If you’re looking for thick, weighty books that take up an impressive amount of room on your bookshelves, look toward the journalist Daniel Yergin. His two main works are The Prize and The Quest. The first one looks at the oil industry from the 1850s to the 1990s, and how the search for petroleum altered the decisions governments made and really set the course for politics in the 20th century. The second one takes a broader look at how energy has been the defining force in global events since the Industrial Revolution.
Not only do you come away from these books with a better understanding of how the world works, they should also give you a better appreciation of what your residential rehab business needs to consider. After all, for countries and families alike, energy is the driving concern. Buying a house for a fix-and-flip project in an area with reduced energy costs is not just a great use of your equity-based hard money loan, it will also help you market it and flip it in a quick and profitable fashion.
The High Costs of Energy
For years we’ve been hearing about the term “peak oil,” which is the idea that we are about to run out of the dinosaur dust that drives the modern world, this driving us into a state of economic disaster. This hasn’t really come to pass and seems less likely with the advent of shale oil and fracking. That said, energy costs are still extremely high and have still been trending upward. As of 2014, energy costs as a percentage of after-tax income were 16% for families with household incomes under $50,000. For those with incomes above $50,000, it still averages around 8%.[1. “Energy Cost Impacts on America’s Families, 2oo1-2014.” American Coalition for Clean Coal Electricity. http://americaspower.org/sites/default/files/Trisko_2014_1.pdf] Now, granted, while these are the most recent stats, they don’t take into account the crash in oil prices of the last 12 months, but this is still a high percentage.
The need for lower energy costs and more efficient delivery has two driving factors: the environmental impulse and the economic one. Luckily, if you are looking to flip a house in the Inland Empire, you can promise both to your potential buyers. The environmental one is easy to explain: solar power equals less waste and pollution. The economic interest is a little more complex.
Inexpensive and Alternative Energy Developments in the Inland Empire
One of the most remarkable developments for developers over the last quarter century has been the plunge in prices for photovoltaic (PV) cells. PV cells are what make solar panels possible. They capture the sun’s energy and transform it into something usable for your home. For years, these have been too expensive to make sense in a scalable economic manner, but suddenly, the prices have been dropping as the underlying technology has gotten more efficient. By 2013, PV cells were economically competitive with non-renewable sources like coal and oil.[2. Romm, Joe, “Must-See Chart: Cost of PV Cells Has Dropped An Amazing 99% Since 1977, Bringing Solar Power To Grid Parity.” October 6, 2013. http://thinkprogress.org/climate/2013/10/06/2717791/cost-pv-cells-solar-power-grid-parity/]
There are very few places in the country where this is more true than in the Inland Empire. Riverside and San Bernardino counties are among the most likely places where alternative solar energy is not just viable, but achievable. Riverside alone has 277 sunny days per year, which is a full 40% higher than the nationwide average.[3. “Riverside, Calfornia: Climate Overview.” http://www.bestplaces.net/climate/city/california/riverside]
Businesses are already taking advantage of this amazing weather. Last year, on the west side of the county, hard near the Nevada border, the Ivanpah solar plant went online. It became the largest solar plant in the world, capable of generating 330 megawatts of electricity per year.[4. Steinberg, Jim, “Inland Empire Leading California’s Solar Power Growth.” January 6, 2014. http://www.sbsun.com/environment-and-nature/20140206/inland-empire-leading-californias-solar-power-growth] It quickly became the second-biggest plant in the world, surpassed by Riverside’s Desert Sun, a 550 megawatt giant that can deliver power to 160,000 homes each year.[5. Roth, Sammy, “World’s Largest Solar Plant Opens in Riverside County.” February 10, 2015. http://www.desertsun.com/story/tech/science/energy/2015/02/09/worlds-largest-solar-plant-opens-riverside-county/23148349/]
This isn’t just exciting for people who like huge projects. This translates into actual savings for people with houses in the area. Right now, Californians are paying over 15 cents per kilowatt hour for electricity, which is one of the highest rates in the country.[6. “The Price of Electricity in Your State.” October 28, 2011. http://www.npr.org/sections/money/2011/10/27/141766341/the-price-of-electricity-in-your-state] In the next couple of decades, the cost of solar will continue to plunge, with the IEA estimating that utility-scale solar power will be as low as 4c/KwH. [7. Parkinson, Giles, “Solar costs heading to 4c/kWh, rooftop solar seen ‘unbeatable.'” September 13, 2014. http://reneweconomy.com.au/2014/solar-costs-heading-4ckwh-rooftop-solar-seen-unbeatable-74425] That translates to huge savings for the homeowner, who, instead of spending 16% of their after-tax income on energy, can expect to see that number drop to between 5-10%. This is not a small selling point when putting your property on the market.
Those aren’t the only developments. We really live in a remarkable time, when human intelligence is augmented by every technological possibility. To that end, the Inland Empire Utilities Agency is taking advantage of solar power to install new, more efficient batteries in its water pumping and recycling stations. This may not seem like a big deal, but don’t forget where we are – California. Even without the drought, costs for water are expected to rise by as much as 40% over the next decade, since one of the huge costs of water is the enormous amount of energy it takes to transport and distribute it. The IEUA thinks that these batteries will lower that cost by at least 14%. [8.”Inland Empire Utilities Agency Takes on ‘Water-Energy Nexus.” November 9, 2015. http://www.prnewswire.com/news-releases/inland-empire-utilities-agency-takes-on-water-energy-nexus-300174222.html] If the rising cost of transporting and heating water can be slowed down, or even lowered, the Inland Empire will have cheaper water than many other places in California, which can be a hugely important selling point.
What Energy Developments Mean for Your Residential Rehab Business
These are the factors that you should be looking at when searching for a property. Less expensive energy, with a focus on renewable energy options, will become increasingly important to buyers. Lowering the costs of water while improving conservation appeals to people’s wallets and their conscience. If you have a house in an area that can offer this, you have a better chance at selling it quickly and with a good profit margin.
Cities like Ontario and San Bernardino are no longer desolate industrial outposts. As the region becomes more integrated and the Inland Empire continues to grow, we will be talking about the LA/OC/Inland Empire nexus as an economic area. More and more people will seek residences in the area. And because of the energy developments, they will be able to do so at a lower cost. This is an amazing place to use a hard money residential rehab loan from Socotra Capital to fix a house and get it ready to be on the new, smarter grid. For fix-and-flip pros in the Inland Empire, the sun is rising.
