Should I spend the money on upgrading heat and a/c?

Question

Just bought my first investment single family in Mass. It's a 1600 sq ft single family built in 1900. It has a steam boiler fueled by oil. Big radiators around the house so ideally I'd like to get rid of those, but if I do an upgrade, I'm looking at a hydro-air system that will probably cost me $25K at least. Is it worth it? or do I go with a forced hot water system and separate a/c unit? or forget the a/c all together? The place needs to be gutted so it would be an ideal time to add those HVAC features..

Shaun Reilly · Answer

Hi @Glenn English ,

What is your intent for the property?  Are you going to hold it long term or flip it?  If you are going to flip it you would probably want to upgrade the system if you are doing that much work.  Though unless you are doing a super high end area I would just do the forced hot water.  If you can get hooked into gas maybe do a FHA and add the AC if the ARV justifies it.

Putting in a $25K system is unlikely to fetch the investment back in extra profit.

This of course is totally dependent on the ARV and where you are doing it.  If this is going to be a $2.5M house in Wellesley you do everything high end but if it is a $220K house in Framingham that is big time overkill.

If you are holding it not a chance you should put in that fancy system.  You quite literally might never recoup that extra money in rents.  I doubt you get any extra rent for the fancy system.  Depending on the area, rents and quality of tenant you expect I might just get the steam system back working if that is a significant savings over even doing a basic FHW type.

Shaun Reilly · Answer

Hey @Glenn English

Does that $100K number include all your holding costs?

If not then you should figure all that out ASAP since you might be caught by surprise when your profit isn't even close to $65K.

You should account for finance costs (Unless you bleed cash I assume you have some loan for it), transaction costs to sell (Even if you don't list it with an agent you might have to pay a buyer agent commission and there are other closing costs), Taxes (Should estimate at least 6 months for a job this size, probably more), Insurance (Can be a little pricey for a rehab), Utilities (Water, electric and oil).  Since you will be carrying it over the winter the Oil could be significant I'd estimate getting at least 2 tanks and at least $1,000 a pop.  You also need to account for things like snow removal if there happens to be any blizzards during the project...

Glenn English · Answer

I agree Shaun, rehabs costs are already up around $100K without doing the new boiler and a/c, leaving about $65K for profit...and I'm going to assume there will be some other unforeseen issues that will come up anyway..I agree that if I dress up the radiators, then I'm hoping a buyer will be good with that. I still need to demo the place so this could all change..

Shaun Reilly · Answer

@Glenn English

I would probably lean towards keeping the existing boiler if it is only 3 years old.  If you can't take it all the way by getting a gas fired FHA system with central A/C it might not be worth just getting a different boiler system.

Radiators aren't bad and if you do some restoration of the classic period features of the old house they can still play off well with that.

Unfortunately NOT a clear cut answer on this.  I'd talk with my contractor to figure out the different price points and my Realtor to figure out if there is any difference in ARV, but probably more importantly salability of the place.

Account Closed · Answer

If you decide to go ahead with the new HVAC be sure to save the scraps. Even scrap cast iron is worth money. I've seen old radiators in architectural salvage shops for a few hundred bucks each.

Don't let the HVAC guys walk off with it!

Mike LaCava · Answer

Hi @Glenn English . Congrats on your first deal. What is total projected renovations?

Glenn English · Answer

Thanks for your reply. The ARV should be around $400K, purchased for $235K.. I do planning on flipping it, but that $25K is a big chunk of change and the steam boiler is only about 3 years old. No gas line on the street so that's not really an option. I'm thinking of just keeping the steam boiler since it is so new and maybe just adding a/c if my budget allows.

Should I spend the money on upgrading heat and a/c?

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