Is it a terrible idea to NOT split gas?

Question

In my neck of the woods, multifamily landlords generally pay for water and pass on electric and gas to their tenants. The triplex I have under contract technically has separate gas and electric meters for each unit, but in reality, gas is not split since the home is heated by a single steam boiler. Zoning each unit separately for heat would cost anywhere from $15-30K depending on which approach is taken.

I keep reading about how it's important with MFHs to sub-meter all utilities except water, but I'm having trouble justifying paying all that money when I can simply split the gas bill evenly between the three units (or use a method based on square footage or number of occupants). I would be sure to (a) make sure prospective tenants are aware of how I will split utilities, (b) put appropriate language into the lease to cover my butt, and (c) send out a copy of the gas bill every month to my tenants to be as transparent as possible. Am I overlooking something here?

Ethan Giller · Answer

I agree with Thomas S., you are not buying it cheaply enough to justify the added expense of changing out the heating system no matter which approach you take.  Especially for your first deal.  Just use your contingency period to provide an AOS addendum with a take-it-or-leave-it $20K discount, less additional discounts for the rest of the items that came up in the inspection, and walk away otherwise.  That's assuming you are still comfortable with your contract price after all repairs, which you might realize is too high after all the feedback on this forum.

If you did leave the heating as-is then the entire house will be on one thermostat which you could control either as an owner-occupant or with the thermostat locked in a cage.  But you will then get tenants either complaining that the property isn't being heated enough, or else complaining that the pass-through gas bill is too high because you were keeping the temperature up to high - it's a total lose-lose.

$15K-$30K is definitely what I would expect to pay for 3x new gas forced air units installed with permits, with all duct work and soffits (framing, drywall, painting).  You can't just easily add 2x new boilers to the existing system because you would need to change how all the radiator piping is run (i.e. cutting open walls, replacing piping, drywall, paint).

Thomas S. · Answer

If you can  get out of the contract just do it and move on. Trying to solve this issue going in is something you factor into your purchase price otherwise you simply find a property that does meet the correct criteria.

Target properties that work don't compromise by trying to fix someone else's problem.

Kevin R. · Answer

Thomas S. This might just be the sad reality I have to face. Appreciate the feedback...

Account Closed · Answer

Maybe, but there is no reason it needs to be or even should be done that way. First of all, forget gas. The fewer utilities you have at your rental property the better. Go all electric. No gas means less risk of a gas or CO leak also. Electricity is also probably already available and separately metered to each unit. No gas lines to run. It was stated these are 850sq ft units. There is no need what so ever to install a completely new forced air gas system with new duct work for something that small. A small ductless system cost less than $1000. Installation might cost another grand. That's a total of $6,000 for the entire property, professionally installed. Forced air gas is old technology. And don't forget, if you gain air conditioning where you didn't have it before, you can charge more rent.

If you really wanted to go cheap you could install a few wall mounted electric heaters throughout the unit, but they would cost a lot to run.

Account Closed · Answer

Another relatively cheap option could be electric baseboard heat for each unit. Shouldn't be more than a couple grand per unit, but it would cost more to run and no cooling.

Account Closed · Answer

Sounds like the AC guy knew he could get away with charging you too much. That is definitely not true. A 2 ton mini split should run on a single 20 or 30 amp circuit. An electrician shouldn't charge more than a few hundred to do that. Depends on how far the line needs to be run.

The refrigerant lines are easy to run on on the mini splits. Many of them are designed for DIY install, they come with precharged lines that you run. It's just flexible copper tubing, not very hard to install through the wall. If you hire a guy for this, again, it shouldn't be much more than a few hundred bucks in labor. There is no brazing/soldering or vacuuming out the lines.

I'd guess in a worst case scenario you could get a $900 mini split and spend $1000 on electrical and $1000 on installation, but that's only if it turns out to be a difficult install for some reason.

A slightly more expensive option could be to install multiple heating/cooing indoor units to one outdoor unit for each tenant. I'm not sure how your units are setup in regard to air flow. Still nowhere near $10k.

Account Closed · Answer

Well, it does sound difficult to zone out your building with the current system. Its hard to say without knowing the building, but I think your best option would be 3x heat pumps, then you have the advantage of air conditioning, and, you can get rid of the the natural gas service if you're not using it for anything else.

As for the cost, I'm a bit skewed because I can install all that kind of stuff myself. Most people need to hire an HVAC guy, but I find $10,500 per unit to be absurd. How many tons is that?

You can buy a 2 ton mini split unit for around $900. Here is a random link from google:

http://www.alpinehomeair.com/viewproduct.cfm?produ...

That should be enough to heat/cool up to 1000-1500sq ft.

Then they would just have one electric bill, no extra heating bill.

Account Closed · Answer

Who told you that and what in the world are they doing for that much money?! How big of units are we talking?

You could install an entirely new heating system in each unit for probably $2-4,000 or less. You may not even have to go that far. You can also install BTU meters for each unit, these measure incoming water flow and temperature, and outgoing temperature, and calculate how many BTUs are used. Then bill accordingly.

I would just guess that the existing boiler could still serve one unit, and then you'd only need to buy two new boilers for the other two units. If that cost $15-30k you're getting raped.

You can just divide up the gas bill if you want to, but, that's not a very professional way to manage a property, and it's probably going to create complaints. Everybody will claim they didn't really use that much if you can't prove they did. What if there is a big spike one month, do you make all three tenants eat it? Maybe just one left the heater on and the doors open. Smart tenants know this and avoid properties without individual meters.

I'd also go for water meters if they're spending much on water. People waste water when it is unmetered, this has been proven true.

Kevin R. · Answer

Ryan R. - mini splits w/ AC and heat pumps are definitely my preference. I kind of just accepted the prices I was being quoted - I figured it just cost thousands of dollars to run the electric and refrigerant lines to each unit.

Kevin R. · Answer

Ryan R. - forgot to mention that the total square footage of the building is 2,550, so it's about 850 square feet per unit.

Is it a terrible idea to NOT split gas?

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