I’ve mentioned briefly in some of my monthly updates about looking for a third rental property this year. I actually have been looking at a few properties each week. There was a property I was interested in two weeks ago but the property received multiple offers on the first day it was listed. Needless to say, I didn’t have a chance on that one. Yes, the market here is really hot. Austin isn’t the fasting growing city in the country for nothing. Technically, this property isn’t in Austin but it’s just twenty minutes outside of the city. It’s still a fast growing area.
So last Friday I found another property I liked and made an offer right away. I actually offered $200 over ask since I knew the housing inventory is low and there are lots of buyers. There were other offers on the property but I found out Monday that my offer was accepted.
The house is fairly new (built in 2002) and has had some recent updates including what looks like a new deck and iron/wood fence in the back and laminate flooring inside. It also has privacy since it’s basically in a cul-de-sac and backs up to a field.
Here’s the numbers:
Single-Family Home (built 2002)
3 beds/ 2 bath
1260 sq ft.
Purchase Price: $136,200
Down Payment: $34,050 (25%)
Interest Rate (4.75%/30-year fixed, but I’m still shopping)
HOA – $0
P&I – $532.86
Property Taxes – $254
Insurance – $68.10 (estimate)
Maintenance/Vacancy Costs (15%):
Free Cash Flow:
ROI (includes 3% closing costs but not maintenance/vacancy):
ROI (includes 3% closing costs plus 15% maintenance/vacancy):
So these numbers aren’t too bad if I can get at least $1300 for rent. The good thing is that the house is practically move-in ready. It needs one move-out cleaning. The previous owner is leaving the washer/dryer plus fridge which are all still in great condition. I don’t see myself having trouble renting this place quickly. I will look to close by the end of March if all goes well including inspection and appraisal.
My plan is still to have half my investments in equities and the other half in real estate. One of my goals this year was to add a third rental. I will be sure and post more updates as they happen.
So most of you know I installed solar panels last year after deciding solar was a good investment. They were finally on the grid by the end of December. So I’m finally able to report some production numbers. Unfortunately, my first bill was pro-rated due to my billing cycle so my first bill was about $12.00. I just received my new bill for my first full month of production and here are the results below.
Here’s what my monitoring system reported:
Since the end of December my system has produced 1.24 MWh or 1,240 KWh of electricity. All of January I produced 810kWh and consumed 1070 kWh (1.07MWh) of electricity. There’s a little bit of interference in the line so these numbers aren’t totally accurate. I’ll have to get the exact numbers on my meter. One of the best things about this monitoring system though is that it’s in real time. I’ve been going through my house and replacing all the high usage light bulbs with LED bulbs. I believe I’ll be able to cut significantly my actual usage over last year. This was also one of my Goals for 2014.
Here’s the actual reading on my digital meter tied to the grid when I checked at the end of January:
847 DE (this means the city DElivered 347 kWh of electricty to me)
631 RE (this means I REturned 631 kWh of electricty back to the city)
216 NET (this one is obvious)
Here’s the actual reading on my digital solar meter:
990 – (this is the total amount of kWh that I produced)
I actually beat my original projections in terms of production but my credits were lower than projected so the value of my energy output was lower than expected.
Here’s my original proposal which I’ll be checking to see how I do this year:
So here’s my understanding of how it works. The electric usage I have while I’m generating solar energy gets returned to the city. If I am producing more than I’m using, the extra energy is also sent to the city but the city buys it from me.
One negative I didn’t know is that the city comes up with the “value of solar” per an algorithm they developed. They actually changed this algorithm to start 2014 so the value they pay per kWh actually went down. Any credits roll over to the next month but reset at the end of the calendar year.
Here’s a look at what the city has paid the last few years:
2014 – 10.7 cents/KWh
2013 – 12.8 cents/KWh
2012 – 12.8 cents/KWh
Based on the current algorithm, this is what they would have paid in the past:
2011 – 12.8 cents/KWh
2010 – 12.6 cents/KWh
2009 – 13.8 cents/KWh
2008 – 16.4 cents/KWh
2007 – 11.8 cents/KWh
2006 – 10.3 cents/KWh
So this is a bummer to know that they can drop your credits from year to year. They are currently the lowest they have been since 2006.
Here’s the current rate structure before additional add-on fees (it’s a tiered system sort of like our tax system):
I just received my new bill which is for the period 01/08-02/06.
Instead of combining my solar bill with my water bill, it’s now a new bill and a new account. The city charges $10 per account. My electric was previously together on the same bill with my water. If it wasn’t for this new account I’d only have a bill of $0.05. I called and the city gave me some bullshit excuse so it’s just basically another way for them to collect money.
Here’s my actual bill:
So it looks like my actual earnings from solar were $84.85 – $10 (account charge) = $74.85.
I’m still not sure how they came up with the Whole House Consumption of 964. I am waiting on a call back about this and I’ll be able to provide more clarity next month.
So this is a little bit of a learning process but I look forward to seeing how the numbers match up with my projections. Overall, I’m still happy with the panels and it’s opened up my eyes to my energy consumption with the monitoring system.
This has been a very long process. I originally started shopping and doing research in August of 2013. I decided that Buying a Solar System Can Be a Good Investment.
So I Made My Decision in September and picked out a system and installer.
I then scheduled a home energy inspection that basically amounted to extra sealant on the HVAC system joints and around all doors so that no light shows through when the door is closed. This was a pre-requisite in order to start the solar process by my utility company. This was done by a third party company referred by my installer and then was inspected by the city.
I then got approval form my HOA and my installer received the necessary permits from the city to start the solar installation.
My install was supposed to start early November but was delayed to a lot of unusual rain we’ve had in central Austin. So my Solar Panels were Finally Installed in late November.
I now had to have the city do a final inspection on both the electrical system and the solar panel installation. This final inspection occured on 12/09 and the electrical system was approved. However, the city determined that 4 of the panels above the chimney were going to receive too much shade! Booh!
So I talked to the installer and had them come back out the next day to move those four panels a little bit higher on the roof. The picture above is prior to the movement of those four panels.
A new final inspection on the solar panels occured on 12/16 when the city approved the project!
I’m now fully approved and just waiting for the city to set me up on the grid, I was told this could take about a week.
I’ll be producing solar power by the end of the year. I’m excited and looking forward to cutting my energy costs.
One of the cool things I also had installed was a monitoring system. I already use HomePlug technology to get internet from upstairs to my downstairs office since my house wasn’t wired with Cat-5 cable. Once the monitoring system was installed at my breaker, I can now view in real-time from anywhere I can get internet acces the amount of energy my house is using.
Here’s a snapshot of what this looks like:
The 3087 W on the right bar changes every second. If I am watching the monitor and flip a light switch on, it will immediately jump up the amount of power I’m using. This probably has something to do with the fact that the speed light travels is almost 300,000,000 meters/second.
I already started going through my house and changing out some of the old bulbs with newer energy efficient ones. Once I’m on the grid, there will be a green line that shows solar produced right next to my usage. I will be able to see if I’m producing more or less than what I’m currently using.
I’ll be sure and post updates and will most likely include a goal for 2014 that relates to my energy usage.
I now have my solar panels installed! This isn’t the greatest picture but I was backed up at the end of my yard trying to get a better view. The good news is I hardly notice them on my house since they are in the back. I have 40-260w panels for a total of 10.4 kW of generating capacity. I also have two inverters on the side of my house that convert the solar power that is DC power into usable AC power. This should more than cover at least half my usage (approx. 60% at current usage levels). The only problem is they aren’t live yet on the grid.
The panels were about a month behind schedule due to a tremendous amount of rain we’ve received in central Texas over the last month. This led to over 4 weeks of delays.
If you read my post back on Sept 7th, posted here, the panels were supposed to be installed by the end of last month. Well they finally finished up last week and a proposal was just sent in to the city for inspection. The city has to come out and do two separate inspections, one for the panels, and one for the electrical system.
So I’m looking at being able to generate solar power by the year’s end. This process took longer than expected but I’ll get to enjoy a lower utility bill for the entire 2014 year.
I’ll be sure and post updates on how my production is going versus the projections I received. I’m also getting a monitoring system installed so I can see from my phone how much power I’m generating at any minute of the day.
If you read my previous article, Buying a Home Solar System Can Be a Good Investment, I was deciding whether or not it made sense to buy a home solar system.
Well after doing a lot of research, calling and checking references, crunching numbers, and getting preliminary approval from the city, I have decided on a system.
A few things this proposal includes that some of the others didn’t:
A 25-year Installation Warranty
Energy Usage Monitoring System
Electric Service Rebuild
Here’s the proposal that I’m going with:
When all is said and done I’ll be out of pocket a little under $12k for a 10.4kW system. This comes out to $1.13 per Watt. Anything close to a $1.00 per watt is a good deal.
I’m also comfortable with the quality of these German made panels. The only concern is that one of their original investors, Bosch, is actually getting out of the business. This company could get bought out in the next year but I believe their chance of insolvency is relatively low. This is my greatest risk because if the company went under and I had a manufacturer’s issue then I would be screwed.
Here’s my estimated system performance:
As you can see, this system is producing over 60% of my usage based on the last 1 year period of my utility bill. There’s a few months that I won’t have a bill, March, April, May and probably June with the credits rolling forward.
Here’s a look at the financial picture projections:
As you can see, the projected tax-free IRR is 16.84 % with a break-even before year 7. That’s awesome but I think they may have overestimated the rates of increase of my utility bill (they used 4% increase each year, see below) just a little. By my calculations, I’m still over 10% tax-free IRR which is still a great return in my book.
I do like the fact that they have added the cost of another inverter (life span is usually 15 years) in these numbers. I’ve listed the fine print at the very bottom of the proposal:
1) “Levelized Value of Solar Energy” is the approximation of the average $/kWh value of energy produced from the quoted system. The system net cost (in the
installation year), plus any O&M costs, is divided by the amount of energy produced by the system over its life-cycle. This calculation is not adjusted for the timevalue of money.
2) “Internal Rate of Return (IRR)” is the rate of return (annual compounded) that the cash ﬂows bring based upon the amount of capital invested upon installation. If
you ﬁnanced your system 100%, IRR does not apply since you did not invest your capital.
3) “tax-free IRR”: Since the yield is based oﬀ of energy cost savings from Solar PV, the investment is inherently tax-free. For comparison purposes, this could be
considered the post-tax return. Returns on other types of investments are often quoted as a pre-tax return. Therefore, in order to do an “apples to apples”
comparison of your solar investment to other investment options, you will have to take into account your tax bracket percentage.
4) “Utility Rate” is the estimated utility price for energy over the next 30 years. The value reﬂects an annual increase of 4.00%.
* Figure represents the total system cost after applying the 30% Fed Tax Credit
✝ Includes an inverter replacement at year 15.
Now I’m waiting for permits from the city and permission from my HOA (I don’t think they can deny it). Then I can start scheduling my install. Once the install is done, the city does another final inspection. The great part is that the installer company guarantees the rebate, so I’m never out of pocket the money that the city will be paying. This whole project should be done by the end of October and will start lowering my utility bill immediately after. I’m pretty excited about this.
I’ve recently began to get some quotes on a solar system for my primary residence. Thanks to local and federal incentives, the price of a PV (photovoltaic) solar system is certainly within reach and can make financial sense.
I’m actually going to make a decision between 4 different quotes next week, the fifth option would be to not get the system.
Here’s a look at a proposal I received:
The grey shaded area is my actual energy usage over the last 12-months. There’s no surprise that the summer months were much higher due to using my AC system more. The good news is that your solar system gets more direct sunlight in the summer so it actually produces more also. The top graph with blue bars is the actual dollar amount of savings I should be receiving from the system. There’s actually a couple of months that I will produce more than I use. If you are looking to make your home as efficient as possible whilst raising the house price, it may be an idea to check this article on Deep Cycle Versus Shallow Cycle Solar Batteries that way you will know the most efficient way for you to save energy.
There is something interesting though that I didn’t know going into this process. Each solar watt produced is actually credited at a higher dollar amount than I’d pay for a watt of energy normally. For instance I might be paying 14cents/watt but get credited for something like 15cents/watt of power. According to the projections, I will have little to no bill at all for February through May.
Here’s the financial breakdown of this system:
Even though the system cost was $30k, I’m only going to be out of pock $10.5k. The break-even is about 7 years.
In order to receive my local rebate, I will have to go through with an energy audit. This can be both good and bad though. I will have to have my AC system sealed to where the air leakage is below 10%, it’s currently above 20% per the energy audit I received when I bought my house last year. I will have to have all doors sealed to where there’s no visible light coming through any cracks. I’ll also have to have my windows checked to see if I need a screen or tint due to getting a lot of sun hitting them.
I’ve actually decided to have this work done already. Even if I didn’t want to go with a solar system, I feel that the return on this work is a no-brainer. I just had the work done and I’m awaiting my utility company to come and verify the work so I receive the rebate. The total cost of this work was about $1k but I’m getting a rebate for this work in the amount of $600 from my local utility company once they verify. So I’m only spending $400 to receive a better insulated house and more efficient AC system. I can tell you that I already feel the difference, the AC system is blowing harder with colder air coming out. This keeps the AC system from coming on as often which saves me money each month.
First, there is a federal incentive to getting a solar system. You can receive a credit of 30% of the cost of your solar system when you file taxes, including the cost of installation. This credit is good until 2016.
This incentive is obviously different depending on where you live. I’m fortunate to live in a city that promotes renewable energy and as such they offer very generous rebates. The City of Austin program will give me a rebate of $1.50 per Watt of power generation. I’m currently looking at a 10KW (10,000 W) system, so I’d get a rebate of $15,000. This incentive has decreased though almost every 6 months due to more people installing solar systems. It could also change at any time.
If I install this solar system, I will immediately start receiving a non-taxable return on my investment.
Rough estimates are looking like I’m going to have to put up $12k after all incentives and received a credit of about $100/mo. This is a ROI of 10%. This is $1200 a year in savings that won’t undergo taxation.
The solar industry is going through a huge consolidation. There have been numerous companies going out of business due to heavy competition especially from China. This creates a problem of not having a company to honor your warranty if something goes wrong. I’m actually comfortable with the panel installation company, it’s the manufacturers that concern me.
Possible additional preparations:
My utility company will again have to come and verify this solar system meets all of their standards in order to release the rebate. The good news is that the installer guarantees the rebate so you never pay that out of pocket. The only cost not covered by the installation company would be for any tree trimming. I have a large tree in the back that causes some shade on my roof and there is a possibility that I will have to get that trimmed. My chimney also causes some shading and there is a chance that my utility company would want to change the layout of the panels.
Overwhelming number of components:
This process is more difficult than buying a house or a car. There’s multiple brands and types of inverters as well as panels. There’s no consumer ratings on these panels, only manufacturer’s warranties. I need to make sure the company will be around to honor their warranty.
Solar VS Dividends:
Let’s compare this to buying dividend paying stocks. I need to receive $1200/year in after tax income. Well my dividends are currently taxed at 15%. This means I only get to keep 85% of my dividend income so I’d actually need $1200/.85 = $1411.76 in total dividend income. Even at a 4% yield , I would need $35,294 worth of stock. This doesn’t count any capital gains but I also don’t plan on selling any DG stocks I purchase.
Solar VS Real Estate:
Now I will attempt to compare this investment with an investment in real estate. This can be a little tricky with all of the write-offs and taxes. These apply to me but could be very different for someone else. I will need to acheive an after-tax ROI of 10%.
Buying a house valued at $160k.
25% in maintenance/repairs/realtor fees for the year.
Down payment of 20%.
Closing costs of 2.5%
Interest rate of 5% (interest rates are higher for investment properties).
Income taxed in a 35% bracket.
Rent of $1500 (this is based on Zillow estimates in my area for houses this size)
.6% yearly insurance
Taxes of 2.75% (this is typical where I’m at)
Down payment of $32k + $4000 in closing costs = $36,000 out of pocket.
This leaves a loan value of $128k @ 5% interest. (This is a P&I of $687.13)
Yearly interest payments total $6,357.11 for the first year which we can write off.
Maintenance costs of 25% x $1400 = $350/mo.
$80/month in insurance costs (.6% x $160k /12)
Taxes of $367
Cash Flows = $1500(rent) – $687.13 (P&I) – $367 (taxes) – $350(maintenance) – $80(insurance) = $95.87/month.
We also have $1888.45/year going to principal the first year.
Yearly profits of $1150.44 + $1888.45 taxed at 35%. This gives you a total of $1975.28, of which only $86.83 goes into your pocket. The rest is equity in your house.
This is only a 5.5% ROI from your initial investment the first year and you had to put down $36k!
I’m likely to move forward on a solar in the next week or two assuming I can get comfortable with one of the panel manufacturers.
In my last update I mentioned getting an additional $100/mo for a total of $1000/mo rent on this condo unit. The unit is above the break-even point with payments of principal higher than the negative cash flow but the negative cash flow still bothers me.
I had been tossing around the idea of a third property. However, I realized that I can now pay off PMI from the FHA loan on my condo unit.
According to FHA, you have to have 78% LTV in order to get rid of PMI. You also have to have 60 months worth of payments. Even if you had 78% LTV then you would still have to wait. Also the value only goes off of the original appraised amount. So even if your property has increased in value then you still have to use the original valuation for the 78% LTV purposes.
The condo had an original appraisal of $119,500. So 78% of this amount is $93,210. About a month ago I decided to start paying down this debt. The loan balance at that time was $106,074.09, so I needed to pay down an additional $12,864.09 to eliminate the PMI which is currently $49.56. This is a ROI of 4.6%. This isn’t too bad and since I still have negative cash flow I decided I would pay this loan down immediately. Not to mention, that after paying this loan balance down, I will have more of the monthly payments going towards principal.
So I am on track to have this balance paid down sometime in September. After PMI is eliminated, I will again start looking at an additional property or possibly paying off this entire loan since it’s the highest interest rate of any I have at 5%. I’ve also go another investment idea that I will be posting very soon.
I previously had posted an update on June 20th about this unit that can be found here. I listed the Condo for $1000 as planned and it stayed on the market for about 1 week. I actually had an offer on it after two days but the first potential tennants didn’t pass the background check. The second offer came about 5 days later.
I’m happy to announce I have two new tennants that signed a one year lease for $1000/mo. This is an increase of $100/month from my previous rent of $900/month. I’m also above the break-even point now with the portion of payments going to equity.
I am currently looking at another potential rental since I believe interest rates will keep rising. I had originally thought about paying off the condo unit first but I am contemplating adding a rental unit #3.
I will keep posting updates as they happen.