With any multi-family investment property in Vermont, heat and hot water make up a chunk of the operating expenses. You’re going to want your tenants to be comfortable because you want the good ones to stay with you for a long time.
But you’re also thinking of this as a business that needs to be profitable. Fortunately, you can accomplish both of these goals at the same time. By insulating and weatherizing your apartment building, not only will you decrease the amount of fuel that’s used, but you’ll also keep people more comfortable.
Here's a link to additional info from Efficiency Vermont. There are all kinds of rebates available to help lower the cost of improving efficiency.
Adding the right type of insulation in the right places, and sealing up places where air leaks are two of the best areas to attack. Experts say to focus on the “hat and socks”--the attic and the basement. Old windows can be replaced over time too, but honestly, it can take a long time to recoup the cost of replacement windows. Whatever, it’s still the right thing to do.
Old furnaces and boilers run less efficiently than new ones. But again, run the numbers to see if it’s worth the investment. If you bump up your efficiency from 86% to 92%, then you’ll save 6% on your fuel bill. How many years will it take to recoup that?
Maintaining the furnace or boiler, and keeping it in good working condition is good advice. A couple hundred dollars each year can prolong the life of your heating plant by many years, plus it can prevent unscheduled (and expensive) maintenance.
Who Pays For Heat?
Is it better to pay the heat for your multi-family investment, or to have your tenants pay the heat? As with much of life, there aren’t clear cut right answers, and successful investors disagree.
Advantages of Landlord Paying for Heat
Don’t have to worry about service stopping when a tenant moves out.
Don’t have to worry about prorating fuel at a move out.
You can probably get a better price for fuel than a tenant. There are fuel buyer groups out there, and we can connect you, that can help you save a lot of money.
You might be able to get a rent premium that exceeds your fuel cost.
Disadvantages of Landlord Paying for Heat
People use a lot more of something that they consider free. Anytime you see a window open in January, I guarantee that the landlord is paying for the heat.
Tenants will turn the heat up higher if they think they’re not really paying for it. Again, they’ll use more if they’re not directly paying for it.
If fuel prices increase more than expected, your premium might be less than the difference in your fuel bill.
It can be more difficult to nail down some of the financial ratios. Your utility expense will vary from year to year. If the tenant pays for heat, then that variability is eliminated.
Another line of thinking is that if money gets tight, a tenant will pay rent before utility bills. Based on our experience, and talking with other landlords, though, that’s not what happens. Instead, you’re likely to get a text that says “Just had to fill the tank, and money’s low. Can I pay half the rent this month and make up next month?”
At Green Light Real Estate, we recommend making this decision on a case by case basis. Some properties simply won’t realistically give a choice. For example, if there’s one hot air furnace for a duplex, then it will be impossible to have the tenants pay for heat.