Central AC for a BRRRR unit

[Nathan Grubb]

I have a two-flat that I am putting through the BRRRR process. Although both units have forced air heating, only one of them has central AC.

I've gotten a few quotes, and adding central AC to the second unit would be $3-4k.

Do you think it would be worth it? Would it produce an adequate ROI when it comes time to refinance?

[Adri Jusczak]

Hey Nathan, 
I think it depends on where they are located. If they are in northern states where it's not that hot, I think it would be okay to pass on it. If you're in an area that does get hot and AC is sought after, you may want to do it. You'll be able to charge a little more with AC. If you're in a hot state without AC, you may find you'll have a quicker turnover rate because tenants will want to upgrade to somewhere that has AC. 

[Greg Kasmer]

Nathan - For my BRRRR properties I typically get about an extra $50 per month in rent for air conditioning. Not sure what is typical in your area, but I would think about the overall return (increase in rent for the year / cost) to install the unit. The other item to think about is the age of the existing machine. If it's 10+ years old, I would NOT add and A/C unit to it because it will likely need to be replaced in 5-10 years and you can upgrade to air conditioning at that point. I think you will get another $2-3k in value with air conditioning on the appraisal. I think $3-4k is high and I would not do it at that price point. For $2-2.5k I would strongly consider if you can get $50 more in rent and your existing unit is less than 10 years old.

[Nathan Grubb]

@Greg Kasmer just to clarify, you're saying that you would wait until the first unit's AC needs replaced, and then do both at the same time?

[Nathan Grubb]

@Adri Jusczak well, it's not too hot. But I'm in Wisconsin and,, like Minnesota, it's the humidity that kills you.

Central AC is definitely not a standard in my area for rental units, but it is becoming a more common thing that people look for, especially as newer apartment buildings are being built nearby.

[James Hamling]

@Nathan Grubb zero doubt I would absolutely do it, no question. 

It's a selling feature, and that means (a) you will get paid for having it, and (b) you will get dinged for NOT having it. 

When it comes to appraisal, what the property generates for $$$$ directly impacts because, simply put, more $= more $. 

And then we have factor (c) is it going to get cheaper to put it in later, or more.     Anyone who is active in the trades at any level knows, without doubt it's the cheapest price today, literally. So if you wait say 1-3yrs for the other to go out first, well what if that AC is now $5k/$6k a piece, you'll be regretting having not done it. 

You'll get better tenants, quicker, for more $, have 1 less issue to worry about and more focus on the next deal. And when comes to HVAC discounts, don't fool yourself, unless your talking numbers by the dozen 2 vs 1 is not anything of volume, so i say just get-er-dun and move forward to the next. 

[Adri Jusczak]

Quote from @Nathan Grubb:

@Adri Jusczak well, it's not too hot. But I'm in Wisconsin and,, like Minnesota, it's the humidity that kills you.

Central AC is definitely not a standard in my area for rental units, but it is becoming a more common thing that people look for, especially as newer apartment buildings are being built nearby.

 If it's something you plan on doing down the road, I would just make sure to do it before you refinance (if you do.) Otherwise, if the budget allows for it, I would do it before a tenant moves in.

[Marcus Auerbach]

@Nathan Grubb - you probably should. But it depends on what your rent will be. If it is a affordable housing unit and a bit dated in general a window AC is fine. If you have upgraded the unit and can ask a good amount of rent (let's say over $1000) the expectation is cebtral AC. If you don't meet the expectation you will end up with tenants who are desperate and willing to compromise.

[Greg Kasmer]

Quote from @Nathan Grubb:

@Greg Kasmer just to clarify, you're saying that you would wait until the first unit's AC needs replaced, and then do both at the same time?

 Nathan - I was assuming the the unit you are talking about already has a gas forced air heater. It depends on how old that unit (furnance) is impacts whether you can add A/C. Based on your info it sounds like it's possible (since you got a quote for it), so I would make sure you get at least $50 more in rent for the central air. FYI - Central Air is my #1 repair/maintenance issue even after buying all of them new, so make sure you get that extra rent. One time I even listed a unit for $1,200 and posted central air as an "option" for an extra $50 per month just to get a tenant that I knew would pay for it. I then make sure I committed to the installation by a certain date (i.e. a month after they moved in) to give them confidence I would follow through.