Tagtwo-flat journal

Two-flat journal 5: Costs

Updated May 3, 2021, to add more insight from Robinson Meyer (The Atlantic) as to why lumber prices are so high.

My architect and I are still working on plans, slowly but surely. Read my previous entry, Two-flat journal #4, to understand why that seems to be taking awhile.

There is something else on my mind as we work toward the goal of a gut-rehabbed two-flat: How much this whole project is going to cost.

I’ve talked to several contractors, engaged a structural engineer to specify and design the new steel beam in the basement, and obtained quotes for all new windows from four manufacturers.

One contractor happily gave me an estimate, based on incomplete plans, that was about $220,000. That price could go down with more specific plans and instructions, as the estimate had variability based on unknowns, and it doesn’t include the cost of purchasing the windows. More likely, I think the price will go up due to material costs.

How much windows might cost

All window quotes I’ve obtained include installation by the manufacturer’s selected installers, which has a benefit from some companies, mainly that the maker will guarantee the installation for a period of time.

The first floor living room window is currently double hung with a mullion and a tripartite transom window above it (with stained glass, that’s been covered on the inside). This window will become a “Chicago window” with a centered picture window flanked by casement windows.

I would share the quotes with you but I don’t think they would be very helpful at this point because I haven’t evaluated each of the quotes on the quality of the window. For example, one of the window quotes was three times higher than the next highest quote, but the maker guarantees installation for 10 years and is a higher-quality window. But what is the factor of difference in quality, is it three times? And how valuable is a 10-year installation warranty? It’s unlikely I would need to avail that benefit and the three times difference in price means I could replace all of the windows *again* two times for the same price! (Assuming prices didn’t increase between now and that future moment.)

The 15 new windows, according to the four quotes, will cost anywhere from $12,000 to $46,000. I should mention that the highest quote doesn’t include any discounts or special offers, as those will be offered once I re-engage the estimator and ask for one.

Look at windows 1.1 and 1.3, which look like bay windows. These are both Chicago windows, which have a center picture (fixed) window flanked by two operable windows (casement windows, in this case).

There are a couple of opportunities to reduce window costs. I could convert more of the casement windows to be double hung windows (which I don’t want to do as I prefer single hung windows), or I could change the window opening size. A couple of the window openings are taller than most of the window makers have in their standard window design, so an upper transom (fixed) window would be required. However, changing the window opening size may end up shifting costs to a different plan of adding bricks and adjusting walls.

Another way to reduce the window cost would be to use models that are less energy efficient, but I also don’t want to do that. I’ve insisted that every window be Energy Star certified – this is about the only certification standard that I understand, and it’s common across most window makers in the Chicago area. (There are also Passive House and Passivhaus certified windows, and companies that import higher-quality and more efficient windows from European manufacturers, but I haven’t bothered with any of those because I assume the prices will be even higher.)

Lumber and other construction materials

That lumber prices have more than doubled over prices a year ago is well known if you read real estate industry news media, or if you’ve shopped for wood at Menards to build a couple of benches for some nicer outdoor space or installed a new porch.

My gut rehab will require a lot of plywood (to replace the subfloor), “soft lumber” replacement studs, and some replacement joists.

The St. Louis Federal Reserve maintains “FRED”, an amazing website with interactive charts to explore economics statistics, including lumber. The pricing information comes from the Bureau of Labor Statistics and their Producer Price Indexes.

The chart for the plywood price index below shows very stable pricing in fall and winter 2019-2020, and then in May 2020 prices start climbing and the index increased by 100 points to March 2021.

U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Lumber and Wood Products: Plywood [WPU083], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WPU083, April 25, 2021.

BLS has monthly detailed reports so you can find data about more than the products FRED has charts for. Let’s dig in to the March 2021 report (indexes mean that the pricing represents percentage changes based on 100% being the price when the index was established):

  • “Softwood dressed 2-inch lumber, 2 inches in nominal thickness only, not edge worked” (a.k.a. 2×4 studs) (index established June 2012):
    • March 2020: 205.1
    • March 2021: 324.1 (this means that the price has increased by 119% year over year, a more than doubling of price)
  • “Softwood plywood products: rough, sanded, and specialties” (index established December 2011):
    • March 2020: 139.0
    • March 2021: 242.9 (again, this means that the price has increased by 103.9%, doubling the price)

In addition to general demand being much higher, there are other reasons why lumber costs so much more right now, according to Robinson Meyer writing in The Atlantic last week.

Since 2018, a one-two punch of environmental harms worsened by climate change has devastated the lumber industry in Canada, the largest lumber exporter to the United States. A catastrophic and multi-decade outbreak of bark-eating beetles, followed by a series of historic wildfire seasons, have led to lasting economic damage in British Columbia, a crucial lumber-providing province. Americans have, in effect, made a mad dash for lumber at the exact moment Canada is least able to supply it.

[snipped]

“There are people who say, ‘Climate change isn’t affecting me,’” Janice Cooke, a forest-industry veteran and biology professor at the University of Alberta, told me. “But they’re going to go to the hardware store and say, ‘Holy cow, the price of lumber has gone up.’”

[snipped]

It has lost 2.5 billion board feet of annual production capacity since 2019, enough to shift prices in a North American market of 70 billion annual board feet, Jalbert said.

Read Robinson’s full article to see how the bark-eating beetles overwhelmed the forests of British Columbia and the northern forest belt in Canada and why their rampage is fueled by climate change.


The same contractor, when they checked in with me recently, said that the prices of other construction materials had gone up, too.

In the same Producer Price Index report, it looks like wood doors and door frames went up 29.2% from March 2020 to March 2021; metal windows are up 7.1%, double hung wood windows are up 6.8% and wood casement windows are up 5.1%; wood moldings are up 16.9%.

I didn’t see any notable price increases in plumbing materials or kitchen cabinets – all were close to inflation. The PPI doesn’t have vinyl window products, or I don’t know under which category it falls.

Two-flat owner journal 3: Choosing the right water heater

Read all of the “Two-flat owner journal” entries

This journal entry is all about the several hours of time I spent researching which water heaters to buy for my two-flat. While my architect works on drawing the plans, I am doing a lot of research to answer questions for him, so he knows what appliances are going to be hooked up to the house’s mechanical systems.

I started researching water heaters on a cold Saturday in January so I could fill out the “appliance schedule” for the project. My first journal entry was about my new distaste for Peoples Gas. Since then, my view has evolved and we (my architect and I) are designing an all-electric house.

SCROLL DOWN FOR THE RESEARCH – Read on while I discuss my thoughts about electricity and natural gas as a power source for homes.

Discussion

Let me step back a moment. I also have a “distaste” (a weird word to use when talking about something that would literally kill you if you drank it) for fossil fuels, too. When I approached this research task I thought that an electric tankless water heater had some kind of inherent efficiency over an electric or natural gas-powered tank type.

But it doesn’t, and that’s partly dependent on how much water a household uses. Tankless water heaters are sometimes marketed as providing “unlimited” hot water, which scared me. Since I don’t go to an office anymore (because of COVID-19 and because I quit my office-attached job), I take a shower every other day. And they’re long. Just imagine that your shower never ran out of hot water. I might not get out. So that’s a personal critique of the type of water heater.

(Another con of tankless water heaters: When the electric is off, water cannot be heated; with a tank water heater, there is always residual hot water in the tank, which can still flow. Additionally, electric tankless water heaters have special electrical box requirements because they draw so much electricity.)

Let’s talk about the fuel. Natural gas is cheap right now – to purchase. But it has awful costs elsewhere, namely its contribution to pollution and carbon dioxide emissions when burnt. Burning it in the home also releases additional gases, which is why I think you should run your range hood vent/exhaust when you cook food on the stovetop.

Gas stoves emit a host of dangerous pollutants, including particulate matter, formaldehyde, carbon monoxide, and nitrogen dioxide. 

Mother Jones, “How the Fossil Fuel Industry Convinced Americans to Love Gas Stoves”, by Rebecca Leber, FEBRUARY 11, 2021

Going electric in the kitchen is pretty easy, I think. I didn’t do much research and I picked out all Energy Star-certified appliances. For cooking I chose a range with an induction cooktop and an electric convection oven (which means there’s a fan inside to blow the heat around for even cooking). Induction cooktops, while being a really efficient user of energy, have cooking benefits: Water reaches a boil faster, the surface is easy to clean, and there are fewer burns because the surface doesn’t get hot.

Creating an all-electric house is pretty easy, actually, until you get to the heating and cooling part, and knowing how to heat a house with electricity in the very cold climate of northern Illinois requires even more research.

Water heaters are actually easy to figure out (after 5 hours of research) because, in the end, all you do is plug them in to a 240 volt receptacle and connect to the already-existing water pipes.

I am still in the middle of researching electric heating and cooling and I’ve opened a conversation with two HVAC contractors (one that sells Carrier and one that sells Mitsubishi).

Water heater research

I originally tweeted all of this on January 16, 2021, because I like using Twitter as a sounding board.

I have researched five types of water heaters because I want to fully understand the purchase price and energy price of each.

  1. Natural gas, tank
  2. Natural gas, tankless
  3. Electric, tank
  4. Electric, tank (hybrid w/heat pump)
  5. Electric, tankless 

Based on my research of manufacturers’ reported “Energy Guide” stickers (the yellow stickers required by federal law) for these five types, the Electric, tank (hybrid w/heat pump) (option 4) is far and away the most efficient water heater. 

The Electric, tank (hybrid w/heat pump) has an annual operating cost of $104. What is this thing? It takes the standard tank, uses electric heating elements (think of the wires inside your bread toaster), and extracts heat from the air in your house with the heat pump. That’s pretty amazing: There is free heat to be extracted from the air.

The Electric, tank (hybrid w/heat pump) has less than half the operating cost of the next lowest type: Natural gas, tankless.

Rheem (a water heater manufacturer, which also owns the Richmond brand) says that an electric tank water heater with hybrid heat pump uses less electricity than an old-fashioned incandescent light bulb.

Note that the electrical prices in the yellow “Energy Guide” sticker is 12 cents per kWh, and ComEd just charged me ~7 cents per kWh, so the annual operating costs of electric are less than the stickers say. 

Next, as part of the “total cost of ownership” (well, minus maintenance) I added in the purchase price. The Electric, tank (hybrid w/heat pump) costs $1,400. That’s 1.5-4x more expensive than the other types of water heaters!

However, I’ve since found that Rheem/Richmond makes a couple cheaper models that don’t have high-tech features, so the purchase price is anywhere from $1,000 (if you can find that model) to $1,175.

I calculated the “5 year cost of ownership” price for water heaters of each type because it makes sense to distribute the purchase price over a period of its lifetime. I could have easily made this a 10-year amortization since water heaters come with 6 to 12-year warranties. I interpret the length of the warranty as the manufacturer’s assessment as to how durable they’ve created the machine.

Of the five types, I compared 11 machines (view the comparison chart).

The cheapest water heaters over five years are: 

  1. Electric tankless: $1,479 (caveats in that annual energy cost was extrapolated because a direct Energy Guide sticker wasn’t found)
  2. Electric, tank (hybrid w/heat pump): $1,919
  3. Natural gas, tank: $1,999

Remember, though, that the Energy Guide stickers for the electric water heaters use a 41.7 percent higher energy cost than ComEd currently charges, and ComEd offers hourly pricing so the price can be much, much lower per kWh and the prices for the electric water heaters are EVEN LOWER. (Thank you for pointing this out, Troy.)

Guess what…the price of the Electric, tank (hybrid w/heat pump) can come down even more because of (1) a ComEd rebate, and (2) federal tax credit worth 10 percent of the purchase price + installation, up to $300.

Bonus: By getting electric you are part of the carbon-free future. 

Further discussion

Now that I’ve convinced you that an Electric, tank (hybrid w/heat pump) water heater is the cheapest option, here are a couple of other things that came up in the Twitter conversations.

  • Including utilities (i.e. electricity cost) in the rent for the rental apartment in my two-flat benefits both me and the tenant. The tenant has a fixed and predictable energy cost and fewer bills to pay, while I am able to charge a bit more than I predict the cost will be in order to pay back the higher upfront costs of the water heater and the Energy Star-certified appliances (as well as the heating and cooling system).
  • The calculations might be different if I looked into having individual tankless water heaters at the point of demand, or using them as “boosters”. Tankless water heaters come in a variety of capacities and energy outputs (measured by how much energy it takes to increase the temperature from how cold the water is when it enters the house or heater to the desired temperature). One could be added to the kitchen, the bathroom, and next to the laundry, and sized for the differing demands of each location.
  • A complex system could be built that is programmed to buy energy from ComEd when the hourly cost is the lowest and use the power from the battery when the hourly cost is highest.
  • A couple people asked about geothermal. I looked into it and I wrote it off quickly: A drilling rig needs to access the yard to drill multiple horizontal wells. The garage blocks that from happening. However, an apartment building renovation in Rogers Park designed by PMP Architects is converting its heating system to use geothermal energy.

Two-flat owner journal 2: Demolishing the interior

In order to get the two-flat ready for a gut rehab, one has to gut it.

The rehab stage is still months away, as my architect and I continue to develop plans. He does most of the work, but it’s quite collaborative because there are layout, design, and finishing choices that we need to make.

Gutting the house is also necessary for the plans because my architect needs to know what’s behind the walls.

I hired Amplify Property Solutions for the job. APS has a social mission of training and employing young Black men. You can ask me personally how much it cost, but it was between $5,000 and $10,000 (that range includes the cost of six Dumpsters).

I am very happy with the crew’s work and Ron and Ted’s dedication to communication, clarity, and customer service. The work took a week longer than they predicted because of some aspects that I think were next to impossible to know:

  • There were 1-2 “extra” layers of flooring in some places. From top to bottom in the upstairs living room there were carpet, wood, linoleum, wood, and subfloor layers.
  • Because the center beam in the basement has been failing (sagging) for years, the centers of each floor were sinking making the floors unlevel. Platforms were built in each kitchen to raise and level the floor.
  • The house is one of two row houses, so one exterior wall is shared. On this wall, behind the drywall was a 1″ layer of plaster that took awhile to chip away.

The subfloor boards are very wide and old growth and original (so they’re at least 130 years old). I’ve been told that some people find these valuable; if you’re interested in purchasing them, please get in touch!

See more photos below and in the house photo album.

Permitting

With this level of demolition, a permit is required! I pulled an easy permit for this project (which I think cost $375). The Dumpster company obtained their own permits to occupy the street right of way.

Also, as a way for the Chicago Department of Buildings to discourage gut rehabs being permitted with a series of easy permits, when a Standard Plan Review is most likely required, the DOB required that I apply for a renovation/alteration permit and show them in-progress drawings.

Consultants and contractors used so far


First floor kitchen
The demolition exposed the shape of the chimney. The right side was filled in and the wall was flat so we didn’t know how wide the chimney was.
The kitchen platform
The kitchen platform had a level top, but the floor beneath was uneven. The framing underneath the platform had angles cut to ensure the platform was level.

Two-flat owner journal 1: Peoples Gas charges a lot of money for no gas

One of the first things I did after I bought a two-flat in July was contact Peoples Gas and Comed to ensure utilities were in my name, and that the utility connections would not be interrupted.

A few days later I decided that I wasn’t going to move in, because I wanted to make a good amount of changes and the best time to do that would be when nobody is living there. “Good amount of changes” turned into “gut rehab”. One of my friends is an architect and we (mostly him) are drawing permit plans right now.

It wasn’t until a week ago (8 weeks since I bought the house) that I realized there’s no reason to be paying for Peoples Gas to maintain a connection when I’m not using natural gas.

I’m writing this journal entry to exclaim how expensive it is to just “leave the gas line connected”.

It costs $50 per month per unit to have the privilege of possibly purchasing the delivery of natural gas through a pipe. Both units used 0 therms in the longest-period bill I received. (I received three bills, only one of which was for 30 days.)

The bill for the only 30-day period Peoples Gas served one of the units in my two-flat. Both units are unoccupied until after the gut rehab is completed. See the “customer charge”, which is the charge just to have an account open and for the potential to use gas.

I’ve got to pay $50 per unit for no gas.

I visited a three-flat under construction in Pilsen on Friday, and talked to the developer, Brent. He described how he’s following high-efficiency building wall standards to create a “tight envelope” (one in which very little air can leak) so that the tenants can “receive the comfort they’re paying for”. When it comes to setting the thermostat, the air delivered by HVAC machines should match that exactly, no more, no less. No oversized furnaces pushing too much heated air because so much of the air leaks through the walls and windows.

And, as a way to control costs, Brent will not connect a natural gas pipe to the building, mostly because of the expensive and default customer charge that persists even when no gas is used. A VRF (variable refrigerant flow) and heat pump machines will be entirely powered by electricity to serve the tenant’s heating and cooling needs.

Brent said that the tight building envelope coupled with the high-efficiency HVAC means that it’s more cost effective to use electricity to heat a house than natural gas.

After our meeting, I looked again at my final bill from Peoples Gas (I closed the account two days prior) and understood what Brent was saying about controlling costs. With an electric water heater and an electric range, there’s no need to have any gas connection.

I will probably have to keep the gas at my two-flat, to power the furnaces, because I don’t have the expertise or financial resources to renovate an existing building to have a tight enough envelope to make electrically-generated heat more cost effective than gas-generated heat.

Update January 13, 2021: I turned off the gas and closed the accounts so I don’t have to waste any money while I’m not living there (a gut rehab still needs to happen).

To keep water pipes from freezing and bursting I cleared the vast majority of water lines and added an electric pipe heating cable to keep the remaining sections warm.

The two water service pipes (I don’t know why there are two) have an electric pipe heating cable and are wrapped in foam insulation. The cable has a thermostat that touches the pipe and starts heating when the pipe drops to 38°F. The pipe is heated until the thermostat detects ~46°F.

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