MF house with one furnace

20 Replies

So I'm looking at purchasing a MF home but the landlord pays utilities and with Michigan winters this could get pricey on a 1900 sq foot house. Any creative ideas for tenants to keep the bills down? Rent is 1150 per month and I can probably get the house for 25k ready to rent. I haven't seen the previous heat bills yet but I'm not sure if it's a red flag not to have multiple furnaces .. Thx all!!

with the rent of $1150 for a 25k house it appears utilities are already built into the rent.

Hello @Drew Denham  

I have a couple MF properties with a single furnace.  We have in the lease that they cannot leave windows open during the winter and we keep the temp at 70.  I have never had a complaint.  It is also a good idea to make sure you have good windows and insulation.

Jon

Originally posted by @Drew Denham :

So I'm looking at purchasing a MF home but the landlord pays utilities and with Michigan winters this could get pricey on a 1900 sq foot house. Any creative ideas for tenants to keep the bills down? Rent is 1150 per month and I can probably get the house for 25k ready to rent. I haven't seen the previous heat bills yet but I'm not sure if it's a red flag not to have multiple furnaces .. Thx all!!

 Drew:

A single heat source in converted homes is not uncommon.  We consider it a red-flag, but not necessarily a deal breaker; it all depends on the type of HVAC system and how it is installed.  In these instances force-air heat is about the worst with which to deal:

1) Common ductwork allows air to circulate between the units - this includes smoke, cooking odours, airborne viruses, etc.  It also provides a fire conduit between units.

2) Depending on how the ductwork was run, you may be looking at substantial rework (opening walls, building bulkheads, etc) to separate the two units.

If you have a boiler and hydronic heat, there may be a similar degree of effort to separate the plumbing runs - unless the system is new enough to have been installed with independent loops from a common manifold.  However, leaving the single system in-place does not pose the air quality nor fire concerns of a common forced air system.

Hey @Drew Denham  

Another idea is to put a very simple clear 'lock box' over the thermostat, if that's an issue.  That way, you can set the heat appropriately for the house, and they can't crank it to 85 when you're gone.

If the market can bear it, you could add in that they pay X dollars in utilities each month.  That way, you can at least offset the costs somewhat.

Sounds like a nice find!

I have a duplex that both the gas and electric is single meter. My rent increase is $200 per unit to provide these utilities, but the budget billing is $246 per month for the whole house. So I actually increase my cash flow because of it. There are times when I have to do a little explaining to perspective tenants why my rents are above average, but most like the idea of not having to worry about utility bills.

 Because I am making extra profit I don't sweat when I see lights left on in the basement. I had one tenant who was so energy conscious that the bill went to $208.

You could make them split the bill, based on the number of square feet or something. When one unit is vacant, you can cover that portion.

we finished out a daylight basement into a second unit.  The heat and duct work provide for the upstairs directly and the downstairs indirectly.  We installed some Cadets to add to the comfort downstairs and it works well.  Due to the combined meters we cover w/s/g, gas/elec.  We budget about $250/mo for utilities and make the fact that ALL UTILITIES INCLUDED very prominently in our advertising.  We have a very low vacancy in I home.

Besides making sure the property has good insulation and windows, make sure the thermostat is not accessible. Another thing I have seen with properties with single furnace systems, is that depending on where the thermostat is either one unit is staying too cool while the others are too warm. I have also seen tenants buy electric space heaters to compensate and run them 24/7 which can really spike up the bill.

Aside from tenants paying their own way, there is no system you can devise for shared gas and electric that they can't get around and really rack up the bills. The thing to build into the cost of acquisition is a new heating and electrical systems with their own meters.

I have a 3 unit building that has a single furnace.  Forced air gas.  The thermostat is located in one unit, who is instructed to leave the heat set at one temperature.  That's always worked for us.

We also have the bill on the gas companies level pay plan.  We prorate that bill on square footage between the 3 units.  The tenants pay their prorata share every month.  The gas company reevaluates the level pay twice a year, so the bill goes up (or down) depending on usage.  Each tenant signs an addendum to their lease in which they agree to this plan.

We've owned the building now for around 18 years, never had an issue at all.

I have done the math several times on splitting the gas and electric on my duplex. Every time I come to the same conclusion. If the system is working good and the tenants are happy to pay the extra, why take on the extra expense.

 I was told a story about my 15 unit's prior owner. It had one heating system for 12 of the 15 units. Sometimes the owner would drive by and see a third floor window open in the winter. His brother-in-law was a HVAC man. They would constantly talk about how to separate the heat. The brother-in-law didn't believe it was worth the expense but agreed. Once they got about half way through the job the realized that it was going to be way more expensive than they planned. They finished the job. To this day they don't speak to each other. And then, out of frustration he sold it to me.

 Moral of the story is it would have been way cheaper for him to look the other way.

Do the math.

We bought a multi where we pay heat on 5 units. It has multiple thermostats and I am guessing the routing is separate as there is a thermostat in each unit but one boiler. We installed landlord stats from chicago thermostat in all units that only go up to 70. It doesn't say that on the thermostat though so no lock box, we will see what impact that has but I like the idea it isn't advertised on the thermostat. In our state from Oct to may you need to provide heat if it is included. It is a real seller to include it but not sure how wasteful they are.  One day I think we will look at geothermal but for now we are working on making the building envelop into a tighter.

Originally posted by @Shaun Huston :

Besides making sure the property has good insulation and windows, make sure the thermostat is not accessible. Another thing I have seen with properties with single furnace systems, is that depending on where the thermostat is either one unit is staying too cool while the others are too warm. I have also seen tenants buy electric space heaters to compensate and run them 24/7 which can really spike up the bill.

I agree with Shaun. Also caulking any voids is the most cost effective thing that a investor can do!

Originally posted by @Allen Black :

I agree with Shaun. Also caulking any voids is the most cost effective thing that a investor can do!

 Allen,

If you take that further to proper air sealing of the building envelope, you have the most profound impact on the performance. 

+1 on what Roy said.

If the thermostat was set to 70 and I had no control, I would have the windows open. Over 65 degrees, I'm in a T-shirt. We keep our house at 63-65. That's comfortable if you're moving around. Not if you're sitting.

@Mark Del Grosso , after all of that work on the 15 unit, are the utilities lower now that they're separated, i.e. did the total expense to heat the building go down (are tenants paying now?). I assume the new system is somewhat more efficient than the old, just by virtue of being new.

Usually one of the biggest slam dunks for repositioning a multifamily property is to somehow get the tenants to pay their own way with all utilities. It gives significant increase in property value at the same cap rate.

Originally posted by @Brandon Krieg :

Hey @Drew Denham  

Another idea is to put a very simple clear 'lock box' over the thermostat, if that's an issue.  That way, you can set the heat appropriately for the house, and they can't crank it to 85 when you're gone.

If the market can bear it, you could add in that they pay X dollars in utilities each month.  That way, you can at least offset the costs somewhat.

Sounds like a nice find!

This is one of those flawed ideas that tenants can easily defeat; read link found below:

http://www.biggerpockets.com/forums/311/topics/536...

Originally posted by @Brandon Krieg :

Hey @Drew Denham  

Another idea is to put a very simple clear 'lock box' over the thermostat, if that's an issue.  That way, you can set the heat appropriately for the house, and they can't crank it to 85 when you're gone.

Nothing a cold-pack won't bypass.

Originally posted by @Tanya F. :

+1 on what Roy said.

If the thermostat was set to 70 and I had no control, I would have the windows open. Over 65 degrees, I'm in a T-shirt. We keep our house at 63-65. That's comfortable if you're moving around. Not if you're sitting.

@Mark Del Grosso, after all of that work on the 15 unit, are the utilities lower now that they're separated, i.e. did the total expense to heat the building go down (are tenants paying now?). I assume the new system is somewhat more efficient than the old, just by virtue of being new.

I don't know what the utilities were prior to the seperation but yes they are in the tenants name now. It's really not a question of more efficient heat as it is a question of:

 1) If the utilities are my expense can I increase the rent equal to or more than the utilities are actually going to cost.

 2) Will I make up the cost of converting the system to seperate units.

As @Bill S stated there is a psycological advantage in selling a property with the utilities seperated even though the Cap rate may not have changed (no financial cash flow increase). But this is presuming you plan to sell.

All I am saying is that it is very tempting to want to spend the money to get the utilities out of your name. I have wrestled with this in my mind many times. But at least in my market it is not worth it, unless you are at the point were you have to replace your present heating unit anyway . That would be the time when the numbers MAY make sence. The former owner of my 15 unit did it because he was angry at seeing a window open. It cost him 35k in boilers but was probably revenue neutral.

Well, hopefully the big old system the previous owner replaced also was nearing the end of its life. Otherwise I agree with you. Not a smart way to spend money. There's no reason to make the change if the current system is working well and the tenants are happy.

But, in addition to getting the utilities out of your name, tenants in MF houses will be happier with control of their own environment. That could reduce turnover, which is worth something, too.

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