Kitchen/Bathrooms or A/C?

Question

I have a 4 unit multifamily in Chicago and would like to upgrade the vacant unit. The unit is large (1750 sq ft) and is a 3bd/1.5 bath, but the building is old and the units don’t have a/c or dishwasher. PM thinks it can rent out for $1650.

So, kitchen/bathroom or mini split a/c? Have gotten a bunch of quotes for each and both options will cost between $15 to $20k.

Richard F. · Answer

Aloha,If the building is 100 years old, and you already know that some significant wiring will need to be run for AC, odds are ALL of the wiring needs to be updated. Rather than risking overloads and fire due to who knows what kind of repairs and extensions that have been done over the past 100 years, I would look at updating the wiring completely. Old systems can be constant problems due to the sheer amount of electrical gadgets and small appliances found in most homes. This can affect your Tenants, potentially damaging their modern electronics. With knob and tube, it is not uncommon to find the wiring incorrectly connected to romex with no attention to correct polarity, and of course you have no separate ground which is your primary safety path. Troubleshooting old systems can be time consuming. Correcting improper wiring is also time consuming. Better to completely update now, preparing for AC and other upgrades 2 - 4 years in the future.Your Insurance company is likely to require an update at some point, better to do so on YOUR schedule. A properly permitted upgrade with new panels would probably actually lower your premiums if it does currently have knob and tube in substantial areas...or old timey fuses.You can look at other options for a shorter term cosmetic update of the bathrooms and kitchens to help increase rents. Budget for a long term upgrade over the next 3 - 5 years.

Paul De Luca · Answer

You should lean on the comps but I think you would find better ROI by updating the kitchen/bathroom/cosmetic rehab and then install window AC units. Mini split AC systems are rare in 2-4 buildings in my experience and I think that's likely due to the cost. At a building with furnaces, it's comparably cheaper and easier to install AC units. I assume you have boiler system if you're considering this.I have a mini split system at one of my 2-flats in Berwyn and I still installed supplemental window AC units since I didn't feel the mini split system adequately cooled the whole unit on it's own. Maybe if it ran for a while with all doors open because the wall units were in specific locations. 99% of the 2-4 unit buildings with boiler systems I look at don't have mini split AC because window AC units are way more cost effective for a comparable result.

Jonathan Klemm · Answer

Hey @Elbert O. - I think @paul de luca summoned up my thoughts....use the data first to determine the right move, but my hypothesis is below.... I would for sure go with the kitchen and bath! While window units aren't ideal it is acceptable here in Chicago. I'd wait until you can do a full forced air system with a condenser instead of mini splits. Everyone thinks mini-splits are the way to go until they do some serious research on them.

John Mocker · Answer

Elbert,If your 4 family has knob & tube wiring or aluminum wiring, you will have difficulty replacing the coverage. Of our many standard markets for Home and Rental Dwellings, only one will write a building with Knob & Tube wiring (and only if it is less than 10% of the wiring). It may be worthwhile to do the complete rewiring now when you can bid it out and schedule it, rather than when you have 30 days to avoid a cancellation or replace coverage. If you did not disclose the Knob & Tube or Aluminum wiring when you applied for coverage, there may be problems at the time of a claim. If, like most companies, you insurer would not write a dwelling with those types of wires, the policy may be void. Look at your applications to see if it was stated on them.

Corby Goade · Answer

When I am making these decisions, I like to base it on imagining I am about to move in to that unit and what would be more important to me. Chicago can have some really uncomfortable summer days, so in theory, I'd rather have that mini split than a brand new kitchen, unless the kitchen is a serious mess. I can't imagine why a mini split would be $15-20k unless you have to do some serious elecrical upgrades to make them work. If that's the case, I'd do the kitchen and bath and buy a few window units. If you want excellent tenants, you have to provide them with a good product, so provide the amenities and upgrades that you'd want if you lived there. Best of luck!

Elbert O. · Answer

Thanks @Jonathan Klemm! HVAC is definitely in the backlog

Theresa Harris · Answer

Also check on the quality of the cabinets and sizes. Some will want a bunch of smaller cabinets vs fewer larger ones-fewer larger ones are less expensive in the long run.

John Warren · Answer

@Elbert O. AC is not really an amenity that is expected in C class buildings, even ones in nice areas. If you have an old boiler system in place, it probably won't make sense to do AC. You can easily purchase two wall units for your tenants for $400 that stay with the building if you really want to go that route. I would focus on the bathrooms and kitchens for sure. You will get excellent tenants that can deal with wall units for the 3-6 weeks they are needed every year, but you won't get excellent tenants if your buildings are older.

Elbert O. · Answer

Interesting, those were my exact calculations but I thought 10% might be worth it. Will keep shopping around, looks like I can get the hardware and materials for $5k alone so $10k seems a little high for labor. Thanks!

Theresa Harris · Answer

I agree with Ned. How much more will you get in rent? I'm sure you can get A/C for less than that.