My Energy Efficiency Project Thread, aka Eco-Capitalism

My Energy Efficiency Project Thread, aka Eco-Capitalism

Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes

Hey there BP!

I'm posting this thread, which, full disclosure, will be long, and might not be for everyone, in order to document a project I am doing here in sunny Arizona. It is on a commercial building, 8 units, and master-metered (aka the bills are on me). Yes, I know there is a forum for commercial, but I would do this on a MFH as well as a SFH if the numbers worked.

Please feel free to comment, ask questions, and wonder out loud if I've finally lost my mind.....maybe the tenants finally got to me!

Anyway, some background - I've got 11 doors of rental property here in AZ.  This is my first commercial building, and I (humble brag here, whatever) knocked this one out of the park on the purchase, but that is another post.  

Long story short, this was a lender owned property, and kind of a dump.  I've owned it now for about 6 months, and was wrestling with some factors that are innate to the building, and are eating away at my bottom line.  4 of my tenants are hairdressers, which is a business that pays the rent, but is also VERY consumptive of resources.  The building is also master-metered, which is really common in older facilities, and usually means you can either bill back the tenants for a portion of the utilities (good effing luck getting them to do that BTW) or figure out a way around it.  

The other side of this coin is that my home markets (85251 and 85257) are white hot right now, and its damn near impossible to buy anything that makes sense as a buy/hold.  I either heard it here, or from some grayhair in the business that sometimes, the best property investment is your own property.  For you analyst types, what that means is that under certain market conditions, the best rates of return are upgrades to your own property, rather than more property.

So, with that in mind, I did a little math, and decided, both for personal/moral reasons, as well as making more money (duh), that I was going to turn an expense into a profit center.  The power/water bills come to a yearly average of about $620/month.  Dunno about your home market, but around here, making that kind of cash each month is going to take either getting really lucky, or a lot of capital if you are going to get it out of a rental.  By a lot of capital, I mean a $300k+ house in my zip code (assuming leverage).  I also have just enough of a hippy streak to know that we are killing our planet, and I don't want to contribute to that any more than I have to.  Plus, it does NOT involve any additional tenants.  Effing sweet!

*Note to readers - I have been in construction/etc since I was old enough to pick up a hammer.  Grandfather taught me a lot, and I'm damn lucky to have had him in my life.  If you have to pay people to do things, this won't work as well.  

Enter....the project!  In a nutshell, here is what it entails, and the order in which it will happen:

1) Solar coating (white goopy reflective stuff) on the roof.  This magical white goo will take the temperature of a roof in AZ from 200+ degrees (summer) down to about ambient air temp or below.  Any roof is just a giant heat sink, and the last thing you need in AZ is more heat in July.  Come on down if you don't believe me.  

2) Replacement of the old crappy single-pane windows, which are about as good an idea as a screen door on a submarine.  I'm going with glass block, because of the combo of cheap/secure/thermally efficient.  Dunno if you've ever tried to break a glass block, but its not easy.  

3) Removal of the old rooftop AC units, and installation of new, high-seer mini-split AC systems for each unit.  I could write a book about how sweet these things are, but I'll just leave it at this: they are pretty sweet, and use very little electricity.  More importantly, they have a feature called "soft start", which drastically effects your demand charges on your bill.  Depending on how your electric is billed, (net metering or demand charges) this can make a 50% reduction by itself.  

4) Rooftop solar hot water heater - without any yawn-worthy physics involved, let me just put it this way - water takes a LOT of electricity to heat.  Also, hairdressers use a LOT of hot water.  Lot of Electricity x Lot of Hairdressers = Lot of Power Bill.  SWH (solar water heaters) come in a bunch of different forms, do your own homework, I rooted around on craigslist here, and found a lightly used commercial rig for $150 loaded in the back of my pickup. Needed some cleaning, and polishing on the glazing (clear part where sun comes in) but will make a $hit-ton of hot water.  What a country.  

4a) Once these are done, we wait a couple of billing cycles on the electric bill, and see what our usage comes out to be....and then...

5) Rooftop Solar PV Array - here is why you do this last.  I have a friend who is head of sustainability for our local utility.  He explained it to me over some pints of Adult Beverages at our local one night.  See, solar PV (panels, inverters, etc) are big-ticket items, ($20K or more), heavily sold and pushed, and are, at their core, a good investment.  However, it is MUCH cheaper to exhaust your energy efficiency upgrades and THEN size the system to what your building/house/family needs once those are done.  In some parts of the country, yes, the meter will spin backwards, but in most parts, the utilities have caught up with this, and aren't playing ball anymore.  So do your own homework, rather than read some article on the internet.  

So, on the very slim chance that you are still actually reading this, what will this translate to in terms of money?  

Hm.  Good question - I asked the power-nerds, and here is what they came up with:  

My budget for all this mess is $32k.  yeah, I know, thats a lot of cash, but I was able to pull it out of the building with a refinance at 5% (its commercial before you poop your pants on the rate).  It's double-sweet because my tenants pay for it with their rent.  

I can get it done for that because I can wire in all the AC's, sweat copper to hook up the water heater, and know enough about engineering to put together a solar kit.  If you don't know all that stuff, you can learn it, or you can spend more money.  Because this is America, and we are free people, you get to make that choice for yourself.  I know, pretty cool right?  

We (and by "we" I mean my engineer nerd friends) have calculated out an approximate 78% drop in power consumption on a yearly basis from what we have, which includes the solar generation.  Based on my yearly average bills, that is a net monthly gain of $483.60 from an investment of $32,000.00 and some sweat.  The solar system has a 25 year output guarantee, and energy costs are only going up.  Solar hot water heaters last basically 15 years.  

Note here that I am approaching this from the perspective that this building is for lasting cash-flow.  I don't plan on selling it ever.  Ever Ever. 

I'll post updates here as they come along, right now the muppets who are rolling out the white goo are late, and I have to go roust them out of the woodpile.  

Happy investing.  

 - Darwin

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Royal Oak, MI · Member since 2015 · 257 posts · 230 votes
9y

@Thomas S. 5.5 years is in no way a long period for a project like this. I know you seem to think everything you put into a property should raise the rent so the ROI is positive after two years, but let's face it; that's a joke. Especially when people are more and more migrating to being energy conscious. Honestly I haven't figured you out. Most of the time I think you give great information, and other times I find myself almost asking to see what kind of rentals you provide because I couldn't see myself ever doing the same thing.

There is a value that goes beyond money that some people (mostly older) won't see. I do, and I think it was a great move. Not to mention it will be appreciated by your tenants come time to lease again at hopefully a higher rate.

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  • Real Estate Investor · Las Cruces, NM · Member since 2016 · 186 posts · 173 votes
    9y

    Thanks for the laughs!! Quick question on the mini splits, are these open floor plan units? How Do you account for closed doors etc or are you installing a unit per room?

    I have a 500sqft studio apartment that I'm actually about to put a mini split in. Do you have a recommendation for brand? There are lots online for about $800 for 12000btu...I'm wondering if that's sufficient. Thanks!

  • Kalyanii K.Pro Member
    OR · Member since 2016 · 55 posts · 42 votes
    9y

    great post! Look forward to the updates.  I'm always interested in alternative energy and it's great to see how you are using it to help with reducing cost, increase value and use less energy overall.  

  • Investor · Yarmouth, ME · Member since 2016 · 54 posts · 35 votes
    9y

    @Darwin Crawford, good luck with the project. I've toyed around with the idea of finding a good solar producing building here and putting as much PV on it as I can and then using the excess to bring down electricity costs on other buildings that I own. I need to find a good way to run the numbers on that though to see if it's really actually worth it. I have PV on my own house and love it, but making the business call on it is a bit harder.

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    9y

    @Audrey Ezeh - I've had good luck with Pioneer brand, you can source from amazon or highseer dot com.  Since the suites in this building are basically 1 big room, I don't account for anything.  I just put them in.  For BTU's, I'd go a little bigger since its a studio, probably a 18k BTU unit just to be safe.  Mitsubishi makes the best ones, but they are pricey. 

    @Kalyanii K. - thank you I appreciate the kind words, I'll keep posting updates as I have them. 

    @Andrew Magoun - yes, its a tough call sometimes.  I think you are going to have to do some homework based on where you are.  AZ has great solar profile for most of the year, not sure on Maine.  But the idea of guaranteed output from a renewable source versus whatevertheF the utilities feel like charging in the future sat well with me. 

  • Real Estate Investor · Las Cruces, NM · Member since 2016 · 186 posts · 173 votes
    9y
    Originally posted by @Darwin Crawford:

    @Audrey Ezeh - I've had good luck with Pioneer brand, you can source from amazon or highseer dot com.  Since the suites in this building are basically 1 big room, I don't account for anything.  I just put them in.  For BTU's, I'd go a little bigger since its a studio, probably a 18k BTU unit just to be safe.  Mitsubishi makes the best ones, but they are pricey. 

    @Kalyanii K. - thank you I appreciate the kind words, I'll keep posting updates as I have them. 

    @Andrew Magoun - yes, its a tough call sometimes.  I think you are going to have to do some homework based on where you are.  AZ has great solar profile for most of the year, not sure on Maine.  But the idea of guaranteed output from a renewable source versus whatevertheF the utilities feel like charging in the future sat well with me.

    Thanks much! I appreciate it!

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Your pay back on the 32K is just shy of 5.5 years, that is a very long pay back period regardless of intended hold. 

    Did you calculate the cost and effect of installing separate meters to each unit and having tenants pay directly. Considering you may have to lower rents to accomplish change over what would your monthly savings look like and what would be the cost to convert to separate meters.

    When you look at it long term, considering all equipment necessary with your plan there will be life expectancy and upkeep costs that will add to your initial $32K investment. Switching to separate meters would have no ongoing maintenance costs for you. 

    Eco-Capitalism is rarely a financially prudent decision.

  • Real Estate Investor · Las Cruces, NM · Member since 2016 · 186 posts · 173 votes
    9y

    High seer dot com! I can get 18kbtu for the price of 12k I'm seeing everywhere else! You are the man!

  • Royal Oak, MI · Member since 2015 · 257 posts · 230 votes
    9y

    @Thomas S. 5.5 years is in no way a long period for a project like this. I know you seem to think everything you put into a property should raise the rent so the ROI is positive after two years, but let's face it; that's a joke. Especially when people are more and more migrating to being energy conscious. Honestly I haven't figured you out. Most of the time I think you give great information, and other times I find myself almost asking to see what kind of rentals you provide because I couldn't see myself ever doing the same thing.

    There is a value that goes beyond money that some people (mostly older) won't see. I do, and I think it was a great move. Not to mention it will be appreciated by your tenants come time to lease again at hopefully a higher rate.

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    9y

    @Thomas S. - appreciate the input.  Couple of things on your questions, I'll try and address them.  

    Individual meters will take a lot of money and re-wiring of the building due to HVAC layout, and the fact that the property was ripped up and remodeled a dozen times since being built in the 70's.  That would be passing the buck, rather than solving the problem.  

    My ROI is helped a lot by the fact that I was able to do this whole project with bank money, rather than anything out of my own pocket. By the time the refinance cleared, I was able to lower the interest rate some, and its basically a net-net on the monthly cashflow for the capital outlay. So the tenants keep paying my mortgage (went up by about $40), and I reap the rewards on the cash-flow. Makes my "payback timeline" a little better, no?

    Part of this project is, like I said earlier, for personal/moral reasons.  I am not a slumlord (not implying you are either for the record), I pride myself on having nice properties with good finishes, and I've been rewarded for that with good tenants and almost no vacancy.  Also, we owe it to the future residents of this planet to be somewhat conscious of resource consumption.  This project is my (albeit small) contribution, and if this post (and subsequent documentation) can help someone do the same, then I've left the world a little cleaner than I found it.  Makes me sleep better at night.  

    However, I agree with you, to each their own and every property is different.  

    @Shaun C. - appreciate the support, and I agree that the younger tenants are very conscious of energy efficient buildings, and are willing to pay a premium for them. 

  • Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes
    9y
    Originally posted by @Thomas S.:

    Your pay back on the 32K is just shy of 5.5 years, that is a very long pay back period regardless of intended hold. 

    5.5 years is well within bounds of a solid investment.

  • Royal Oak, MI · Member since 2015 · 257 posts · 230 votes
    9y

    $483.60 savings per month x 12 months = $5803.20 per year saved

    $5803.20 per year divided by $32k = 18% without interest factored in. 

    Looks good to me AND you get feel good about yourself. 


    Originally posted by @Seth Borman:

    Originally posted by @Thomas S.:

    Your pay back on the 32K is just shy of 5.5 years, that is a very long pay back period regardless of intended hold. 

    5.5 years is well within bounds of a solid investment.

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    My read is that you are probably more inclined to the eco advantage rather than bottom line although the numbers for your market may work.

    Your ace in the hole is in passing the cost along to the eco tree huggers (not sure that applies to commercial rentals).

    I do take pride in maintaining high quality rentals but do admit that all my decisions are based solely on the bottom line.  I have yet to see a Environmental minded  improvement that wasn't either initially cost prohibitive or the pay back time line was unrealistic.

    I am a senior citizen and although I accept climate change is real and the cause is obvious I am not deluded into thinking a band aid on the symptoms is of any value. When world governments address the root cause instead of placating the masses with band aid solutions I will consider change but I know that will never happen in my remain time.

    Regardless you seem to have a good handle on your finances and should keep on track.

  • Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes
    9y

    Good for you, @Darwin Crawford!

    The return looks really good. I personally don't understand why EVERY house in Arizona doesn't have solar PV and solar hot water.

  • James MaraditsPro Member
    Real Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
    9y

    Good read.  I'll be following along to see how it works out for you.

    Some things are more important than the numbers.  Great cashflow numbers on an inefficient, outdated property with deferred maintenance with unhappy tenants may not really be so great when compared to more modest cashflow numbers on a low maintenance property with happy long term tenants.

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    @James Maradits 

    "modest cash flow numbers on a low maintenance property"

    Low maintenance properties should have high cash flow not the reverse. All my properties are low maintenance due to my pro active approach to preventative maintenance and all have high cash flow as a result.

    My tenants are all very happy without eco bells and whistles that they are smart enough to know would drive up their rents. When it comes to conserving energy I leave that responsibility to my tenants. 

    Darwin however has a commercial property with utility issues that are a much different animal that residential housing. Day and night difference.

  • James MaraditsPro Member
    Real Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
    9y

    @Thomas S.

    I think you're missing the intent of my comment.  Perhaps I should have used different wording to be more clear.

    The point I'm trying to make is that the cashflow will be lower on paper due to the debt service on the $32k in improvements, but in reality when you factor in the potential for less maintenance and turnover expenses due to the improvements (not to mention the long term utility savings) it may prove to be a better long term hold for Darwin.

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    9y

    @Thomas S. - appreciate the kind words, and yes, I know that this project is really only workable from a numbers standpoint because of my very niche home market, as well as the "bank-ability" of the building.  I also know that the landlording business in Canada (assuming that from your picture) is a completely different ballgame than here, as your laws are extremely tenant-friendly.  Obviously that is going to affect your decision-making!  Here in AZ, they are the opposite, and very much "landlord-friendly", doubly so on commercial.  

    @Tanya F. - thank you!  Yes, the numbers work well here in AZ, however we have 2 local utilities, and the one that services more of the downtown areas (which I am a dissatisfied customer of) has a pretty steep rate structure for us small commercial types.  The other utility is a federal reclamation project, and their rates are silly cheap.  However, the hot water thing is a no-brainer, especially since we don't ever have to deal with frozen pipes!  

    @James Maradits - I agree.  I personally will give up some cashflow for a lower maintenance property, its all about how you value your time.  Some folks want every dollar they can get, regardless of time invested, (which is totally fine BTW), others value the freedom of not having to worry about fixing stuff constantly.  To each their own.  

    And yes, the utility issues in this building are somewhat unique, but would be similar to a multi-family, or even a mobile home park.  Because of Arizona's unique climate, there are people popping up who are able to make the utility part of things a profit center.  Many of the tenants here like/need/want fixed expenses, whether they are retirees on fixed income, or a mom-n-pop business that doesn't have the ability to weather the big swings.  So as an owner, you look at the numbers, and decide whether you want to be in the utility business as well.  Its like anything else, a trade-off.  

    There are a LOT of master-metered buildings here, and they are certainly a niche product that takes some learning.  You have to be aggressive about utility management and consumption, as they can get out of hand pretty quick.  On this property, the utilities were over 13.5% of gross rents when the lender owned it.  Roll that around in your head for a bit. 

    On the single-family side, I have an investor buddy who was able to pick up a 3/2 ranch house here in 85251 that had a fairly new solar system installed on the roof, (granted, original purchase price was $60k just for the system!) at a bargain.  The power bill for this house, in the AZ summer, is about $8.  Not a typo.  He is able to rent it out with "utilities included" for about a $300 premium to all other properties in the neighborhood.  

    PV solar has come down a lot in cost since then.  Remember when a DVD player cost a grand?  Same concept.  

  • James MaraditsPro Member
    Real Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
    9y
    Originally posted by :

    @James Maradits - I agree.  I personally will give up some cashflow for a lower maintenance property, its all about how you value your time.  Some folks want every dollar they can get, regardless of time invested, (which is totally fine BTW), others value the freedom of not having to worry about fixing stuff constantly.  To each their own.  

    • Exactly my thoughts!  Best of luck!

    On the single-family side, I have an investor buddy who was able to pick up a 3/2 ranch house here in 85251 that had a fairly new solar system installed on the roof, (granted, original purchase price was $60k just for the system!) at a bargain.  The power bill for this house, in the AZ summer, is about $8.  Not a typo.  He is able to rent it out with "utilities included" for about a $300 premium to all other properties in the neighborhood.  

    • This is awesome!  Prime example of "eco-capitalism" working well
  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    9y

    Update - the first coat of solar white goo is on the roof, and I can place my bare hand on it at 230pm.  Before, I could feel the heat through the soles of my boots!

  • Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
    9y

    @Darwin Crawford I'm not sure if this post was more informative or more entertaining! I'm leaning towards informative; that's an awesome amount of information and IMO a very creative and cost-effective way of reducing your expenses. No one really gets the Arizona heat until they live here that's for sure.

    Interested to see how much this drops your utilities bill!

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    8y

    Quick update boys and girls,

    I swear, I keep forgetting that construction management gives me Tourettes.....I could tell some stories about the local handyman, but I won't waste your morning.  If anyone wants to make money in construction, only 2 rules - answer your phone and show up on time, and you'll whip 95% of the people out there.  

    Anyhow, the block windows are coming along, and the suites that have been completed immediately stopped complaining to me about how hot it was inside.  Big win.  I don't have exact data on them, but the old windows came out like candy glass movie props.  

    Meanwhile on the roof, I'm working on my tan while pulling wire.  Conduit is all in place, and wire whips are pulled for HVAC's.  Sub-panel has been mounted, and I'll be finishing up the panel layout and final checks today.   Projected current draw on each unit is around 4.5A @ 220v.  Won't bore you with the details, but that is less than my better half's hairdryer. 

    Tip for you who are ever on a roof placing conduit - a cinder block, held in place by spray foam and white goo, makes a great solid mounting point for mechanicals without requiring a roof penetration.   

    The Solar hot water heater got taken apart, cleaned within an inch of its life, and re-sealed.  Currently awaiting hoisting to the roof once I can get my idiot gym buddies out of the weight room.  

    The solar coating continues to amaze me.  I coated one of the AC boots and not the other, and the non-coated one is too hot to touch in the afternoons.  The coated one I can put my hand on.  

    Last month's power bill just hit, and even with cooler temps, was over $500.00.  Writing that check just motivated me more to get this all done.  

  • Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes
    8y

    Darwin, flyover question for you. How many roofs in AZ do you think already have the white solar coating? It seems like that should really catch on there.  Are people at least going for that in larger numbers?

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    8y

    @Tanya F. - depends a lot on the area. we have a lot of HOA controlled neighborhoods around scottsdale/phoenix, and not everyone loves the look of a white roof.

    It is much more common in areas where the roof of a building might not be visible from the street - commercial buildings, Mansard-style roofs, and the more modern homes with flat roofs.  

    As you get out in the more rural areas, or those without HOA's, it is more common, as it can be used as a stop-gap for waterproofing.

    But in your everyday neighborhood with hipped roof houses, its easier to put solar panels up than listen to your neighbors whine about the color of the roof.  

  • Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    8y

    @Darwin Crawford Here in NJ you would not be allowed to do your own electric and plumbing work on anything but your own personally occupied SFR. Are you actually able to pull the permits yourself for this commercial property work or do you have a pro covering you with his licence?

  • Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
    8y

    @Johann Jells - in AZ you can do electric/plumbing as an owner, just has to be inspected by city/power company.  I've done a lot of wiring, never had much trouble passing inspection, I tend to build things a little overboard.  the NEC is pretty easy to follow on most projects that aren't 3PH.  

    I do sub out plumbing though, good friend is a licensed plumber.  I pay a little more for it, but warranties are a beautiful thing.  

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