And Now, Your Feature Presentation

I’ve been gradually building up a summary of the main features that I plan to include in the Little Rental House.  Some of these will go in with the first build; others might be “nice-to-haves” that get added once the home is actually ready for occupancy.

  • Accessible
    • ADA-compliant parking space
    • ADA-compliant bathroom, kitchen, living areas
    • ADA-compliant entrance ramps, etc.
  • Efficient resource use for heating and cooling
    • Walls, ceiling, and floor all insulated to better than R-40.
    • Double (or maybe triple) glazed windows for heat retention.
    • Heated with air-source heat pump to minimize power required.
    • Heat-recovery ventilator to provide fresh air with minimum heat loss.
    • Hot water heating inside heated space (reduces heat loss)
    • Drain water heat recovery unit
  • Minimum water footprint
    • Rainwater collection with filtration and UV sterilization
    • Downcycling of greywater for toilet flushing
  • Minimum power requirements
    • Low-voltage LED lighting used throughout to save power (< 0.25kWh/day)
    • DC refrigerator (< 0.7kWh/day)
    • Direct outlets for DC appliances (24V, 5V USB)
    • Two stage water heating with ultra-insulated storage (30 gal, est. < 0.5kWh/day) plus on demand system for large volume use (AC only)
    • Water pumping using low power, low voltage DC pumps (< 0.1kWh/day including sterilization)
    • Heat recovery from waste water (bathtub, clothes washer, sinks)
  • Grid-flexible solar power generation
    • Battery storage (about 10 kWh) for approximately 6 days including hot water, up to 2 days with constant heating.
    • Online inverter provides whole-house “uninterruptible” power supply

The City of Ithaca and Town of Ithaca are working on a new joint “energy code supplement” to encourage green building.  New construction should get a minimum of 6 “points” in their system.  My rough calculation for the proposed home is 11 points:

  • EE1: air source heat pump = 3 points
  • AI1: smaller building size = 2 points (under 1120 sq ft)
  • AI2: heating system in heated space = 1 point
  • AI5: modest window-to-wall ratio (13%) = 1 point
  • RE1: on-site renewable electric = 3 points (2350 kWh/year / 648 sf > 3.6)
  • OP4: meet NYStred Code-2020 Version 1.0 = 2 points (maybe, complex to evaluate)

Return On Equity – On Becoming a Rentier

Recently I took the time to read Thomas Piketty’s Capital in the Twenty-First Century cover to cover.1  One of the key concepts that it covers is the historical rising and falling of the “rentier” – namely a person who derives some or all of their income from rents on property that they own.  This topic is closely related to what would in modern economic parlance be referred to as “return on equity” (ROE) – in other words, the net income divided by the net investment (which can also be characterized as “assets minus liabilities”.)

One of Piketty’s theses is that ROE must “mean-revert.”  In less obscure terms, he suggests that there is some overall rate of return which is sustainable, and if the rate is higher than this or lower than this, it will eventually have to come back to this average rate.  High rates of return are only possible when there are significant structural changes to society (think “industrial revolution”) where those who start out with great resources will be the greatest beneficiaries, and will do much better than this sustainable rate.  In contrast, when the rates are too high, revolutions occur and those with the most to lose are, in fact, the ones who lose the most, while those with the least to lose are the beneficiaries.  Between these extremes, there is some stable mid-point which doesn’t greatly enrich the few or impoverish the many, and this is where society will eventually return.

Which is all really a long way of introducing the topic of whether building this house is a good idea, in both financial and ethical terms.  Let’s consider some of the relevant factors.

Income: I expect to be able to rent for something around $1300/month.  Single-room rentals near the two colleges are typically going for a lot more than $650, but they have convenience on their side; furnished two-bedroom homes can rent for as much as $1800/mo, but I’m not planning on offering this furnished.  On the other hand, the green features might command a premium with the right renters.  I could also consider trade-offs like charging a higher rent but throwing in utilities (on the assumption that utility bills will be very low) or offering some minimal furnishings (Craiglist, anyone?) but this seemed like a good starting point.

Expenses: I will minimally need to pay the current monthly maintenance fees (about $125) and property taxes (about $225).  Because the house is only legally a 2-bedroom home with a small footprint, the taxes should be considerably lower than for some of the other homes in this community.  There will be added maintenance expenses over time, but hopefully nothing major for the first few years, so I’ll allocate $50/mo for that, plus another $50/mo for homeowners insurance.

Assets: Assuming I’m on budget(ish), the home including the land and various extras such as solar panels, batteries, and water storage/treatment may cost $140k.

Liabilities: I intend to build this home with funds that I otherwise would have invested in more traditional retirement assets.  In other words, my intention is to pay cash and not take out a mortgage or construction loan to build it.  Thus,  no significant liabilities.  Ironically, the way ROE is calculated, this is considered to be to my disadvantage… but I’m much happier (and run a lot lower risks) living a debt free life.

Thus, estimated ROE is ($1300-$450)x12/($140000-$0) = 7.2% per annum.

Now, where else am I likely to find 7.2% ROE?  Mostly in things that are fairly high risk – corporate junk bonds, sovereign debt of nations in dubious straits, or real estate investment trusts.  One difference here, of course, is that I’m looking at something where I own the capital itself.  If I decide there’s another, better option, I could certainly consider selling the house instead of renting it, and get back my principal – with the possibility of additional appreciation on principal as well.  But the reality is that over my main portfolio of investments (mostly in retirement accounts), I’m only earning about 2.75% right now, because of a lot of relatively conservative and principled investments.  (Funds like LOWC, a low-carbon ETF, or ORG, an organics ETF do not return a high dividend; I do own a few stocks like PEGI, a renewable energy company, which has a >6% yield, but these are high risk and not something I want to invest $140k in.)

This was the argument I made to my financial advisor regarding the investment, and she pretty much concurred that it was a sound way to diversify.  Plus, if the economy falls apart and I lose my job or my retirement investments, the hope is that at least I’ll still have a valuable asset that I could either get income from or sell.

But is it ethical to be a rentier?  Well, I’m not really sure how to evaluate that.  I do know that the Ithaca area seems to have a continual shortage of housing, which I’ll be helping in my small way.  Furthermore, at least a few of the landlords have been reported in the news as rather unscrupulous – apartments with no heat in the winter and such things – and I certainly intend to do better by my renters than that!  What I hope to offer is something that is fair value for the area we live in, with a number of amenities that show people how to live a good life with a smaller ecological footprint.  And while I expect to make money doing this, I will certainly have put a lot of labor into making it happen.  I feel okay about this, and hopefully you, my dear reader, will not rise up in revolt against me for owning a rental property!

  1. Okay, I’ll admit I only skimmed the endnotes.  What happened to footnotes, people?  If the notes are on the same page, I’ll pretty much always read them.  If I have to keep two bookmarks just to find the corresponding endnote… less so.

Do Over: Floor, Mark 2

Since part of my goal is to document the process of construction, it’s time to declare my first major oops.  Maybe this will save someone else from doing something pointless and wasting time and money.  Sigh.

I am not happy with my floor implementation.  It feels solid and well insulated, but there are numerous issues with it that have led me to decide to start over.  In the end I expect I’ll waste about $600 and maybe a week worth of labor, but I think the end result will be better.

First, I wanted to nominate Terry S. for the “you called it” award on water.  Even with one layer of house wrap, fully taped, and not one but two 30×30′ tarps tented up and covering the floor, it is still basically raining inside every time the weather turns warm or launches into a downpour that melts the snow.  While I’ve had builders assure me that the water will just run through, and it will dry out, and it will all be fine, I’m not certain enough to trust putting the rest of the house on it without checking.  And checking means starting to peel up the subfloor so I can look inside, and once I start that if it looks bad, I’m going to need to redo things anyway.

But that by itself could just be a bit of maintenance in the spring.  No, there are a lot of other problems that have combined to make we want to start over on the flooring.

  • Elevation: because of the additional 6″ of height added by the flooring (which would of course have been there with SIPs as well) making the home accessible is turning out to be a lot more difficult that I would have liked.
  • Structural: the bottom inlet nailers for the wall SIPs would have been mounted to the floor stack, which itself is not really a tested structural element.  (SIPs would have been better, but not ideal.)
  • Levelness: in my rush to get the floor in place before the winter, I didn’t do a great job of shimming around the I-beams to bring the rim joist level up to the I-beam level.
  • Mechanicals: with the insulation sandwiched between the two layers, any mechanicals (plumbing and electric) going through to the basement would have to be cut through both layers of board plus insulation.
  • Water damage: may or may not have occurred.

So, I’ve come up with a new plan, and by choosing to go forward despite the possibility that the current floor is “sound” (with respect to the water – all the other issues would still stand), I have the opportunity to implement a good fraction of it (the first three steps) from inside the basement during the winter, so there will be less of a scramble to do the added work when spring comes.

  1. Cut 2×8 joists to fit between (and perpendicular to) the I-beams.  Notch these at each to a depth closely matched to the flange thickness of the I-beam, so that when assembled the top of the joist and I-beam will be flush.  (This addresses the elevation issue: subfloor will eventually sit 6″ lower.)
  2. Remove screws from bottom of current assembly.
  3. Insulate rim joists.  (May need to wait depending on other steps.)
  4. Strip off and stack the subfloor boards.  (If the subfloor was water damaged, then it would have needed to be replaced anyway, but if it’s OK I hope to be able to reuse it since I’ll be screwing back down to identically aligned joists.)
  5. Pull out and stack the rockwool for reuse.
  6. Strip off the 2×6 and 2×4 joists and the PIR.  (We’ll have to see what order of operations works best for this.)  Stack PIR for reuse.
  7. Strip off and stack the PT plywood.  (Need to determine if it can be reused elsewhere in the project; otherwise perhaps it will show up on Craigslist.)
  8. Correct the shims on the rim joists to as near flush with I-beams as practical.  (This addresses the levelness issue.)
  9. Finish mounting east and west joists with joist hangars from rim joists.
  10. Reinstall subfloor.
  11. Put off reinstalling insulation until after mechanical work is done.  (This addresses mechanicals issue.)
  12. Install inlet nailers with structural screws to rim joists.  (This addresses structural issue, and is the first step of the work I would have started in the spring anyway.)

It seems like a lot of steps, but it feels like I should be able to do most of them in less than a day.  So far I’ve completed the first eight of the 7′ joists and eight of the 4′ joists, and about 20% of the screw removal.  While I was at it, I also restacked some of the stored lumber in the basement so that it’s not directly under the drip edges.  The time spent has been about 3 hours so far.

Sorry, no photos yet but maybe I can add one retroactively.