All Forum Posts by: Aron Persing

anyone have any thoughts on this?

Anyone have any thoughts on this. Good idea? Bad idea?  Why?

The short. Potential income stream from tenant electricity. Install solar for say .15 kwh. Sell to tenant for market. So cal edision low tier is .26kwh. .09 kwh profit. So if a rental uses 10,000 kwh. Thats a $900 income. Per unit. My math says $500-1000 a year per unit. Have a 4 plex. Could be $2000 a year. Have 10 single family homes. Could be $10,000 a year. What if the the power companies continue to increase rates at 9% a year as they have for the last decade? Seems like it could have some serious income in the future.

The long. For the past decade ive been in the real estate industry, property management, tenant placement, fliping, apartment repositions, real estate software etc. Callithome.com is a site I built. Anyway i recently got into the solar industry. A friend of mine wanted me to join him selling solar and broke down the ins and outs of how it works. From a basic level solar allows people a choice of how much they want to spend on electricity. Similar to picking phone service or tv etc some are cheaper than others. Given I own some rental properties I instantly thought of installing solar on them.

This sent me down a path of discovering pros and cons of solar on investment properties. The biggest con is, solar transfers the properties eletric liability to the property owner. Regardless it you collect a payment for a tenant for electric or not, the solar company will want their money. Ok, so if i accept this liability i would want to make money for this potential risk. The biggest pro is the potential income stream from electric. There is no question about it. You CAN install solar and produce electric for less than the power companies across cali. So solar on a primary residence, in my opinion is a no brainer. So my questions was can I in fact generate income from solar. I started to find a few solar companies installing solar on larger multifamily then billing each tenant for electric directly. (Tenants are going to pay for electric regardless of solar). So the basic concept seems to have merit. When I went to others in my company with this idea. They basically said, yes just charge your tenant a flat rate for eletric. Or just include electric on your rent. BUT the law says that a tenant has the right to know how much they are paying per kwh. AND a property owner can not charge a tenant more than what the power company would charge. So if you charge a tenant 100 for flat rate but their bill would have been 70 from the power company. The tenant could actually bring the law to your door and cause problems. Not real sure what that looks like, but they could.

So it seems like the challenge is the billing of electric to the tenant. So the tenant know how much they are paying. I have found a few software companies that these multifamily operators are using to bill their tenants and spoke with them. The technology is available, but since these software companies make money by the unit. Setting things up for a few houses is not their current focus. Setting up a 100 unit property brings 100 units worth of income.

Assuming I can simplify the billing process. Am I crazy to think i can create income from electric?

Some basics

Ways to install solar

There are 2 ways to install solar. Purchase or a power purchase agreement.

Purchase.

Pro. Can have a cheaper installed price per KwH. You own the system. As low as 1.9% interest rates on loans.

Con. placing your name to extra debt. On the hook if something breaks during its life. Could be a few thousand per repair.

Ppa (power purchase agreement)

Pro. Bumper to bumper warranty. Install company maintains equipment for its life. Some have output guarentee. No debt to your name

Cons. You never own. Can have higher install costs per kwh

General pros

Potential income from tenants eletric. Potential to give tenant discount on power. And leave a profit. Say you show them a 10% savings in power. Potential for this income to grow over the life of the system. As the power companies increase rates. The rate that you can charge tenant increases. Power companies rates have. been increasing at 9% a year in so cal.

General cons.

Not being able to sell all your power produces reduces returns. Potential to have more debt to your name and property. Taking on liability as the solar is billed to property owner not the tenant. If tenant doesn't pay. Solar payment is still due.

Examples.

Single family home with good roof and eletric. Uses. 10,000 kwh. Installed price per kwh .15. Bill tenant .26. .09 per kwh or 900 per year. What if in 5 years increases stay on pace and low tier is .36 from power company. Thats a .21 per kwh income. Or $2100 a year!!

Single family that needs a new roof and/or electrical upgrade (new panel). Between cost of roof/eletric and solar install this increases install price per kwh to .20. Still leaving a .06 per kwh income. Or 600 a year. AND you got a "free" roof/electric panel. ( you could also use this scenario if you'd rather install a solar carport or a solar patio cover to enhance desireability of home)

Potential con scenario.

Single family that produces 10,000 but only sell 8000 as tenant is energy conscious. Install cost per kwh. .15. Or 1500 year. Tenant only buys 8000 but at .26. Or 2080. "Only 580 yearly income. Still income. But not maximized.

Single family that produces 10,000 but only sell 8000 as tenant is energy conscious. Install cost per kwh. Is now .2 since the property required enhancements. Or 2000 year. Tenant only buys 8000 but at .26. Or 2080. "Only 80 yearly income. Still income. But marginal.

4 plex.

Each unit consumes 5000kwh. Or 20,000 kwh total. Install cost at .14 (chaper since its larger single size. Sell to tenant at .26. Thats $2000 a year profit. $500 per unit.

I hope this paints the general pictures. Lots of small details I have played out in my head and could expand upon if need be. Has anyone else had this thought? Am i missing something? Anyone want me to get you exact numbers on your property?

Nathan

Was only seeking to refinance. But everything is for sale for the right price. 

Sean

Thanks for the clarity. You learn something every day. Do you happen to be in the socal area and know of any portfolio lenders to have a chat with?

Jo-Ann

Thanks for the insight. But to my knowledge a portfolio loan would encompass more than 1 parcel, providing 1 loan on multiple properties. Even though I have 3 houses they are all on 1 parcel. Any different insight on portfolio loans that I don't know about or understand?

Nathan

Thanks for looking out. I have seen that comp. It might be a bit old to use now but probably the most similar, with 3 individual houses. Though that property is only like 3300 sq ft and on .3 acres. I have 4300 with .7 acres.      I appreciate you taking the time to dig into things a bit!

Looking for refinance options.  

Last year I came across a unique property that I ended up purchasing. Its considered a triplex however there is 3 single family houses on the lot. In yucaipa California. My wife and i live in one of the houses and rent the other 2. Mix is: 4 bed 2 bath 2 car garage with private yard 1550 sq feet . 2 bed 1 bath 2 car garage with private yard 1000 sq feet and a 4 bed 2 bath 2 car garage with private yard 1800 sq feet all on about .7 acres. Total sq footage is 4350 across all houses. I purchased for 525k with 100k remodel budget target ARV of 750k. All 3 houses were vacant and not really liveable when buying, listed as a cash transaction. Comps when buying were very scarce for anything even close to a comparable. Crazy thing is i was able to buy FHA. Property had broken windows and missing windows (literally there was a sheet of plywood over one window), 1 houses had a huge missing section of shingles, all houses had peeling paint, duct taped linoleum floors, leaks under every sink etc etc. I was hoping to get a list of repairs to make prior to closing and they just said it was good to go. So at that point i felt really good about everything other than comps, but couldnt pass up the deal. In addition the houses are in a higher end single family zone. (North bench) This is grand fathered in as a triplex. Single family houses sell for 500-1.5mil in the surrounding area. I even tried to get the city to do a spot zone change, but i was denied. Appraised values would have been well over a million.

Fast forward to today. All houses have brand new hvac, new water lines to the street, new plumbing to the street, new flooring, new kitchens, interior/exterior paint, new bathrooms, 1 has new roof etc ect etc. Basically all new. I currently have a lease on my front house for $2150 per month and $1550 per month for my middle house. $3700. Covers my mortgage plus some.  Both of which are still lower than they could be. I iust rented my front house and had 82 tracked leads plus other phone calls. I think i should have rented for 2300-2500. But since i have plans to finish the landscaping and the yard is essentially just dirt still, i rented it for a bit lower.  If I were to rent my house, I have no doubt that I could rent it for $2500-2800. Total of $6200-6500 per month total.  Once i finalize things and "stabilize" better it should be close to $7000 gross.  Middle house was rented to a work associate of my wife and we were still doing lots of construction around the property. Market on that unit is 1700-1800.

I started to go down the refinance process and cant find comps that come anywhere close to what my property is. Other triplex properties with in 0-3miles tend to be a single building with a mix of 1 and 2 bedroom. Maybe an occasional 3 bed. And have 1500-2500 sq foot. With very small lots. Based on their sq footage and gross rents properties sell for 200-300 per foot. 400-500k. There are zero 3-4 unirs comps over 600k. In the 0-3 miles range.  I even went so far as to hire an appraiser to see what they could come up with. His value came in at 650k. He was giving 20k price bump between a 1 bed unit and a 4 bedroom house? And the difference of square feet of only $25-30 a foot? He said it was all "standards".  He said he tried to look at it as if a lender hired him. Said he spent 3 hours "banging his head on the keyboard" trying to find something he missed to come back with a higher value. He also wasn't giving a price bump for acreage, one property sat on only 7500 sq feet?  Our property is about 30,000.

The challenge i have, is that if you move this property about 5-8 miles the next town of redlands California 3 and 4 plex units with 60-65k gross yearly rents, sell for 800k.  If i were to move out and just rent my house this property would generate about 74k gross. So to me thats 850-900k in value.  If someone is looking to purchase an investment the cash flow can justify this value. 

So to circle back around, has any experienced anything similar where comps really dont exist but the cash flow from the property is high? What kind of options exist? My goal is to do a cash out refi with a loan balance of 600k. At an 80% ltv that only puts the value at 750k. This will eliminate my PMI and my payment should only go up a little bit. In the end I will still basically live for free and when i move out, that will be straight cash flow. However if i go down a traditional lender route, the appraiser that is hired will come back with give or take the same results based on the sales comparison approach.

Anyone have any thoughts.