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Oil to Gas Heat Conversion: Worth the Investment?


Jul 22, 2020 by Barbara Zito

Energy costs are a big topic of conversation in the real estate investing world, and there’s one question that dominates the others: Should you make the switch from oil to gas heating?

While gas is known for being cheaper and more efficient than oil, that doesn't automatically make it the best choice for the home you're selling or renting. Let’s take a look at both energy sources and how they affect your bottom line.

Function

Oil and gas are two of the more common ways to heat homes; alternative heating methods include electric and propane. Both oil and gas require furnaces, though oil furnaces are far bigger than their gas counterpart. For this reason, many people give consideration to the oil-to-gas conversion: It will save space. Still, both types of furnaces do make it easy to heat a home. Note that while there are homes that do use oil to heat water, the majority of homes use it for space heating.

Cost

Month for month, oil heat is always the more expensive energy option -- and this is with declining oil prices over the years. While energy costs will vary depending on how far the mercury dips in the wintertime, homeowners with oil-powered heating systems will nearly always have a larger bill than their gas- or electric-powered neighbors.

As temperatures fluctuate throughout the winter months, so do energy bills. That is why most customers opt for some sort of budget with their energy company. For gas customers, after a period of time (usually a year) during which usage is assessed, they can opt to pay a flat fee per month based on a 12-month projected usage. Oil customers, on the other hand, can usually lock in a price per gallon of oil. This saves money per unit, but during a cold winter, that gas tank will drain more quickly. So while the unit price of the oil may remain the same, it's difficult to predict the number of units that will be needed. This unpredictability is what makes homeowners -- especially in the Northeast -- covet gas-powered homes.

Value

According to data from the U.S. Energy Information Administration, in 2018, approximately 5.5 million homes in the United States were heated by oil. 82% of these homes are located in the Northeast, a region known for its chilly winters. The Northeast Census region consists of New York, New Jersey, Pennsylvania, and all six of the New England states. In this region, one out of five homes has an oil furnace.

When house hunters consider buying a home, they must factor in energy costs as part of their monthly budget. While everyone has to pay utilities if they want to heat their home, many homeowners view oil heat as a very expensive proposition. Therefore, a home with gas heat could sell more quickly, particularly if other comps in the area are also powered by gas. If you're looking to sell or rent in fair-weather states, you can likely keep the system as is because you won’t have to crank up the heat.

Energy Source Pros Cons
Gas • Burns more efficiently
• Very little maintenance
• Furnace is quieter
• Burns cleaner
• Not all homes have access to a gas source
• Less heat per BTU
• Furnace/conversion is expensive
Oil • More heat per BTU
• Deliveries come easy and often
• Furnace costs less
• Tank takes up a lot of space
• A service contract is required for maintenance
• Burns less efficiently
• Fuel costs are higher

It can cost thousands to make the switch from oil to gas. This is because there may be significant work that needs to be done in a home in order to remove a large oil tank and connect a new tank to the gas line. This is why many homeowners opt to stick with the oil heat.

Many gas companies will provide some sort of credit or incentive to homeowners looking to make the switch. However, it may take years to realize the ROI on the conversion.

The bottom line

While it does cost big money to make the conversion from oil to gas, it could pay off in a quicker sale or rental for investors. Buyers and renters must factor energy costs into their monthly budget, and at the end of the day, natural gas is the more economical choice. For homeowners who are making the decision in their own homes, however, it will take them longer to see the ROI, which eventually comes after years of differences in monthly heating costs.

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