It’s everywhere: GAS PRICES! ENERGY CRISIS!

However, this blog post is different. Turn on the tube to CNN and hear about how “We’re trying very hard to find a viable source of alternative energy to reduce our dependency on oil.” Personally, you can simply buy an electric car (right now). Those savings can be significant, but they can only go so far for your finances. Besides saving money, consider making money off of $4 per gallon gas. Assuming you don’t own Exxon or BP, here are some ideas:

The Contraction of Real Estate Demand – Sprawl Reversal

In this instance I don’t mean “contraction” in terms entire real estate markets losing value, I mean “contraction” in the sense of density. Before recent gas prices started changing the world, suburban sprawl was rampant in the U.S. The easy to obtain mortgage financing provided by the growth of the housing bubble only multiplied sprawl. In cities across America, middle class people found themselves moving to the outer suburban areas where they could have a 4,000 square foot house with a 3 car garage. They were all sipping lemonade on their huge front porches, admiring their white picket fences, and trading stories about flippers and spec homes just before getting sucker punched by gas prices and their rising Adjustable Rate Mortgage payment.

As the “look I’m rich, I swear!” house of cards finally fell, many middle class Americans are finding themselves in one of two categories:

1. The party’s over – Makes major lifestyle adjustments including less cars, a smaller car, smaller house, shorter commute, and generally lower household spending.
2. I hope this sorts itself out – Holds on to the bitter end, and eventually loses their house to foreclosure and defaults on other consumer loans.

Additionally, consider the trend in many downtown areas of major cities: Lofts and Mixed Use Developments aka Live/Work/Play Communities. These types of properties are growing in popularity.

So, let’s take a quick look at what the law of supply and demand tells us about housing:

Suburban McMansions
Supply is steady + Demand decreases = Price decreases

Central City Neighborhoods
Supply is steady + Demand increases = Price increases

So in terms of an investment strategy, whether you are speculating for appreciation or planning for rental income (or doing a mixture of both), expect suburban areas to falter and continue declining while central city areas are (relatively) flourishing.

Investing in Energy (directly)

Option A – Picking stocks / Investing in potential
Find a publicly traded company who is involved in solar energy. Now cross your fingers and hope they make it.

Option B – Investing in applied technology
Discard the hopes and crossed fingers, and move on to the actual solar panels that are being sold and installed. Find a company that sells and/or installs solar panels on residential and/or commercial property. Offer to buy the equipment for their customers to lease from you. Now their sales pitch to their prospects can be “We’ll install this for FREE, you just pay a lease payment that results in overall savings. The equipment lease payment is a lower amount than your monthly energy bill savings.” The salesman will like this. The property owner will like this. You will profit.

Consider these solar panels from the property owner’s perspective. Many of these installations pay for themselves. In other words, if you buy solar panels that will last for 20 years (many have a 20+ year warranty) and the energy savings will exceed the equipment cost in 8 years… the solar panels pay for themselves in 8 years, and savings will be enjoyed the remaining 12+ years. The great part is that every new trend goes through stages. Our society is currently in the early stages of solar panel acceptance and use, so that savings potential can be profit for you as an investor if you buy the equipment and lease it to the property owner who is unsure about buying it themselves. Of course this only works when you crunch the numbers and find a solar panel distributor/installer whose system price and warranty create a profit/savings margin.

If you had to choose between hope and a plan, which would it be?

In the mid 90s, GM came out with quite a successful electric vehicle (EV), but mysteriously repossessed and destroyed all of them. While there are many theories as to their GM’s motives, perhaps it is more useful to focus on the car companies who are producing efficient, working, zero-emmissions vehicles that require no gasoline, oil, or internal explosions to operate:

Telsa Motors

Elon Musk, cofounder of leading online payment processor Paypal, has spearheaded the development and productions of the Tesla Roadster…

Driving Range: 221 miles
0 – 60 mpg in under 4 seconds
To Speed: 125 mph
Energy cost: $0.02 per mile (about 10 times cheaper than a gasoline car)
Retail Price: $110,000
Full charge: about 3 hours

This isn’t a “we hope to offer it in the future” car. It’s already been produced. Over 600 have been sold or reserved, and there are an additional 400 on the waiting list. The roadster is a car that will hang with Ferraris and other exotic, high performance sports cars.

More importantly, Tesla plans to introduce a $60,000 luxury sedan in 2009, and a $30,000 model soon thereafter.

EV’s Longer car life

If you think $110k or $60k for an electric vehicle is expensive, think again. While the typical lease or loan term for a [internal combustion engine] car is 48 months or less, an EV can expect to have less wear and tear. An electric car has no oil, gasoline, or internal explosions… so the maintenance is extremely predictable: rotate the tires every 10k miles and replace the batteries every 100k miles. With such a simpler, cleaner, and more efficient method of operation, you can expect an electric car to last much longer. This isn’t based on pure speculation. Major production electric vehicles have been running without problems for over a decade. While many car manufacturers suspiciously halted production and repossessed most EVs, there are still many Toyota Rav4 EVs on the road with scarce operational or maintenance problems.

EV ownership vs. ICE vehicle ownership

To compare Tesla’s WhiteStar to its closest competitor, the BMW 5 series…

The Tesla is about 40% cheaper to own and operate. This is based on the assumption that the buyer of the Tesla can feasibly be offered a 120 month lease term because of its cleaner, simpler, longer lasting mechanical operation. Herein lies the…

Investment Opportunity

While most mortgages are originated by large banks and financial institutions, many investors have made out quite well investing in private mortgages. I believe the same opportunity lies in private EV lease financing. You (alone or with a group of investors) can finance the lease for buyers of EVs. Private mortgages often are created and held for loans that large financial institutions don’t want to mess with. A 120 month car lease is probably not going to be offered by large leasing companies any time soon, but such a lease may be feasible with EVs.