Managing operating expenses

[Joe Rodriguez]

Hello folks. I'm new to BP and I'm currently researching the purchase and rehab of my first multy-family property. I was discussing offsetting utility expenses with a friend tonight, and he suggested that I consider installing electric baseboard heating in each of my rental units in addition to individual meter service and electric tankless heat on demand hot water service. My opinion is that while putting the tenant on the hook for their own utilities (above the tradition gas & electric) relieves me of this category expense, the baseboard heating and hot water service will scare off prospects and create longer vacancy periods. I belive would essentially have to offer rent below market rent rates to compensate for the more expensive utilities. Lastly, I live in Orange County NY where this is not customary to renters. What are your opinions? 

[Brandon Ingegneri]

@Joe Rodriguez

Though I am not based out of NY, we have pretty tough winters here in RI, so the electric baseboard was a consideration when I first started hanging on to multis.  Here is my advice.  Separate the utilities, but DO NOT utilize electric baseboard.  There is a huge stigma that tenants have associated with it, and units that have it quite often rent for less than they would if they were heated with traditional baseboard.  My partner is a master electrician and we discussed this extensively.  They are much much safer than they were years ago, but people just don't like electric base for some reason.  He sees this every day in his line of work and I trust his opinion piggybacked with what I have personally seen.  Your only looking around $7-$8 ft labor and materials for the traditional baseboard.  The heating system is a different story.  Mechanicals are always my largest expense.  

Are you looking to hang on to this property long term, or for just a couple of years?  Short term, throw in any functioning boiler that you find that meets the specs you need.  Longer term, you can go with an on demand system.  Every major rehab I do, I put in Navien units, and they have worked very well.  There are a number of brands out there, Renai, Triangle Tube, etc.  Find out what you like, check reviews, and see what your Plumber recommends.  Just be aware that not every plumber is able to properly work on them.  You really want to get the right guy doing the mechanicals.  Another option that I have used... there are tons of great used boilers out there from on demand upgrades, demolition jobs where the demolition company has rights to salvage what they choose, etc.  I have bought a number of great boilers for $500 that run great and have lasted years that came from a previous house. 

If you produce a clean property with upgraded, separate mechanicals, I find that you tend to get a more responsible applicant.  I am able to get rents that other landlords get having something included.  Even if you take a little less, you'll still make out in the long run not footing the bill.