Thinking Smart: Prepare Before Disaster

It was 18 degrees when I went to sleep last night. Luckily, I was sleeping inside, so the temperature was only a brisk 35. The wind storm we had caused a power outage at 2pm. The rapid response from the power company meant that by 6 the power was back on. Yes, that’s sarcasm. And you’ll note that I didn’t include pm there. That’s because the power was not restored at my home until 6am.

Normally this would be fine, bundle up in a coat, toss on a bunch of blankets, and you’re good to go. Or, in a really bad situation, like we had, you could go to a hotel for the night. The former is what we did, because the latter was not an option. The issue was we have two children. We ended up driving around until well after midnight, keeping warm with the heat from the car, but as the gas dwindled, and the kids started to get tired, we knew we had to go to bed.

So we all bundled up, cuddled together on my queen sized bed, my wife and I and our two children, and tried to get some sleep.

The thing is, none of this should have been required.

How all of this could have been prevented

I’ve discussed in the past ways for a landlord to earn a profit from solar power, but I’d like to revisit the idea of solar power for a vastly different thing. My furnace is electric. We burn kerosene to keep warm. Simple math there. No electricity, no heat. In the past that wasn’t an issue, because we’d also had a gas stove, which didn’t require electricity to run–only for the auto-start. Grill lighter, and you can start it manually, bundle up in the kitchen, and keep warm.

But now our stove is electric. As is our furnace. So once the power goes out, we have no heat available to us at all.

I propose that a landlord should contract their electrician to install at a minimum enough of a solar array to use as a backup power source for the necessities on a property. Water pump / heater. Furnace. Cooking stove. Now, if they wanted to cut down on electrical costs they could, of course, put this setup in such a way that it pulls solar first, then grid, but as a response to emergency, if you set this up in such a way that it pulls grid first, and only pulls from the battery array after the grid shuts down, you can limit the usage, and always maintain a backup power source for the essentials.

Why do this?

When my power went down, was it my landlords fault? No, it clearly was not. In fact, though I did vehemently insult them, it wasn’t the power company’s fault either. Storms were gusting at 100 mph at times, and I live in a very wooded area. I knew for about 4 hours before it happened that I’d most likely lose power. It happens.

The reason to do this isn’t so much because you have to. It’s more because it’s the right thing to do. If you know your rental will only heat when electricity is available, and you know your rental is in an area where wind, ice storms, heavy snow falls, and frequent car accidents cause power outages multiple times per winter, it just makes sense to do this.

I think my wife said it better than I ever could: “I hate it here. I hate the power outages, but love everything else. I want to move.”

She loves everything about where we live, except the power outages. And that’s enough to make her want to move.

How this can help

If our house had been setup with a system that covered these essentials, not only would my wife have never gotten to the point where she’d had that feeling, but we would be extolling the great practical thinking of our landlord to everyone we know. In an industry like rental properties, a good reputation, and word of mouth advertising, are more important than most. This is one of those circumstances where you do want to be that guy!

Wouldn’t it be expensive?

You’d have to figure that out for yourself, by talking with your electrician, but I know that for myself I priced a system that would cover 110% of my maximum electrical needs and the price on that was only $12,000. How much money is a happy tenant worth to you?

The question here is if the change is worth it. So, let’s do some math. I’ll use the figure I quoted earlier about $12,000 as my baseline. Now, let’s assume that my furnace uses 5% of the electricity, and that my cook stove and refrigerator combined use another 5%. That’s a total of 10%. So, logic would dictate that we would need 10% of the same equipment. Now, let’s figure that there is a premium for going cheaper, like there is in most industries, so that 10% will actually cost 20% of the larger number.

Cost = \$12,000 \times .2 \newline Cost = \$2,400

In this instance, cost is going to be $2,400. Now, lets say that the tenant is paying $600/month in rent. Now, your tenant pays electricity, heating fuel, and it’s a private well. That leaves your expenses at taxes, and maintenance. Let’s say your taxes are $200/year, and you set aside 10% of the rent each month for maintenance.

Margin = (\$600 - \$260) \newline Margin = \$340

Now let’s say the upgrade here will earn you another year out of your tenant. That’s another $3,264. At a price of $2,400 the upgrade will cost you $200/month for the duration of that lease upgrade. According to this math you’re earning $340/month from that tenant. If the option is to allow the tenant to leave without doing the upgrade, or do the upgrade and earn another year from the tenant, the choice is clear. That upgrade is worth:

Upgrade Value = (\$340 - \$200) \times 12 \newline Upgrade Value = \$140 \times 12 \newline Upgrade Value = \$1,680

The upgrade in question will not only pay for itself, but it’ll nearly pay for itself twice over!

Now, I’m not saying these figures are 100% accurate, and you would have to do the math for yourself about whatever upgrade you’re considering, but given these formulas, you can take a more analytical approach, and a less emotional approach.

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.
-Warren Buffett

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s