Converting oil heat to electric on a 30 unit building

Multi-Family and Apartment Investing
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Converting oil heat to electric on a 30 unit building

Alex Goumilevski
Real Estate Broker · MD DC, VA · Member since 2018 · 12 posts · 1 vote

We are looking at a 30-unit built in the 1960's, and the current building is set up with two oil boilers, one for the hot water, and one for radiator heat. The current landlord is paying over 50K per year for #2 heating oil. The two boilers were replaced about 10 years ago and still look to be in good shape. They said the replacement ran about 60K.

There is no natural gas available nearby to tap into. The current building also has no duct work, and window a/c units.

Tenants pay for the electric in the property. Landlord pays for oil, water/sewer and trash.

If we end up acquiring the building, we would somehow want to pass the heating cost to the tenants for new leases.

One way would be to implement RUBS (utility bill back to the tenants based on sq footage of the units, # of occupants, etc).

Another way would be to convert to electric heat. We are exploring either adding duct work for central a/c and heat pumps; or doing a mini split ductless system. The first option with duct work seems more expensive and intrusive to occupied units.

Unfortunately there is no natural gas available nearby to tap into, which is of course my favorite way to heat.

Any thoughts or advice in this area would be appreciated.

Also curious to know if anyone is familiar with federal or state (we are in MD) tax breaks or incentives for improving efficiency of a building, or converting from oil heat. 

Thank you in advance,

Alex

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Salvatore Lentini
Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
8y

$50K per year for oil?  Do whatever you can to get that cost off your back.  You’d increase the value of your building by $600,000+ at an 8 cap.  More if cap rates are lower there.  Electric is expensive but even if you have to lower rents and then have them cover electric,  you have $50,000 to work with.

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    8y
    Split systems are pretty good, had a job where hvac contractor installed these and they kept the apartments nice and warm in the winter. Maybe look into propane gas - get one of those big tanks installed and then separate meters for each unit, like these : https://www.amazon.com/SUBMETER-tenants-Propane-Natural-gasmeter/dp/B01JDR2C6U
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  • Salvatore Lentini
    Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
    8y

    $50K per year for oil?  Do whatever you can to get that cost off your back.  You’d increase the value of your building by $600,000+ at an 8 cap.  More if cap rates are lower there.  Electric is expensive but even if you have to lower rents and then have them cover electric,  you have $50,000 to work with.

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  • Alex Goumilevski
    OP
    Real Estate Broker · MD DC, VA · Member since 2018 · 12 posts · 1 vote
    8y

    Patrick, thanks for your insights on the mini splits. Do you have any idea if the filters actually have to be cleaned monthly? Wondering because I am sure tenants won't do it, and getting in once a month into each into to clean filters could create a small headache, but doable. If only have to clean every 3-6, a lot easier, since we would be changing regular filters every 3 months anyway. 

    Salvatore, good thinking on value and cap rates. I am thinking it will cost be about 130-150K to install mini splits in the building including the electrical upgrades but saves me 50k per year and increases value of the building 4 fold the cost. 

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    8y

    Alex,

    These can be maintained every 6 months, but if you do it every 3 then keep with that schedule. these units have small thin filters over the vent ( like window a/c units) they can be either cleaned or replaced.

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  • Alex Goumilevski
    OP
    Real Estate Broker · MD DC, VA · Member since 2018 · 12 posts · 1 vote
    8y

    Thank you Patrick!

    Had anyone had experience doing "through the wall" units in every room instead of a mini split? My HVAC contractor is saying it's easier to install. These are the ones that are usually below the window, kind of like the ones you see in lower to mid range hotel rooms.

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  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    8y
    Originally posted by @Alex Goumilevski:

    Thank you Patrick!

    Had anyone had experience doing "through the wall" units in every room instead of a mini split? My HVAC contractor is saying it's easier to install. These are the ones that are usually below the window, kind of like the ones you see in lower to mid range hotel rooms.

    Those are called PTAC units , they are easy to install , but dont doo much good if you have different rooms .  If you are spending $50 K on heating oil you need to talk to the oil companies .  You have some other options on price , you can pre buy , get price protection .   Or you can get a larger oil tank .     i drive an oil truck on occasion for a buddy of mine . When someone buys 2000 gallons at a shot and has a check in hand he will discount rather well . He will only make 25 cents a gallon vs the normal 60 cents per gallon .

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  • Alex Goumilevski
    OP
    Real Estate Broker · MD DC, VA · Member since 2018 · 12 posts · 1 vote
    8y

    Mathew, great advice, and thanks for letting me know what those units are called.

    I googled PTAC units, and it appears they run approx $700-1000 per unit (for the ones that do A/C and heat), plus additional materials, installation, etc. 

    I would need to purchase and install 86 of these if we go this route and probably upgrade electric in the units to add more amps to run these. Sounds like a 120-140K job, but would allow for lower utility bills and can pass the cost directly to tenants for heating/cooling.

    For oil, I checked and the last few years bills and they included maintenance they did plus propane they bought for the stoves (there is a big propane tank and it looks like it just runs gas for the kitchen stoves, nothing else). 

    It looks like I need to buy approximately 13,000 gallons of oil per year for an average winter.

    I'll see if we can negotiate better pricing from the oil companies. If their margins are 60 cents per gallon, there is a lot of negotiating power there! I thought the margins were a lot lower than that.

    Great info here, much appreciated.

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