We often write about macroeconomic factors impacting multifamily investments. This month, we want to highlight an important change to HVAC maintenance, that is going to increase operational costs across the multifamily industry. This is an example of how detailed knowledge of operations and maintenance is essential for investors and operators of multifamily properties, and how a lack of that knowledge can lead to increased expenses and poor investment decisions.
Changes related to 410A refrigerant
As of January 1, 2025 the use of 410A refrigerant in new HVAC systems is prohibited. The import and domestic manufacturing of new 410A HVAC condensers and air handlers has been stopped. While owners of older HVAC systems using 410A refrigerant will still be permitted to purchase 410A and service their existing equipment, parts for these systems are already becoming scarce.
Additionally, the replacement of an A/C condenser which is a common event in older multifamily properties will now require the replacement of the air handler, and in some situations replacement of the line set to accommodate the larger diameter required for the new R32 refrigerant. This will increase an expense that would normally be around $1,000 – $1,500, to an expense of $3,000 – $5,000. This not only has a negative impact on operating costs for existing multifamily properties. It will become an additional consideration for capital expenses when purchasing a value-add property which will have a slightly negative impact on sale price of these properties.
What can owners do to minimize the negative impact on operating expenses?
Owners should assess the age of their HVAC equipment to determine future replacement needs. By evaluating the condition and expected lifespan of current systems, owners can plan ahead and budget for potential replacements more effectively.
Furthermore, owners should consider purchasing 410A equipment for future replacements now, while it is still available. This proactive approach can save the future expense of total system replacements, allowing owners to maintain their existing systems without incurring the higher costs associated with transitioning to R32 refrigerant systems.
Owners should also implement a preventive maintenance program to limit excessive wear of HVAC equipment and reduce the need for system replacements.
Considerations for investors purchasing Value add properties
The phase out of 410A will have an impact on property investment and acquisitions. Investors should consider the cost of replacement of these systems in their underwriting and capital expense budgets. The added expense will reduce the bid amounts for investment properties and have a negative impact for investors selling older properties.
Additionally, it will be crucial that investors pay special attention to these components during due diligence and when putting together operating and capital budgets.
To learn more about how we can help you to generate superior investment results through professionally managed Real Estate investments, click here to register for our investor club.
HVAC Maintenance Costs Set to Impact Multifamily Investment Returns
We often write about macroeconomic factors impacting multifamily investments. This month, we want to highlight an important change to HVAC maintenance, that is going to increase operational costs across the multifamily industry. This is an example of how detailed knowledge of operations and maintenance is essential for investors and operators of multifamily properties, and how a lack of that knowledge can lead to increased expenses and poor investment decisions.
Changes related to 410A refrigerant
As of January 1, 2025 the use of 410A refrigerant in new HVAC systems is prohibited. The import and domestic manufacturing of new 410A HVAC condensers and air handlers has been stopped. While owners of older HVAC systems using 410A refrigerant will still be permitted to purchase 410A and service their existing equipment, parts for these systems are already becoming scarce.
Additionally, the replacement of an A/C condenser which is a common event in older multifamily properties will now require the replacement of the air handler, and in some situations replacement of the line set to accommodate the larger diameter required for the new R32 refrigerant. This will increase an expense that would normally be around $1,000 – $1,500, to an expense of $3,000 – $5,000. This not only has a negative impact on operating costs for existing multifamily properties. It will become an additional consideration for capital expenses when purchasing a value-add property which will have a slightly negative impact on sale price of these properties.
What can owners do to minimize the negative impact on operating expenses?
Owners should assess the age of their HVAC equipment to determine future replacement needs. By evaluating the condition and expected lifespan of current systems, owners can plan ahead and budget for potential replacements more effectively.
Furthermore, owners should consider purchasing 410A equipment for future replacements now, while it is still available. This proactive approach can save the future expense of total system replacements, allowing owners to maintain their existing systems without incurring the higher costs associated with transitioning to R32 refrigerant systems.
Owners should also implement a preventive maintenance program to limit excessive wear of HVAC equipment and reduce the need for system replacements.
Considerations for investors purchasing Value add properties
The phase out of 410A will have an impact on property investment and acquisitions. Investors should consider the cost of replacement of these systems in their underwriting and capital expense budgets. The added expense will reduce the bid amounts for investment properties and have a negative impact for investors selling older properties.
Additionally, it will be crucial that investors pay special attention to these components during due diligence and when putting together operating and capital budgets.
To learn more about how we can help you to generate superior investment results through professionally managed Real Estate investments, click here to register for our investor club.