Solar Powered Apartment Buildings / Acres of Diamonds

Solar Powered Apartment Buildings / Acres of Diamonds

I was going door to door selling solar panels last year. I was looking for a hook to make the sale. I started wondering how much coal was being burned each year to power an average home? The answer is roughly 10,000 pounds, or 27 pounds each and every day. If your local power plant burns natural gas, you are burning 316 cubic feet of natural gas per day.  

I am in the apartment business as a few of you might know. I started researching the energy usage in our apartment buildings. Please pardon the pun, but the light bulb went off for me. What if we went solar on a 10 unit apartment building? Multiply the numbers above times 10 units, then by 12 months and you can see how dramatic an effect we could have on the environment by going solar. We could stop burning 82,440 LBS of coal per year, or 515,700 gallons of natural gas. This is enough natural gas to fill over 200 swimming pools a year, and this is just one apartment building. Ask yourself if you think this is sustainable?

FINANCIAL BENEFIT example: We purchase an $850,000 10 unit building. We install solar, and then we increase the rents to reflect the tenant’s old utility bill payments.

1. The increased revenue represents a 33% equity return on our down payment.
2. Our operating income almost doubles, giving us the ability to borrow more in a re-finance. Hypothetically, we could borrow $110,000 with the increased cash flow, replacing 42% of our down payment.  

GREEN BENEFIT: We buy energy (in the form of electricity) from the electric company. Electricity is sold in units of the "kilowatt hour". If you run a 1000 watt (1 kilowatt) appliance for an hour, you have used a kilowatt hour. If you light a 100 watt bulb for 10 hours = a Kilowatt hour. 1.2 LBS coal creates 1 KW, and 75 gallons of natural gas create 1 KW.

Step one:

Go solar: Fill the roof with solar panels.

Step two:

Reduce the electric and gas consumption at our building. We can do three powerful things to reduce demand:

1: Solar Thermal Hot Water Heater: Solar water heating systems can typically reduce natural gas demand by 60% to 70%, and Solar Thermal Panels produce four to five times as much energy as solar photovoltaic panels of equal size. Solar thermal uses the sun’s energy to pre-heat water and transfer it to a hot water storage tank. A buildings conventional water heater then draws out the pre-heated water, and boosts the temperature “only if necessary.” Heating represents 40% of a typical gas power bill.

2: Replace lightbulbs: LED and CFL light bulbs: About 20% of your electric bill is lighting. LED and CFL bulbs draw about 85% less energy than a regular incandescent bulb.

3: Energy Star rated appliances: Changeover to refrigerators with an Energy Star rating that can use less electricity more efficiently.

The Financials:

10 one bedroom units together spend roughly $8,880 per year on electricity/ gas. A Kilowatt hour costs roughly 13 cents in California for tier one. 573 KW x .13 cents = $74.00 per month for our one bedroom unit electric bill, x 10 units x 12 months = $8,880. If we convert to solar, then pay for the utilities ourselves and charge the tenants, AKA: “master meter” the financial aspects are remarkable. If you email me I will send you two spreadsheets showing before and after.

There are two formulas that are important in the apartment business; The Gross Rent Multiplier and arriving at the Net Operating income/ debt coverage ratio.

“GRM” = Gross annual Rental Income multiplied by a factor = an indicator of the value of an apartment building. If we go solar, increase rents to tenants to cover their old utility bills the formula is this: $8,880 x a 9.5 GRM = $83,600 increase in the buildings value.

Net operating Income: This is cash flow after expenses. Generally, a bank will loan you roughly 80% of the “NOI”. In our example: NOI of $8,880 x .80% = $7,104 available for annual loan payment. Figure a 30 year amortization at a 5% interest rate: $7,104 / 12 months = $592 monthly payment @5% = loan amount of $110,278.

There are Acres of Diamonds waiting for us who go GREEN on apartment buildings. The power that drives this machine is the flipping of the utility bill payments from the utility company to the landlord, giving the landlord the ability to allocate the increased cash flow as they see fit.

Enjoy-