4 unit Multifamily Gut Renovation/Expansion HVAC recommendations

[Michael P.]

Hi All  -

I am gut renovating a 2300 sq 2 family house into a 4 unit 4100 sq ft multi-family building.  I have the ability to start from scratch?  Assuming 3 units are about 1000 square feet and the fourth is 700 square feet, I can't decide what's the best value proposition for my investment.  The house is located in New York City.

My concerns are cold weather and dependability.  I will configure the HVAC system to provide each unit its own system in order to have the tenants pay for their own heating/cooling.  I have thought about heat pump/multi-splits, air handlers, etc.

At the end of the day, I am looking to flip this property and check the box with long term investors targeting this property.  What is the value play? 

[Roy N.]

Originally posted by @Roy Daniel:

@Roy N.

I think that you had a very thoughtful answer but I question how this answer addresses the needs of the original poster.  How would sinking additional capital into tightening the building envelope and installing an energy efficient HVAC system benefit the original poster if he is going to flip the property?  If the new HVAC system is configured to have the tenants pay for the heating and cooling and the property will be flipped to a new investor, why should the original poster invest any more than the minimum into the HVAC system and insulation?

If the property was intended for buy and hold AND the investor was responsible for the utilities, then I agree.  How would the original poster be able to convert the additional investment of "doing the right thing" into value that would give him a higher return at the closing of the property flip?

If I was addressing this situation, I would just install the cheapest units regardless of efficiency.  If there is a tax advantage to installing a more efficient system, I would take that into account.

Before I answer, let me flip the question over and ask you: why would you renovate to a lower quality product simply because you will be selling the property or the tenants will be paying the utilities?  Do renters not deserve a healthy and affordable place to live?   Does your end {investor} buyer not deserve a property s/he knows will rent easily and continue to do so as energy costs rise?

As someone who is primarily a buy and hold investor, but was forced to become a renovator due to the scarcity of quality, healthy and energy efficient product being produced, I would be willing to pay more for a property that has undergone an energy efficiency retrofit than I would for a simple lipstick and heels job.  The ironic thing about it is that it costs little more (our experience: sometime less than 5%, never more than 10%), to significantly lower the energy footprint of a property; the older the property, the bigger the impact.  We have renovated properties where the utilities costs have been lowered by over 70%; our lowest result has been just over 40%.

In fact, we would rather purchase a property that has not been renovated  than one where someone has invested the minimum and installed the cheapest {HVAC} units regardless of efficiency.

On another note, if your plans are for a one-off flip, then going the route of the cheapest components and input may give you the most cash return.  Conversely, if you plan to make a career out of renovating properties for both investors and retail buyers do you want to have a reputation of cheap or of quality and value?

Sometimes doing the right thing makes the most long term business sense.