An energy cost comparison

The below cost comparison is between the cost of heating with a propane furnace (standard 80% efficient) and an electric heat pump. An electric heat pump is a heat exchange device, where mechanical energy (in the form of an electric motor) is used to compress a fluid, and when decompressed, the fluid creates a difference of heat between two separate spaces. For heating, the hot side of the exchanger is inside the house, and the cold side is outside of the house. No net heat is created as a result except for the power consumed to facilitate this process. What happens is the inside becomes warmer by a given number of BTUs and the outside becomes colder by the same number of BTUs. 1000 Watts of electric power input to the motor can add 2500 watts of heat to the inside by removing 2500 watts of heat from the outside. The 1000 watts from the motor contributes to the heat of the outside because that is where the motor is located.

The ratio of the 2500 watts gained to the 1000 watts consumed is referred to the coefficient of performance (CoP). In this case the Cop is 2.5.  In reality this number is between 2 and 3.5. In our example we will use a CoP of 3.0.

Propane is currently $2.75 a gallon. A gallon has 92000 BTUs of energy. An December example usage of 9,000,000 BTUs consumed at the gas line (7,200,000 heated the house based on 80% efficiency) would cost $269.02. Propane and Gasoline are both expensive, but portable. A heat pump with a CoP of 3.0 would cost $70.32. Still more expensive than natural gas, but a good option. In freezing weather, the CoP of heat pumps goes down fast. In cold weather natural gas wins by a greater margin.

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Rent subsidies, section 8 housing

There are several different rent subsidy programs, the most common of which is section 8 housing through the HUD. These programs are vouchers which low income households can qualify for and use to pay for part/most of their rent. It is interesting to note that these vouchers ultimately wind up as paid rent and in the landlord’s pockets. Another effect is that these vouchers raise the demand for lower income housing for a given locality. A voucher program drives up the rent on houses at and near the bottom of the market. It is also a contributor towards establishing a steady rent floor. A rent floor is the bottom of the local market where a bunch of close houses exist at a price. In an example area, it’s $900/month for a single family house. These are the houses that are pushed up by the voucher program. A much nicer house can be had for $1200/mo. It also works out, that based on income qualifications, it is hard to get into a house greater than $1100 on the voucher program. The rent ceiling in this area is at $1250 right now.

The lesson behind this: Research the local market if you plan on being either a tenant or landlord and find out how to best take advantage of economic trends dealing with rent floors and rent ceilings, and the spread between the two.

Property Management Tips

For those who have rental properties and either have property management or are looking to get property management, here are some tips to maintain a successful arrangement between yourself and the management company.

  • A property manager will write a contact that is weighted in their favor.  Until you sign, all terms are negotiable, if you don’t like something, ask.  Its no different than shopping around for anything else.
  • 10% of rents collected is the standard fee.  The range is typically 8-12% for residential properties.  There may be other fees for advertising, inspections, and lease renewals.
  • A property manager should be expected to earn their fee.  The pros can up-sell the rent of a house and recover much of their fees that way.  Market rates operate in band.  A manager that can capture rents towards the upper limit of the market rate is worth keeping
  • Just as rent is due to the manager, typically by the 5th, you should expect your payment on time every months if the tenants pay on time.  No exceptions on this one.  Timely payment is a must and allows for business to be closed out on a monthly basis.  A good manager will operate like clockwork and issue owner checks approximately two weeks after rents is collected.  This allows for checks to clear and any housing subsidy payments to process.
  • A response to your questions should be filled within 1 working day.  Even if the question requires research, there should be acknowledgement on their part.
  • The manager should not charge low rents in order to fill a property quickly, realizing that since their cut is 10%, the difference in $100/mo in not much to them.  That difference is significant to you, the owner.
  • The manager should not be succeeding more than you are.  If this is the case, adjustment is needed.  Selling the property or terminating the agreement are options here.  As would renegotiating the contract.  The owner bears much more risk than the manager and should be rewarded as such.

How a monthly mortgage works

Most people are now stuck with getting fixed rate mortgages with terms up to 30 years. The time of adjustable rate and other specialized home loan products is over. Today, FPO answers the question of what determines your monthly house payment. The first factor is your home loan amount. This amount will be some percentage of what you bought your house for, depending on how much money was paid down. A standard situation may look like this: A house was purchased for $125,000. The loan company required 20% of the house value to be paid immediately in the form of a down payment. This results in a loan amount of $100,000. With a term of 30 years, this amount will be paid at the end of the term as long as all payments are on time and there are no other changes to the loan. The loan contract will have interest on the amount borrowed from the bank, which is the reward for the bank risking it’s money   with you. Presently an interest rate of 3.5% is reasonable (and average). This rate will be compounded daily and payments made on the loan monthly.The monthly payment consists of money that is directed to service the interest on the debt and money that is paid towards the principle of the loan, reducing the amount currently being borrowed. For most all loans in the U.S., this monthly payments remains the same for the life of the loan.  Keep in mind that this does not include taxes, insurance, home owners’ association, or late fees; that’s extra.

Since the payment is the same for each month, the portion of money that is applied to the principle of the loan will subsequently   reduce the portion of the payment that covers interest for the next and each subsequent month. This process of repayment in called amortization.

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