When do you replace working items?

Question

I have a house flipp with two fully functioning HVAC systems. They are on the older side (each at 15 years), but they both work perfectly fine. The potential buyer that i have under contract is asking me to replace them for new units Because the inspectoe said they are older. At what point do you replace them?

J Scott · Answer

A few years back I came up with the "75% rule" of thumb that I use for capital expenses. Basically, if a capital item is more than 75% past its typical useful life, I will replace it for a retail flip.

Kyle Hipp · Answer

The buyers are obviously interested and trying to get a touch more. I would consider countering with 2 offers. One being personally warranty the 2 furnaces for 3 years or 2 offer a credit for the replacement of 1 furnace.Or really just say no, they work fine and explain that these furnaces have little reason hy they won't last another 15 years because they probably will...

Rob Beland · Answer

You should look at the efficiency rating of the older units as compared to that of a newer replacement unit. See if you can determine some compromise and offer a credit towards the new unit. The reality is you could walk away from this deal and choose not to replace the units and hope for another buyer that could come along and have the same demand. 15 years for a gas fired fhw unit may be fine and it could likely see another 15+ years of service with little to no repairs. A 15 year old oil fired steam boiler has much less value but could still go another 15 years with routine cleaning and a bit more maintenance. It's all in how much money you want to make and if you want to make it today or potentially in six months.

Account Closed · Answer

These buyers obviously don't know what they are looking at and are concerned by the inspectors haphazard advice, Keep in mind, a furnace built 15 years ago was built in 2000 and is not what most would consider "old". More than likely its appropriately powered, fully functional, and has proper efficiency. Fortunately, a gas furnace is a relatively simple machine with few moving parts. You have the control board, a couple blowers, a gas valve, and some safety mechanisms (simplified obviously) If those are ok, your furnace is as good as any. Over time the blower motors go up, the gas valve starts to stick, random safety mechanisms will break like a dirty thermocouple that needs to be cleaned.....proper servicing will prevent most from occurring. If i were you, i would offer to have the units fully serviced, with a report detailing proper functioning, and provide a warranty. Keep in mind, unless your units are "broken" or defective, they wouldn't be effected by an inspection contingency. At the same time, they could walk and potentially lose the deposit. I wouldn't replace them at this point, but thats me.

David Segal · Answer

J Scott..... Well said.

J Scott · Answer

Keep "feelings" out of it. It doesn't matter how you feel...it only matters what is going to be required for you to sell your property at the price point you want to sell it. If you're competing against rehabbed houses that have no deferred maintenance or upcoming capital costs, you're going to have to replace the 15+ year old roofs and HVAC systems in order to compete. If your competition is non-remodeled houses or you're looking to sell below market, you can have deferred maintenance items and upcoming capex.There's no right or wrong answer...it will be market and house dependent...

Pat L. · Answer

When I look at a property I discount it based on the HVAC & mechanicals because I prefer to replace them with my own new units after the sale. In fact I have several investors that will remove the old units & install them in one of their other projects so my work is minimal.

David Segal · Answer

i appreciate the comments, thank you. I have been going back and forth on what to do. I had remodelled the property but left the gas hvac units as is becuase they work, regardless of old age. I just dont feel a seller should fix capital items that arent broken, especially when i had a licensed hvac specialist confirm in writing the units are operating correctly, and seller is providing a home warrantee for the buyer already.

Robert Blanchard · Answer

Being in AZ, I think the AC side of things do work a bit harder than if you were in other regions, but I still do not think that the seller should float the whole bill if the Units are working. Split the costs evenly with the seller or is it that hard to find a buyer that will not want any concessions? In my Market, houses that need some TLC still gets many offers and usually sell higher than asking.According to some reports, Denver is the hottest market for RE in year to date appreciation and some other factors. Making MJ legal has helped along with a strong job market for up and coming DINKS or College Graduates.