Central Air or Baseboard Heat and Window A/C?

Question

I am not sure if this is the correct forum for this question, but now it is out there. We are doing a big renovation on a house built in 1948 that does not currently have central air. It was heated previously by an oil heating system that needs to be replaced. We are looking to apply the BRRR strategy to this property. Many other properties in the area do not have central air, but there are investors/flippers in the area who are putting in central air in some houses.

My big question is do we put the money in now to upgrade to central air or wait until we are closer to wanting to sell the property? The difference in price is my largest obstacle with central air costing us about $8000 (materials and labor) vs $3000 (materials and self-labor) for baseboard heat and window units.

James Mc Ree · Answer

This is a good financial modeling question.  There probably isn't enough info in the post here to do the model justice.  I'll give you a way of thinking about it.

I see at least 3 options:

1. New furnace with baseboards as is.

2. New furnace and central air.

3. Heat pump (you didn't mention this, but it may work in your area)

Each has a cost.  #2 And #3 have substantial ductwork required, drywall and paint that needs to be included, if not already.  You probably also will want to remove the visible baseboard heat equipment.  Each option results in an expected return in rent and property value increase.  What does the model say?

Example:

#1 - $3,000 cost; $1000/month rent.

#2/#3 - $8,000 cost; $1200/month rent.

You will recover your cost difference of #2 or #3 at $200/month.  It is paid off in a little over 3 years.  You may also get a home energy tax credit.  How long do you plan to hold the property?  Increased property value of having a newer furnace and central air adds to this when you sell.

Good luck!

Tyler Willson · Answer

Thank you both for your input! I appreciate the insights, and I am going to have central air installed. Also, I plan on holding the property for a long time.