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