An integrated heating unit operates in a first heating mode, in which the heat of combustion gases is transferred to return air, and a second heat recovery mode, in which the heat of exhaust air is transferred to fresh air. The heating unit of the present invention utilizes the same heat exchanging unit and fans to transfer the heat from the combustion gases to the return air and to transfer heat from the exhaust air to the fresh air. The exhaust air is recovered from a select group of rooms, e.g. kitchens and bathrooms. A secondary heater can also be provided in the integrated unit in the form of a fireplace for providing an alternate or an additional source of the combustion gases.