JF2439: Using Green Energy To Increase Cash Flow With Lucas Weismann
Lucas has been a real estate investor since January 2008. In 2017, he got into solar development.
Lucas got interested in green energy for several reasons. First, he uses it to increase the cash flow of the property. Being able to take advantage of the tax credit is also nice, and the accelerated depreciation plan is very beneficial as well. And while ROI varies depending on the area’s energy and labor costs, he believes that green energy can add value to the property and help real estate investors increase their cash flow.
Lucas Weismann Real Estate Background:
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“Find a local mentor group” – Lucas Weismann.
Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today, we’ll be speaking with Lucas Weismann. Lucas, how are you doing today?
Lucas Weismann: I’m doing great.
Theo Hicks: Great. Well, thank you for joining us. We’ve an interesting topic today, we’re going to be talking about green energy, solar energy and how you can use that to increase the value of the cash flow at your properties. But before we get into that, a little bit about Lucas — he’s the president of Blue Mustang Investments with 12 years of real estate investing experience. His portfolio consists of four single-family rentals, as well as a 24-unit apartment. He is based in Denver, Colorado, and his website is https://www.w-consulting-group.com/.
So Lucas, do you mind telling us some more about your background and what you’re focused on today?
Lucas Weismann: Yes, so I’ve been investing in real estate since January 2008, right before the crash. And I have been in solar development since 2017 when I was living out in Bakersfield, California. My schooling was in advertising photography, like boxes of cornflakes and portraits for magazines and that sort of thing. A lot of it was architectural photography. So I’ve had a lot of love for real estate and architecture my whole life, and I’ve been looking for a way to transition to that… And now I get to do that full-time.
Theo Hicks: Great. So we were talking a little bit beforehand about how you kind of use your expertise in green energy in order to increase the cash flow at your property. So can you kind of walk us through maybe how you kind of discovered this in the first place, how you came across this concept?
Lucas Weismann: Sure. I actually discovered how solar works from a friend of mine, [unintelligible [00:02:10].21] who is a solar consultant in California. We met at swing dancing, of all things, in Denver, and he knew that I had some sales experience and wanted me to join. I finally said yes after seven years of traveling around the world teaching swing dancing, and I wanted a place to live that was more permanent. And when I looked into the tax code, I noticed that these guys were focusing on residential real estate, which was great, but that if you were dealing with landlords, they counted as commercial for the purposes of solar, because it’s a commercial endeavor, not because of zoning. And that was the advice of my tax professional. Obviously, anybody looking at tax credits should talk to their CPA and don’t take the advice of a guy they haven’t met on a podcast.
But basically, I looked into it, I started working with some investors and realized that in addition to the tax credit, you could also depreciate the solar immediately in one year, instead of over the normal five years, which is what you would normally do for equipment based improvements if you’re doing cost segregations. Additionally, because of that, you don’t have to do a full cost segregation because of the way that those rules work, so it’s really a nice situation for landlords.
Those tax credits are going to drop down significantly at the end of the year, so the way that I’m focused with Weismann Consulting Group, which is the arm of my business that does the solar – we’re focused in making sure that the solar makes sense for people, whether or not they have a tax liability left, because a lot of landlords have enough deductions that they don’t have that tax appetite.
So the way that we do it is, we either reduce or eliminate the electrical bill. And if it’s a larger property, often there are what are called “demand charges”, where the utility charges you an extra on top of your kilowatt-hour charge, simply so that they have the demand they’re ready for you. If you think about a church, they use a ton of electricity Sunday morning, Wednesday night, so the power company says, “Okay, well, we’re going to treat Tuesday evening as if it might be a Sunday morning service.” And they have to have that ready capacity.
But with solar, we can knock the peaks off of their peak usage down or eliminate it entirely, depending on how much roof space and some other factors. And by offsetting that expense, you’re reducing your operating expenses, and that increases your net operating income.
Theo Hicks: How much does something like this cost compared to how much they reduce their expenses? So in other words, like what’s the typical ROI you tell people if they were to use solar energy on their property? I’m sure it varies drastically depending on where you’re at, but just kind of ballpark.
Lucas Weismann: If You’re talking to somebody in New York, Hawaii, or California, where they have the highest energy prices, your break-even on it is ridiculously fast, even with the higher labor prices you have in those states. I would say that if you’re in Wyoming at six cents a watt, it probably doesn’t make a lot of sense, unless you have that high tax appetite.
So my goal is to try to set somebody up for a four-year break-even if they paid cash. In some cases, they can finance with 100% financing, depending on their banking relationships and if their area has C-PACE or commercial PACE funding; that is way more involved than we need to get into here. But in that case, they would basically be lowering their bill, on average by 20%, and financing with little or no money out of pocket. But I like it to be where, assuming we don’t have to build a parking structure and we’re putting it on the roof, you’re looking at a four-year break-even, paying cash upfront, with none of the tax credits. That’s my goal.
Theo Hicks: Whenever someone reaches out to you or you find a customer, what’s the process you go through to determine what the actual specific break-even is going to be, to make sure that that’s a good fit? What’s that process look like from your end?
Lucas Weismann: So the first thing that I need from them is the address of the property and then their last 12 months of usage and energy costs. And they can send me the last 12 months of energy bills, or in some areas, I can call a hotline, type in the account number for that building and I can get that information.
Once I have the usage and how much they’re paying, I can tell, okay, their energy costs were $24,000 last year, and we need to put on 80 kilowatts of solar; this is the rough numbers for the apartment that I bought back in July. So I was able to look, and at full retail rates, not getting an employee discount or just buying from my first employers that were local mom-and-pop shops, it was going to be about $200,000 of solar. But the tax credit that we qualified for was about $150,000 between the tax credit, the depreciation and local incentives. So for $50,000 out of pocket, we were able to offset $24,000 per year in operating expenses.
Theo Hicks: How do the tax credits work? I know that you said that they’re going to go down, but can you walk us through that process? Is it an immediate thing? Is it just at the end of the year that that’s used? Because you said that you can depreciate it over one year – so it’s just the next year’s taxes, you get that credit back?
Lucas Weismann: So there’s the income tax credit, which is 26%, and then you can also depreciate the contract cost of the solar. So if you’re financing it, you had a choice between the same payments at 10% with zero points or 0% with 10 points. Take the 0% with 10 points, because your tax credit is higher if you need it. So you’ve got your tax credit. You can do an accelerated depreciation schedule if you’re going to hold the property for five more years. Otherwise, just take the straight-line depreciation of 20% per year, and that goes in your next tax return. Does that make sense?
Theo Hicks: That makes sense. And you also mentioned some local stuff, too. So how do I find that? Or is that something that your company does?
Lucas Weismann: That’s part of our consulting process. Our process basically is there’s a pre-consultation where you contact us, let us know you’re interested, send us the address and the usage data, we set up an appointment and we bring a custom solar design using Google Earth and figuring out and give three options for how you can increase your NOI, then you choose which option you like best, and we do it.
So the options we present is usually flat fee consulting, where based on the size we provide a design estimate, vet the contractors, get three quotes, advise which ones to use, and we’ll evaluate and recommend who we think is the best balance of cost and reliability with local contractors.
Or I can work with my contacts at the manufacturers to get the equipment directly from the manufacturers rather than having to have two more tiers of supply chain that increases the price. And that’s good for landlords who have an existing relationship with a local electrician, or they want to do it themselves for whatever reason, and we can just provide the engineering drawings and the supplies. Or we can do the full project management, where we take over the whole process supply the parts, the labor, arrange the permitting, all that kind of stuff. So either one is possible.
Theo Hicks: Okay, Lucas, what is your best real estate investing advice ever?
Lucas Weismann: Find a local mentor group. I live in Colorado, so Investment Club of the Rockies is really good and Invest Success is really good in my area. I’ve done some stuff with Anthony Chara. The apartment mentors in your area – unless you’re really remote, there is probably a REIA, and you will be able to go further faster if you can find people to work with.
Theo Hicks: Okay, Lucas, are you ready for the best ever lightning round?
Lucas Weismann: I am.
Theo Hicks: Okay. First, a quick word from our sponsor.
Theo Hicks: Okay, Lucas, what is the best ever book you’ve recently read?
Lucas Weismann: For more advanced people already in the real estate game, I would actually sayThe Miracle Morning; that has had the biggest impact on my life.
Theo Hicks: If your business were to collapse today, what would you do next?
Lucas Weismann: I would take my sales skills and go raise capital to start another business.
Theo Hicks: I’m going to change this one up just a little bit, because I’m just curious to see what the answer is. So what is the most amount of money that you’ve saved someone – it can be like an absolute number, or maybe like a break-even point – by implementing a solar panel project?
Lucas Weismann: Well, that’s a good question. I believe it was about $250,000 a year. I’d have to look at the numbers exactly, to be sure.
Theo Hicks: What’s the best ever way you like to give back?
Lucas Weismann: I’m pretty involved with a local music and dance education charity called Community Minded Dance. So I’ve taught and arranged dance fundraisers and that sort of thing for them since 2009.
Theo Hicks: Do you have any stories of where the solar panel project was supposed to reduce the expenses by a certain amount or have a certain break-even point, but something didn’t go according to plan and it wasn’t a good deal or wasn’t a good project, a good fit after it was actually already implemented, or do you not have any stories like that?
Lucas Weismann: Yes, I have one, but it had less to do with the solar itself and more to do with change orders. If you know what you want and you get what you’re going, it’s pretty plug and play. We did have a client that was in the construction business, and for his construction yard he wanted the parking covering which adds $1,000 per kilowatt installed of steel, because you’ve got to build the parking structure as well.
And when we went there, we took the measurements, we got them improved, we ordered the steel, we put it in, he decided it wasn’t high enough. The steel company said, “Well, we did what we were supposed to.” Nobody wanted to take responsibility. We kind of ended up having to eat the cost of that to get him two more feet, because he decided he wanted more clearance for taller trucks that he had decided to buy. So that’s the worst that it’s been.
The solar itself is pretty break-even. I have had some issues with one of the funders that I used back in 2017 and don’t use anymore. They just proved hard to deal with, and I actually stopped dealing with them because I used them to fund the house that my wife and I were living in at the time, and they weren’t easy for me to deal with, while I was helping to get them [unintelligible [00:15:20].01] So I said, “Well, I’m not dealing with them anymore.”
But as for the solar itself, as long as we get the right data, it’s pretty plug and play, and it’s a lot more simple than most other projects.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Lucas Weismann: The best ever place to reach me – do you advise against giving out cell phone numbers?
Theo Hicks: No, people give out there phnone numbers all the time. Go ahead.
Lucas Weismann: Okay, the best number to reach me at is area code 720-281-9155. And they should send a text.
Theo Hicks: And when they want to learn more about solar energy and the benefits and the tax credits and the reduction in electric bill, where can they go to learn more about that? Can you give them your website, or any resources that you recommend?
Lucas Weismann: A lot of the things that pose as resources really are just sales pitches online. If somebody wants to learn more, I’m happy to take the time to give them an overview of how it works. So the best way to do it is just text me, and based on what their questions are, I can point them to specific resources, because there’s a lot of information out there and it’s not always easy to wade through.
Theo Hicks: Make sense. Well, Lucas, thank you so much for joining us today and talking to us about solar energy – the benefits of solar energy when it comes from a tax perspective, but also your focus, which is more on the reduction or ultimately elimination of the electric bill, with the taxes just being kind of the cherry on top. And so you talked about where this works – it’s better in places where the energy is actually expensive, because you get the faster ROI, whereas you gave a good example, Wyoming, might not have the fastest break-even point. But the goal is four year ROI, assuming that all cash was paid; it’ll lower your energy bill by 20% to 25%.
We talked about the process from your perspective, how you just needed an address and the last 12 months of energy and usage costs and you can go ahead and calculate how much it’ll cost to do the project minus any credits, incentives, reduction in bills and how much it would actually cost you total, and that way you can calculate the ROI. You talked about the three different ways that taxes are impacted – the income tax credit, as well as depreciation – and then your best ever advice, which was to make sure you find a local mentor or at least attend your local REIA group.
So thank you so much again, Lucas, for joining us. A very unique topic. I don’t think we’ve had someone on here talking about it before, at least not recently, so I appreciate that.
Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.
Lucas Weismann: Thank you very much.
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