You Should Be Selling to Landlords
It’s time to study up on multifamily tax credits for HVAC; the results could be lucrative
In her recent opinion column, my colleague Joanna Turpin suggested it’s time for HVAC contractors to start selling window air conditioners. I’d like to suggest another nontraditional market that contractors might want to consider: landlords.
Sure, landlords might not initially fit the profile of a customer ready to invest in high-end HVAC. After all, they’re not paying the utility bill. But while “landlord-grade” repairs and appliances are a running joke among renters, the timing may be right for contractors to make that sales pitch. As record heat waves continue to scorch parts of the country year after year, some cities are looking into a/c mandates so that apartment buildings remain safe in hot temperatures. At the same time, incentives for multifamily buildings are becoming available through the Inflation Reduction Act (IRA). Using those credits to invest in a new, efficient, green HVAC system could be a win for property owners who are looking to set their rentals apart — and command a higher price — or even for those who are looking ahead a few years at what kind of upkeep their apartment buildings will require.
Jamal Lewis, director of state and local policy for the Mid-Atlantic & South at Rewiring America, has two different strategies for HVAC contractors making the pitch, depending on whether the rental property in question is master metered (entire utility bill goes to the landlord, who then assesses each tenant’s share) or submetered (individual meters for each tenant).
“For master metered buildings, transitioning [to heat pumps] can mean significantly lower utility bills for the property owner, so that is a pretty significant selling point,” he explained. “For submetered buildings, that messaging doesn’t work as well.”
Go figure — the apartment complex where I live is one of the latter.
“But,” he continued, “new, efficient appliances and improved comfort should be selling points for attracting and retaining renters. And government incentives to make upgrades that improve an investment property and make it more resilient is a good deal — especially if those appliances are nearing the end of their useful lives.”
While it is now cheaper to construct new buildings with heat pumps versus conventional HVAC, Lewis said, it’s not yet cheaper to retrofit with a heat pump, in terms of upfront cost.
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“But in many cases, the operational costs (utility bills) are cheaper after retrofitting with heat pumps, because they are three to five times more efficient for winter heating,” he said.
I’ll take that! In the dead of a Michigan winter, the heating bill for my 700-square-foot apartment, with its decades-old HVAC, often runs over $200/month. I bet most landlords would prefer their tenants to be paying less in bills and more in rent, rather than shelling out money hand over fist to utility companies.
Sound like a pitch you’d like to make? Start by studying up on the types of tax credits and rebates the IRA provides so you can explain them to prospective customers.
“There are three multifamily tax incentives: 45L tax credit, 179D tax deduction, and the 48e low-income adder,” Lewis explained. 179D is for retrofits of commercial buildings and multifamily buildings over four stories, and involves a tax deduction that is tied to improvements in the energy use intensity of the building. 45L can be claimed by single-family and multifamily new construction that meets certain standards for energy efficiency, such as EPA Energy Star or DOE Zero Energy Ready Homes. The low-income adder is for wind and solar.
There’s also the HOMES Rebate Program, which applies to energy-efficiency retrofit measures — think HVAC equipment, insulation, and better-insulated windows.
“It provides up to $400,000 (up to $4,000/unit) for a multifamily building, depending on energy savings and household income,” explained Brian McComas, senior manager at Dark Horse CPA. There are also point-of-sale rebates for qualified electrification projects through the High Efficiency, Electric Home Rebate (HEEHR) Program, he added, with incentives available to multifamily buildings in which 50% of residents are low and moderate income.
While you’ve got their attention, don’t forget to pitch your landlord clients on updating any outdated HVAC controls. Just like everyone else, renters want the benefits a smart thermostat provides: convenience, energy efficiency, keeping pets and families comfortable, saving money. And it’s not just me hoping my landlord sees this column and gets inspired. The data backs it up.
“Renters wanted a smart thermostat the most,” states a 2022 survey on smart technology from Rent.com. And they’re willing to pay for smart devices. The survey gets into the details, but the gist is that renters are down to pay about $500 more a year for a rental with smart home technology. In other words, the upfront price of that thermostat really pays off — not to mention how it can help landlords when it comes to tracking maintenance, putting in work orders with their contractor, or touring applicants.
Nearly half of U.S. rentals don’t have any smart home technology at all. The market looks wide open for the HVAC contractor who can make the case.
