The hvac was found damaged during inspection and the repair cost was estimate at $1500. Several months later after closing $2m sought to repair the hvac unit - to his dismay - he learned the parts cost hard risen to $2,500. Competitive bids came as low as $2,000 - still higher than he had budgeted.
Now the critical question: does he repair the unit (it was built in the early 1990s and has a 14-17 lifespan - nearly out of time) or does he replace it?
I vote to replace the unit for several reasons:
- This is a rental property - I assume he plans to hold it for a while
- Losing hvac or a/c while renting a property is key to disaster - you have to act very quickly, time pressure eliminates your advantage in comparison shopping and your at the mercy of the repair staff who may/may not be there when you need them
- In some communities rental units without hvac can be declared uninhabitable
- Who knows what other problems are waiting to unleash themselves upon him.
If the property is cashflowing positive, I recommend $2m finances the hvac replacement and use the cash flow from the propert to pay the new unit expense. Depending upon how he works the accounting it can be considered a repair or an improvement - either way he'll garner a tax benefit (the first immediate, the second when he sells). By financing the debt he also maintains his cash reserves other additional unforseen issues with the property.
In retrospect, it would have been nice if he had a new home warrantee, though I doubt the hvac problem would have been covered, unless he had negotatiated with the seller to have it repaired prior to sale. Traditionally, I've never bought new home warrantees, but apparently they are not to expensive and they could help with mechanical costs.
I had to replace an hvac system several years ago shortly after buying a new house. I was dismayed at the additional $3,000 outlay.
Have a wonderful day,