All Forum Posts by: Darwin Crawford

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.  

@Thomas S. - yes, Jane's days are numbered, but in the meantime, I'm taking every penny I can from her legally.  At this point, its just sport.  

And being totally honest, as prepared as I am, I'd be fairly nervous negotiating a deal with you.  I get the strong impression you've done this awhile.  

Well, assuming google translator is working, what that title says is "F*ck peace, prepare for war".  My coach also has that tattooed on his side.  What can I say? Marines are simply unique humans.  

I wanted to share this story with you lovely BP members, as a reminder of what can happen in landlording, and why I really, really value preparation.  

**Full Disclosure** - I brought this on myself. No one to blame but me. Accepted, and moving on. 

Enter my tenant.  Let us, for the sake of this story, call her "Jane".   

Jane is roughly 50, a hairdresser, rents one of my commercial suites, and is, at her core, a human being of stunning mediocrity.  She thrives on conflict, is completely selfish, thinks she knows rentals cold (because she rents her old condo out), and is currently, a giant pain in my ***.  Her hair, on any given day, has the color and texture of a superfund cleanup site, and can only be described as "colors that do not occur in nature".  I'll let you fill in the rest of the blanks.  Yes, I inherited her with the building.  Lucky me.  

Now, before you assume that this is one more rant about a terrible tenant, let me assure you.  It kinda is.  It is also a glimpse of my day as a now full time landlord/investor.  But it is hopefully more about the 30,000 foot view of this game, and keeping yourself sharp.  Its how you win, and winning can be profitable.    

I am in the voluntary process of renovating and stabilizing my commercial building.  Running renovations with tenants in place is a god-awful pain in the ***.  I know this, and I knew it going into the fight.  Oh well.  Gotta do something for kicks.  

Long story short, Jane is upset at me for offering (not requiring) her a downsize in her lease, after refusing her request for sub-letting a room out.  The details aren't important, but she is ranting and raving at me about how I'm a greedy pig. 

At this point, I've had enough women in my life, of various capacities, who have gotten upset to not loose my cool.  The hillbilly roots I have are itching for a conflict.  I know I'm right, I know my rights are iron-clad in the eyes of the law, but the fundamental rule of negotiating is that you have to define your win.  And then go for it.  So I don't rise to the bait.  

I want Jane to move her stanky hairdresser equipment so I can rent to a nice CPA who is so serene and predicable that it made Buddha cry sweet tears of jealousy.  I also want Jane to think she has "won" so she will quit bothering me.  All while increasing her rent.  

My last job required me to be able to sit in silence with another human, either on the phone and/or in person.  Try it, tougher than you might think.  But its a cultivated skill, and right now, Jane is crumbling.  You wait them out.  Stare at a spot between their eyebrows, most people can't tell you're not looking them in the eye.  

Getting good at negotiating requires you to put aside your ego (tough for me and a lot of other people), and ask calibrated questions, many of which make me sound like a slobbering moron.  Again, difficult to learn, but after a half-dozen of them, Jane cracks further.  My past sins as the world's worst landlord begin to vanish like a desert mirage.  She is "beating" me down, bit by bit, and convinced that this deal is right for her.  I am "giving in" and "making it work", asking questions that solve her narrow world view of "f*ck everyone else who is not me", and seeing the triumph in her eyes.  

It probably helped that I went over her lease and explained exactly how much money I can legally collect out of her or she can leave.  But maybe it didn't.  

The point to all this is:  conflict and struggle are part of this game.  like any other human being, under stress you fall to your highest level of preparedness.  if you don't have a plan going into a tenant conflict, you are going to follow their plan.  not a great idea.  the best fights are the ones you don't have.  

as of this morning, Jane has decided that she is going to do what I want her to do.  the icing on the cake is that she thinks it was her idea.  now I get another paying tenant in my building, and less (maybe none, but c'mon, its jane) flak from this lumpy terror of a human, and it cost me basically nothing.  

But I came to the fight prepared to win.  

Happy investing.  

 - Darwin

@LaTiya L. Jones - thank you for the kind words, and actually reading all that mess!  It's much appreciated.  The "25% thing" that I am referring to is this: properties cash-flow BETTER with 25% down.  

@Thomas S. nailed it on the head that a property must theoretically cash-flow at 100% financing or you are losing money.  I agree with him.  The dangerous part is that theory doesn't always match the real world, and human beings are inherently flawed.  I am no exception.    

I walked out of a college finance class after asking my professor if he was rich, and he said "no".  Why would I want to learn finance from some broke dude?  Lame.  I never went back.  

What I am advocating, at least for the newbie crowd, is that the down payment on a rental provides a little margin of safety.  Sure, on paper, it works better if you keep your cash in the bank and finance the whole thing, but I have yet to find a way to do that.  I'm sure they're out there, somewhere.  But that is a risky game.  Landlording shouldn't be gambling.  

You can absolutely buy rentals with 3.5% down FHA loans, and you probably should. However, if you don't have the discipline to save up down payments, or otherwise source chunks of cash for deals, you are going to get your butt in a sling at some point down the road. I'd bet my rental portfolio on it.

@Patrick M. - appreciate the feedback.  At this point we don't have little "why's" yet, but are working on it.  Rumor has it they change the game....and you're completely right, the efficiency thing is yesterday's news.  what isn't is execution, where I live anyway.  To me, that is the critical difference.  I really dislike the cheap SOB's in this business, they are the ones who shop at wal-mart, and then complain that all the jobs are gone.  No concept of causation at all.  Not to mention they are wrong....

And yes, completely guilty of taking myself too seriously!

As they say - if more information were the solution, we'd all be billionaires with perfect abs....its what you DO that counts. 

@Thomas S. - you'd have my vote for chairman, or at least pretty darn high on the list. 

@JD Martin - I love the "bad socialist" example!  And I hear you on the lazy shitbirds, I grew up in mississippi, and still manage some commercial property there.  The complete pack of muppets that inhabit that place blows my mind.  You could take all the $ from the rich people there and give it to the muppets, and they'd lose it back to them in 2 years tops.  You couldn't get me to have residential rentals in the deep south again with a gun to my head.  

@Bryan O. - yep, humanity is breeding.  rapidly.  Some might call that "the fun part", but it does create problems.  the question is how do we deal with it?  My home city of Scottsdale/Phoenix is growing like crazy right now, and putting all these needy bipeds somewhere is a full time job.  

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!

@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.  

@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. 

@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. 

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