Investing in an Energy Audit

When Terence bought the 12-unit apartment building, it was a wreck. It was an absolute disaster!

The entire place was infested with rats, mold, and trees. Yes, that’s right — trees!

There were two trees that had actually taken root on the first floor and were growing up and out of the broken windows. It looked something like this…

Of course, he picked up the building for a steal. The city was desperate to unload it, and he was even able to land a no-interest loan to rehabilitate the place.

Now, Terence is first and foremost a businessman. He’s made a good life for himself buying dilapidated homes and buildings and turning them into very successful rental properties. But he’s also kind of a do-gooder.

He coaches a little league team, hires “at-risk” teens to help him rehab his properties, and if anyone ever needs a hand with anything, he’s the first person to volunteer.

Terence and I go back about 25 years. We used to work together at an auto re-conditioning center at a repo lot in Baltimore. It was grueling work — especially steam-cleaning car and truck engines in the middle of summer. But it paid well, and both of us were working our way through school.

Over the years, we kept in touch, getting together at least once during the summer months for crabs and beer.

About seven years ago, Terence and I met up at Schultz’s crab house in Essex, MD. It’s our favorite spot for crabs.

Before the steaming hot crustaceans landed on our newspaper-covered table, he showed me a picture of his newest asset. It was that run-down apartment building I just told you about.

I was blown away by the condition of the place, but I wasn’t at all surprised that he picked it up. I knew he would turn that place around and get it rented out in no time. But that afternoon, Terence told me he wanted my help. He wanted to make the entire complex “green.”

Although I had consulted on projects similar to this one before, this particular building was a bit intimidating. And when he told me he couldn’t pay me until after he rented the place out and paid back the loan, I found myself even less enthusiastic.

But the truth is, I knew he would work to make this building great, so I was happy to be a part of the project.

Only If the Money’s Good

When Terence and I first started working on the project, I told him what I’ve told other clients in the past…

The goal is not to turn the building into a “green building.” The goal is to utilize as many “green” technologies as possible in order to provide a solid return on our investment.

In other words, I wouldn’t slap a single solar panel on the roof unless I knew such an investment would result in more than just the feeling of doing right by Mother Nature. He agreed, and we got started.

Now, I’m not going to get into all the details about what we did, but I will tell you this…

It took us about 15 months to get the place ready for business. Today, all 12 units remain full — and the rents he gets are about 10% higher than comparable apartment buildings nearby.

Oh, and we never did put solar on this thing.

A 25% Gain

After a lot of due diligence and cost calculations, we figured out a way to include heat, electricity, and hot water in a rental package that would ultimately MAKE us money. It wasn’t about “going solar,” necessarily (although given the right circumstances, that can work too); it was more about energy management.

Renters were eager to pay a few extra bucks when they realized they didn’t have to pay a utility bill. And Terence, because he took the time to get the most efficient technologies incorporated into that building, now pays less in utility bills than what he brings in from the premium he’s charged his renters.

Don’t get me wrong; it wasn’t easy, and it wasn’t cheap. But in less than eight years, Terence realized a very nice return on his investment.

Of course, things are a bit different today.

Back in 2007, few property owners would’ve ever considered such a thing as energy management. I suspect most would’ve thought it to be a waste of time and money. But today, these kinds of investments are quite common.

In fact, Deloitte Resource recently published a study that confirms more and more folks are now investing in energy management as a core business competency.

Here are some key results from that study:

• 79% of businesses view reducing electricity costs as essential to creating and maintaining a competitive advantage, with 57% reporting that they now have formal energy reduction goals, up from 46% in 2014.
• Companies generally are feeling good about their accomplishments to date, with more than half characterizing their energy management efforts as extremely/very successful compared to 42% in 2014.
• Businesses are allocating a greater percentage of their capital budgets to energy management. 93% say they have invested funds in energy management programs over the last three years. They further indicated these funds represent about 17% of their total capital budgets. This compares to 12% in 2014.
• 55% of businesses say they generate some portion of their electricity supply on-site, up from 44% in 2014.

And the most popular tactics for energy management goals this year include:

• Times and sensors to control when equipment is powered on
• Battery installations to store electricity for usage at times when electricity prices are higher.
• Building energy management systems
• Utility-sponsored demand reduction programs
• Electricity generation installations, like solar power systems
• Energy recovery mechanisms
• Motion occupancy sensors

Terence has had sensors in his building since 2009. Next year, he’ll be installing some battery back-up, and this past summer, he put a green roof on the building similar to this one:

He’s expecting to see at least a 20% reduction in electricity costs related to air conditioning use on the top floor during the summer. Plus, as an extra bonus to his tenants, he’s offering each unit a small plot on which to grow vegetables and flowers.

Although I write quite a bit about the solar space — and for good reason — it’s important to understand that when it comes to this great transition of our energy economy, it’s not limited solely to generation.

Storage, energy intelligence, and basic energy management systems are all being utilized right now by some of the biggest companies on the planet — not because they’re particularly concerned about the environment, but because they provide economic benefits.

The same holds true for your home.

Just as these various technologies and mechanisms can help business owners save and even generate some extra cash, they can do the same for individual homeowners. So here’s my advice if you want to get started…

Get yourself an energy audit. Figure out how much energy you’re currently wasting, take the appropriate steps to eliminate all that waste, and watch how quickly you start saving some serious coin.

It’s not uncommon to see a 10% to 25% cost savings after making some very minor repairs. And with the money you save, you can re-invest it into all kinds of other energy-saving technologies. Whether it’s new windows, high-efficiency LED lighting, or weather stripping, by sleeping on these easy fixes, you’re basically throwing money out the window.

As an investor, you know better than anyone that the more money you have to invest, the more money you can make. So why let that big wad of cash sit on the table in a drafty, poorly insulated house? It makes no sense.

Quite frankly, one of the best investments you can make today is an energy audit, and I highly recommend getting one.

To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.

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