First Flip! Should I replace the furnace?

[Shannon S.]

Hi Experts! I am new to posting but have been reading and learning from all of you for over a year. I recently put my first investment under contract- a HUD home that is in a great part of my city near colleges and with a quaint "vibe", and its a great house too- 2 story Dutch Colonial with 3 Bedrooms, a framed in extra room in the very clean basement, 1 full bath, 1 half bath and a toilet plumbed in the basement as well. It has a small backyard, detached garage with opener, and a nice front porch. I've done my research and run the numbers, and my goal is to simply break even- this is my "learning house". My numbers and comps say I can probably make 10k-15k, and I am being very liberal with my budget because all the experts say "expect to be over budget." :-)

Here is my question- one of the “big ticket” items in this house is the furnace. It is operational, (and there is a new A/C unit and ducting), but it needs to be replaced per the inspector because of its age and the fact that is a “convection” style furnace. I budgeted $5000.00 for this -having just replaced my own home furnace at a cost of $3700 for a larger home with higher quality furnace, I figured this number was safe. But now I wonder- would this be a deal breaker for a potential buyer, since it’s functional? I think I would certainly replace it if I was to rent the house (for safety reasons, primarily).  But, if I am selling it, wouldn’t it be smarter to wait and see- if I got a higher price/full price offer, and buyers said "contingent on replacing furnace", I wouldn’t really be worse off since I budgeted for it. And if they don’t, it’s an additional 3500-5k in my pocket. I also recognize that “new furnace” on the listing sounds good, especially to buyers in this price range that might not have a lot of disposable income each month. But, I also will get to put “new flooring/newer A/C/newer roof/new kitchen” etc. on the listing anyway.

Please let me know your thoughts and thanks a bunch!

[Robert Leonard]

It's a "big ticket item" that your buyer's inspector will find just like yours did.  How can hoping they don't ask for a replacement backfire on you?  Some inspectors scare the crap out of buyers and they back out instead of making a counteroffer or requesting a replacement.  Then your house goes back on the market and you waste time and some buyers, unaware of your irrational first buyer, will thing something major must be wrong with it. And you could end up getting less than you should.  I would replace it.