? do you have a place to put 4 seperate tanks? Minisplits would add AC but they are pricey. Electric baseboard is very expensive to run so I would not favor that.

I think we do have an NG connection on the street. But the space is small entirely in terms of SqFt, I was looking more in terms of using a single furnace to separate the bills. We might not have enough space for 4 tanks. I might need to take HVAC technician for a visit to see what options I have.
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Sravan Tatikonda
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New to Real Estate · Manchester, NH · Member since 2020 · 6 posts · 1 vote
5y
Originally posted by @Jonathan R McLaughlin:
@Sravan Tatikonda based on recent experience with a similar size property you are looking at 25-40k depending on duct/pipe work what you can save, models etc. We were just under that for a reasonably easy split.
Look at state and federal rebates if available that could help.

Cool. I didn't know that we could rebate for heat and hot water. Wow, 25-40K sounds like a lot of money. Is the total applies with a single furnace and single hot water?

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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
5y
No, 2 extra heating plants (one with integrated hot water) one new water heater and additional piping up to a new 3rd floor bath. Even so we will come in at the low end of that. It was/is a project and I didn't want to delude you it is a snap.

A simple split between two would be less for the power plant and hot water heater--say 10K-12K total to be safe. t seems straightforward but I bet you are closer to 20K than 15 when all is said and done. The wild card is how easy it is to run the new ducting and what you have to break open and repair and if you have extra work to come up to code.
Might be worth seeing if it makes sense to upgrade the current furnace while you are doing it...thats where the rebates come.

Its not just the cash recovery though, the building is usually worth more because you are cutting out that much cost of carrying it. Usually don't sell by cap rates for small multis but lets use it to give you an idea of what I mean:
Saving $5000 a year at a 10 Cap (lazy math) should add 50,000 to the value. So calculate your return on the outlay by amortizing whatever you think the gain in value is over your hold time and add in the saved cash flow for the same period.
So if you bought a multi for $200,000K and held it for five years you have a cash return of $25K and a value return of $50K for a total of $15K a year. You break even in 1-2 years.
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Calvin OzanickBusiness Member
Property Manager · Janesville, WI · Member since 2017 · 707 posts · 297 votes
5y
So most energy companies will require you to install a new furnace or hot water heater for each new gas meter. This means, if you would like to have the gas separately metered, you would need to install 4 furnaces and 4 hot water heaters. You could then separate out all gas metering. Your other alternative is to go completely electric. With separate baseboards and electric meters, you could install electric water heaters for each unit and tack that on to the tenants utility bills.
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