Buy and Hold Remodel: Would you replace a 80% furnace from 1999?

Question

I'm remodeling a couple of older houses in the same neighborhood with the intention of cash-out refinancing them in the upcoming weeks. They're both the exact same type and layout of house, however one had the existing furnace removed prior to purchase, and the other has an existing furnace that was installed in 1999. Neither homes have central AC, which I intend to install. I've gotten a few quotes from HVAC contractors that are happy to give me a discount for having everything done all at once. Tenants will pay their own utilities.

My objective is to repair and update whatever is necessary now so that I (ideally and hopefully) only need to concern myself with cosmetic fixes and insurable high-dollar freak accidents as much as possible over the next 20-40 years while holding these properties.

With that said, do you think it makes sense to go ahead and replace the 1999 furnace now prior to refinancing so that (1) I can capitalize on the contractor's discount, (2) I don't run into having a costly replacement sooner than later with tenants in place, and/or (3) it might help up my refinance numbers? If I do replace, I'm thinking of sticking in another 80%.

On the other hand, (1) the furnace works, (2) not replacing it means I'm saving a couple thousand right off the bat, and (3) I've heard that old vs new furnace doesn't really affect appraisal prices all that much, if at all, so perhaps I should just leave well enough alone?

TIA

Alyssa Ritchie · Answer

Hey Alex!Definitely replace the furnace, might as well since they will be in there and they will give a slight discount. The average life of a furnace is 20-25 years. Stick with 80% you won't get your money out of the 90+% furnaces. We have seen them fail too often to justify the extra expense, they end up costing more short term and long term. That's just our experience though. This may not change the value for the refi but will be less of a headache for you long term and will help the sale if for some reason you decide to exit the property in the next decade.

Bill B. · Answer

Is it a huge discount? I’ll give you even money on the new furnace dying before the old one would have. I have several properties with 20 year old ac units in vegas and I’ve had several replacement ac units fail 4-5 years after replacing a 25 year old one. If it had been replaced at 20 years the old one would have lasted just as long. I’ll say the same thing about water heaters. They seem to last 6-10 years. But I have one that’s 40 years old. It could have been replaced anytime in the last 25 years because it was so old. I guaranteed the replacement and probably the 2nd replacement would have died by now.

Erin Church · Answer

@Alex L.I’ve had mixed experiences with Goodman. Had 4 installed at the same time. Two need new resistors once a year. I was told this year that one has a bad line going to the unit, so fingers crossed that the “habit” is broken. The other two have been problem free 🤞I know so much depends on the install and the guys who did the install weren’t the best (based on number of times they had to come back and fix things in the first 6 months), so I keep that in mind also. If they’re significantly cheaper, I’d keep using them. :)On replacing old units - I tend to when they’re well outside of their lifespan. I hate having tenants suffer with no heat/AC for a couple days when it was somewhat preventable/predictable. I also don’t like paying rush fees. :)

Chris Johnson · Answer

I agree with Alex in regards to voting 'yes' to replace the furnace now. Personally, I worked as a Service Technician in the natural gas industry for 22-years. In my experience, gas furnaces typically last 20-25 years. The component you have to worry about with gas furnaces is the heat exchanger cracking during this time frame. I won't go too technical, but just so you know, the heat exchanger is a "metal box" that contains the gas burner and exhaust fumes inside the metal box. The circulating air for the house moves along the outside of the heat exchanger (via a circulating blower or natural draft depending on the furnace type). If the heat exchanger forms a crack, you run the risk of Carbon Monoxide (CO) poisoning (created from the gas exhaust fumes) escaping from inside the box to the outside of the box which will now entered the house instead of going out the exhaust vent system. As a result, you can potentially create a situation where occupants are poisoned by Carbon Monoxide. From a liability position, this can become a massive issue for you as a landlord. I've had my fair share of CO poisoning calls ranging from CO alarm only to hospitalizations to deaths, as a result of cracked furnace heat exchangers. Let's just say, you can't treat a gas furnace like any other appliance, "oh just let it run until it breaks or starts leaking water and then replace it." If you decide not to replace the furnace today, then schedule annual servicing inspections by a qualified HVAC company. Typically this is best done in the "off-season" in September/October which is in between A/C and heating seasons. This way, if they find an issue with your furnace, you'll have enough time for replacement before the upcoming heating season. Hope this information helps with your decision.

Ray Hage · Answer

I agree with you to an extent. It may worth replacing it now but I think we have all noticed new stuff doesn't last as long whether it is a furnace, water hear, AC unit, oven, fridge, etc. It is designed to fail within a few years.I recently replaced a 20 year old water heater because it was leaking since I didn't have an option. I had another 14 year old one that was right next to it, working normally but I decided to gamble by replacing it as well (cost me $800 each). Could it have survived fine for a 5-10 more years? Maybe but I just didn't want to worry about it breaking in the next couple years although a newer one could do the same. Kind of a tough decision when it comes to these things.

Alex L. · Answer

Thanks again for everyone's input, it's been super helpful! I've decided to go ahead and replace the existing furnace, so that both houses will have a brand new 80% furnace + AC. Cheapest quote I've gotten from someone who is also very amiable and reliable is $5.5k per house (Payne), so they're currently who I plan to work with as of now. With brand new equipment and yearly inspections in place, here's to hoping I don't hear a damn thing from tenants about a busted furnace/AC for a long, long time, if ever.

Chris Merchant · Answer

I would suggest if you have the funds available now and are getting work done already that will save you some money now, then go ahead and replace it now. It is much better to replace while the unit is vacant than get that 2am phone call that there is no heat or HW and it is the middle of January and a snowstorm, now you need to pay to replace the furnace as well as probably put the tenants up in a hotel for a few nights. So look at the big picture spend a little now to save a lot later. Do you trust the contractor you want to use for the HVAC tasks? if so ask them if they feel it is in need of replacement, they may be able to run an efficiency test or may tell you it will be fine if you just replace this, this and this instead of the entire unit. But if you can do something to avoid a breakdown while the unit is rented I would do so now. It is also a selling point to potential tenants if you can tell them the HVAC and furnace are all brand new, it gives them piece of mind they won't experience a break down, and may set you in a different class of LL than other LL's they are looking to deal with. We all know that break downs don't happen in ideal weather conditions.

Henry T. · Answer

From my experience of 20 or so furnaces, the 80% furnace is much more reliable. 90% furnaces rot themselves out due to the high condensation. You can argue, but I'm sticking to it.

Bill B. · Answer

Almost everything in vegas is Goodman if you’re not buying high end stuff. they also own daikin Amana and Franklin it’s worth what you paid for it, but when asked are goodman AC units reliable google says…Goodman HVAC systems aren't the most technologically advanced or the most energy efficient, but they are some of the most reliable. They're also relatively affordable given their quality, which is backed by a 10-year limited parts warranty and either a two- or 10-year unit replacement warranty.I’ve had decent luck with them in regards to the 10-12 units I’ve purchased. I certainly wouldn’t pay twice as much to get one from Lowe’s/Home Depot. Ps. Just so you know the profit margin involved. My ac guy has me pay the wholesaler and then he charges for delivery, installation, and freon. A 3.5 ton unit itself cost under $1,800 last year. My total installed cost was $3,800. So there’s labor and freon for $2,000, and maybe some extra profit margin. Just something to keep in mind when you get a parts quote of $7-$10k.

Richard F. · Answer

Aloha,I also agree, replace it now! A prior poster mentioned about cracked heat exchangers, 100% correct! It takes a VERY close inspection to locate cracks...the risk is not worth it at that age, considering you are adding AC anyway. Do you really want to pay someone to remove, modify, and reinstall your AC components when the old furnace dies? Prevention is always less costly than remediation...do the right things right, the first time.