Advice for Buyers: Residential Furnace and Water Heaters
Whether buying or selling, your real estate agent should want to know every last detail of a property. More specifically, we look at any rental contracts that might be attached to a home, such as for a furnace or water heater.
By all means, you can purchase and install a furnace or water heater (likely with a warranty) instead of paying ongoing rental charges. Often, this is the method of preference for these devices because it allows for a one-time payment. And, hopefully from here, the units run hassle-free and payment-free for years to follow. Mind you, the hydro and gas that powers furnaces and water heaters still bring on monthly bills! So, the question is: should you rent or buy your home’s water heater or furnace?
Water Heaters and Hot Water Tanks
Let’s talk water heaters and hot water tanks first. Not too long ago, my hot water tank decided to retire suddenly. It was electric and I had plans to convert to gas, so the timing worked out. However, the conversion cost a little more than just replacing it with another electric water heater. Besides the purchase price, I’m paying less in monthly bills by switching to gas. And, I’m not tied to a monthly rental fee. That sounds ideal, right?
Why rent a water heater, instead of own?
The cost of replacing a typical hot water tank is usually around $1000, give or take. This is not the same as upgrading to an on-demand unit – that’s another story. Now, keep in mind, you’ll need access to those funds at a moment’s notice. This means, if your water tank retires (like mine), you likely won’t get notice. In fact, my situation happened on a winter morning when I woke up to find its contents released across the basement floor and over to the drain. And that resulted in only cold water for showers, dishes…everything. When you are out of hot water, you’ll want to remedy the situation fairly quickly.
That being said, if you do not want to outright purchase or afford the $1,000 on short notice, this is when renting comes in handy. When you rent your water heater, the cost is lower (around $25 per month, give or take). No biggie, right? The additional benefit to renting a water heater is the rental company is responsible for the unit. So, if it decides to quit on you, early or late in the game, the rental company is likely to come promptly and replace it. Unlike ownership, there is a third party that takes care of the problem if and when one arises.
Having a rental water heater is quite common and a very typical detail in a freehold real estate transaction. It does not bother most people to assume a rental hot water tank.
Furnaces
Now, the drama increases when we talk about renting a furnace. Replacing a furnace will cost you thousands of dollars. This is why the age of a furnace is often discussed when sizing up a property to buy or sell. Like a roof, when the furnace is nearing the ‘end of life expectancy’ (if you are just starting to read home inspections you’ll see this term frequently), it will become a major expense for the new owner in the short-term.
For those thinking, should I rent my furnace? Well, here’s the potential problem. The contracts typically (and ridiculously) favour the rental company. Prior to considering this option, take a good hard look at the contract and in particular, its terms and conditions. Unfortunately, there are contracts that will cost so much in accumulation of fees over the years – so much that it adds up to the cost of owning two or three times over! You might as well use a credit card to pay off over time, rather than accept one of those rentals. However, furnace rentals may not all be terrible. This is speaking from personal experience, knowing how this affects your purchase or sale of property.
Do you have the same added benefit of ongoing service should the unit break down: yes, likely. But I don’t think it’s worth it. Read on…
Why own a furnace, instead of rent?
True story: a client recently wanted to buy a cute and cozy bungalow that checked all the boxes for his family. In preparing the offer, the furnace rental cost was listed at around $75 per month. However, the buyer had no interest in an additional monthly charge on top of a mortgage payment and property taxes. So, we looked into buying out the remainder of the contract. It was like pulling teeth to speak to customer service at the rental company. On top of this, it was also near impossible to get the buyout amount, which was almost $5,000 for an already five-year-old unit. What’s the big deal? Buying a new unit is about $4,000, meaning, buying out the contract equated to paying almost $10,000 for the unit. How’s that for a great deal for the rental company?
Because of this, we put a condition into his offer stipulating that the sellers close the contract (buy the furnace) prior to purchase – and they did. My buyer purchased the property with a furnace he now owns. On the other hand, those sellers were not thrilled to find out just how bad the furnace contract impacted their sale.
This may seem like an extreme example; however, you should ensure you know 100% what you are getting into. As real estate agents with listings, rental furnaces require a little extra digging to ensure our listings disclose all the proper information. For our buyers, we want to be sure they are aware of what’s involved in assuming a rental if it’s necessary.
As always, everyone at Fox Marin wants you to be the most informed buyer you can be. And I’m not just ‘blowing hot air’. #dadjoke #sorrynotsorry
One last note…
Some condos come with a heat pump rental charge and this may not be something that can be bought or negotiated away. It may just be a part of the way that condo was built and functions. The same rule applies in this way: make sure you and your agent know what are signing up for! Nobody likes surprising extra charges.
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This article is written by Fox Marin Sales Representative, Ian Busher. With an extensive background in carpentry and contracting, Ian is our resident “Renovations Expert”! He takes pride in his ability to assess the quality and condition of a house. This, in tandem with his talent for speaking to the feasibility and cost of potential renovations, and his eye for the aesthetic details of a property, makes him a powerful partner for anyone looking to buy a home in the Toronto real estate market.
