Can I share something with you? I have a hard time making big purchase decisions. No… not the small items, but the big-ticket items are the ones I really have a hard time making decisions on. My wife, Elyse, knows me all too well at this point and follows the Jeffrey Process, which is, "Hey honey, I need to share something with you and let it marinate." When she says this, I know that she's about to tell me something that not only will I not like… but will have to sleep on. She then proceeds to tell me the item, I acknowledge her, and then we don't talk about it. I go to bed, I sleep on it, I wake up, I go to the gym, I have a hard workout… and then I'm ready to talk to her the next day to go over any Q&A. I share this with you as most people don’t like making big purchase decisions fast or without all of the information they need. One of the worst things an owner can experience is getting a call from our Maintenance Manager (Silvino), which goes, “Mr. and Mrs. Owner… your HVAC broke down and we need you to fund your account with $10,000+ in order to replace it as soon as possible. We are in the middle of the summer in 90+ degrees heat”. The following steps will help you as the owner and us at the property management company create the best game plan so that you are ready when your system needs replacement.
THE PROBLEM
The life expectancy of an HVAC system is approximately 20 years. Many times they can last a lot longer… but you are living on borrowed time! If a system is more than 20 years, we refer to it as having the system be towards the End of Its Useful Life. While we genuinely wish that your HVAC system lasts for many more years, the reality is that no one knows how much longer the system will last for. When it ultimately goes, here are some items to consider:
Repairs vs. Replacement: “Jeffrey & Silvino… can't we just repair it?” This is a legitimate question from owners, and sometimes the answer is yes. However, the older the system, the less likely a repair is to last. A lot of times the vendors will advise that the repairs being completed are without warranty as they cannot guarantee how long it'll hold for. Making things worse, if we find ourselves having to address this same issue at a later time, it adds frustration on an owner's side knowing that good money was thrown at the problem only to have to address it again.
Price: Price is a major component of this purchase and no one wants having to make a quick decision on a big-ticket item. If the system completely goes out and is beyond repair, then the price quoted by a vendor may be what needs to be approved quickly as there's no time for shopping and/or comparisons.
Habitability: A key component to consider is Habitability. When it comes to an HVAC system, there are two components: Heating and Air Conditioning. If a property comes with air conditioning, then this is deemed to be a component of habitability. If the air conditioning component goes out, then the property is deemed to be uninhabitable, especially in months with high heat. On the heating side, having heat is a component of habitability. In the winter months, this becomes more of an issue. If there's no heat, then the property is deemed to be uninhabitable. In general, when a property is Uninhabitable, residents are due a credit on a daily basis up until the problem is resolved. As you can imagine, this adds a layer of complexity, since a solution needs to be put in place as soon as possible to have the property be deemed habitable. This adds a layer of stress, as knowing that each day the property doesn't have air conditioning or heating is costing you more money.
What Needs Replacing: What exactly needs to be replaced? A full HVAC system has several components. Are we talking about the condenser, evaporator coil and furnace, or just one of those? What about the duct work? Are the registers adequate for the new system? In order to compare apples to apples, we need to know exactly what the scope of work will be from the vendor and see what we're looking to replace.
THE SOLUTION
The solution to this is being proactive ahead of time, before the system completely breaks down to make sure that your questions are answered regardless of whether the job is ultimately done by our go-to vendor, your go-to vendor or a vendor that you’ve sourced which you’d like to use. The following are the steps that we suggest.
STEP 1: Big Picture
Have you ever sat through a sales presentation from an HVAC vendor? I have several times and it can be quite annoying. Though we love our trades people, depending on the company and tech, they can start talking all the fancy HVAC lingo. To be honest, most of it goes way over my head. In addition, we've seen companies that will try to place a solution that may not be adequate. The following is an oversimplified overview of what is recommended based on the square footage of your rental property:
Rental Square Footage to HVAC Tonnage
1,000 sq. ft – 2 Ton
1,250 sq. ft – 2.5 Ton
1,500 sq. ft – 3 Ton
1,750 sq. ft – 3.5 Ton
2,000 sq. ft. – 4 Ton
2,250 sq. ft – 5 Ton
Only Condenser & Evaporator, Only Furnace or Both: From a replacement perspective, the condenser and evaporator in most cases will need to be replaced at the same time because the new condensers have a new Freon that in most cases will not work with existing coils. Also, the number one point of Freon leaks happen at the evaporator. The furnace in many cases will need to be removed to replace the evaporator coil. At this time it might make sense to replace the furnace because the labor will be the same if you get a new furnace or not. This means that you would be getting a complete new system. However, depending on when you purchased the property and/or when you replaced either component, you may have only one of these that needs to be replaced as the other component is working just fine. This is important to note when obtaining pricing, as just replacing one will be less expensive than both.
Comments: If you talk to most HVAC companies, they will share with you that while the above is a good rule of thumb, it's not enough to provide you accurate pricing as they need to take into account The Other Factors (Step 2) to make an accurate assessment. While I agree with them, it is also true that most companies will have an idea of their standard pricing for the above units. From there, their standard pricing will be slightly adjusted to cover the other factors. I share this because some companies make it a point to publish their standard pricing with the caveat that final pricing will be subject to an official measuring of your rental property. This is important to note as if you're looking online and/or talking to HVAC companies, they may be able to provide you with general pricing over the phone or via email. This is a good first step.
Variables: While the range of square footage between 1,000 to 2,000 will account for most rental properties, there are other variables that are different than the above suggested rule of thumb. Here are some other variables to consider: ducting system, roof color and type, attic venting, insulation, window type, sun exposure and location or property.
Two Condensers: Is your property larger than 2,000 square feet? Does it have two stories? Some larger homes have two condensers to adequately service the property. Usually, one of them is for the first floor and another for the second floor.
Hydronic Systems: Do you have a condominium or town home that utilizes the community's water to operate? These are known as hydronic systems and are different than what you usually see advertised. These require a different type of system, as the HVAC uses water to power the unit. When talking to a vendor, you want to convey that you have a hydronic system so they can price it accordingly.
Heat Pumps: Heat pumps are becoming a more popular choice. They utilize an evaporator coil with a blower assembly instead of a furnace. The outdoor unit has some valving and controls to make it run in reverse cycle. It is an air conditioner that can blow cool or heat inside the building. There are times that this makes the most sense but a review of the building and the owners needs are required.
Zone systems: Some houses that were built as a one system home can have a system set up with multiple zones. This usually becomes desirable in two story homes that are not large enough to need two separate systems but want the separate temperature control option for first and second floors.
Mini Splits: Mini split equipment offers many different configurations that vary from a single head unit on the wall to multiple zones with a mix of wall heads and or ceiling mounts. Ducted options also exist and are a good option in certain applications.
STEP 2: The “Other” Factors
Ideally, the above rule of thumb allows you to get a ballpark idea as to what a new system will cost you. However, any HVAC company will share with you that there are “Other” factors that come into play above and beyond the tonnage that will affect the final estimate. Here are some:
Ducting & Registers: How is the condition of the air ducts? Are they intact or are they broken? Is the size of the ducting and registers adequate for the new system? What is the leakage rate for both air and heat? Many buildings were engineered for heat and the A/C was added later to the same duct system. For many buildings, the engineering was done by rule of thumb guild lines from 50 years ago.
Thermostat: The type of thermostat can vary from having something be very basic or all the way to a fancy smart thermostats. We suggest going with a quality brand with high reliability and basic features.
Flue Pipes: Many older homes had composite flue pipes that are not compatible with newer furnaces. If you connect a newer furnace to these they will work but over time the flue gases form an acid that runs down inside the flue into the furnace.
Air Filtration: The filters should be easy to change, a standard size and large enough for the system. Many contractors cut corners here and the results may not be readily apparent until years later.
Warranty: Most equipment manufactures only offer parts warranty and it varies greatly. Make sure your contractor stands behind their installations. Not all manufactures are the same when it comes to actually getting warranty reimbursement.
System Design: Just because your property had a four ton system for 25 years does not mean it was the most efficient choice. Sizing the equipment to the property correctly is critical to gain the most from your energy dollar and the long term life of the system. Many homes have had multiple upgrades to the thermal envelope over time such as windows and insulation. They do not require the same sized unit to do the job. Bigger is not better as running the temperature down to set point as fast as possible and having the system shut off quickly is not efficient. It takes a lot of energy to get the system up and running and cooling at peak efficiency. Think of a car racing up to each stop sign and shutting the car off, wait for a bit then restart the car and race to the next stop sign.
STEP 3: Obtain Estimates
It’s time to get formal estimates. While the above two steps help you get context as to what your property needs, ultimately the vendor that you decide to go with will need to physically go to the property, take accurate measurements and provide a formal estimate. This will ensure that if you provide approval, they have everything they need to order the right parts for the job. With this in mind, there are two options.
Your Vendor: You may have a trusted HVAC company of choice or perhaps have a company that’s been referred to you. We are always happy to work with an owner’s vendor. Most HVAC companies will not charge a fee to give you a formal estimate to replace an HVAC system. If you have a company of choice all we need is that company’s name and phone number and we will set up a walk-through with the vendor to meet them at the property so they can perform their walk-through and provide us with a formal estimate.
Our Vendor: As a company, we have two to three vendors in each service category. When it comes to HVAC we will always have our preferred vendor of choice. This will be the one company that we primarily work with whom we trust, have a good relationship with and therefore send a good amount of business to. With this in mind, they make it a point of providing us with favorable pricing and will be there to address any items that may come up in the future. In addition, our go-to vendor will offer in-house financing of 6 months same as cash to help owners break up the payments. We, the management company, can pay the vendor directly from the rental income.
Pricing Comment: There will always be a vendor that will be willing to do it for less. We ask owners to please give this some thought and consideration as if the main question is if there’s a vendor that willing to do it cheaper the answer will always be yes. However, if there’s ever a call back where the vendor needs to be called back to do the job, this is where we may run into issues. Given that we are in the business of operating rental properties our go-to vendor understands that long-term service is key to making sure that the property stays performing as needed. There are plenty of “weekend warriors” in the business that can install a system and charge a lower price, but may not be adequate to service your system on a long-term basis or be capable and available when warranty needs arise.
STEP 4: Planning Ahead
The ultimate goal is to make sure that you are ready in the comfort that all your questions have been answered for this purchase as well the financial side. If you have the funds readily available for this purchase we are good to go. Here are some items to consider:
Financing: If the funds needed are more then you currently have on hand or can start saving on a monthly basis, then obtaining financing may be a good option for you. Most HVAC companies may offer financing in-house or through a third-party financing company. You may also want to talk to your bank about obtaining financing through them.
Start a Savings Plan: If you don’t have the funds available then it’s time to start a savings plan. As a reminder, we can set up a savings plan for you through the accounting software, so we are setting a monthly amount aside prior to receiving your owner distribution.
Upcoming Vacancy: Do you have a vacancy coming up? Larger projects like this are always completed faster and easier when the property is vacant. If you have a vacancy that’s coming up it may be best to get the job completed.
Winter vs. Summer: Have you ever tried reaching out to an HVAC company during the summer months? This is a tough time and lead times to getting scheduled be delayed. If you are flexible in getting this completed during the winter you may not experience delays in getting it scheduled.
Price Increases: It’s important to note that pricing does increase over time. If your HVAC system is at the 20 year checkpoint and you obtain pricing now, you’ll have an understanding of what a new system will go for. However, if your HVAC system keeps working for another year or two or more it is guaranteed that market prices will have gone up. Therefore, we recommend getting updated pricing on an annual basis just so that you are aware of what current market pricing will be. As a reminder, we perform the Annual HVAC Tune Up through our vendor and if your system is over 20 years old they will be able to provide you with updated pricing as they have already been to the property.
CONCLUSION
By following the steps outlined above, you'll be better prepared for when we have to make the hard call letting you know that it's time to replace your HVAC system.
