Lowering costs and maximizing returns on a real estate investment is integral to the overall success of an investment portfolio. As such, real estate investors are turning to energy efficiency, renewable energy, and water consumption to increase the value and lower utility bills on their investment properties.
Not every property owner or investor has the capital required to self-finance the upfront costs of clean energy projects. If the building owner has poor credit, obtaining funds from a financial institution can be next to impossible.
That's why so many are turning to PACE to finance their projects. The Property Assessed Clean Energy (PACE) initiative offers $0 down long-term financing for clean energy improvements to properties, which can be repaid on the property taxes.
Coda Management Group has compiled a comprehensive guide to PACE funding. If you're considering making upgrades to an investment property, keep reading to find out if PACE is right for you.
What Is PACE?
PACE programs offer long-term private financing for renewable energy and energy efficiency upgrades to residential and commercial properties.
The PACE program is legislated at the state and then municipal level. PACE legislation allows for improvements to buildings to be funded by private capital and repaid through a long-term tax assessment.
Getting a PACE Loan
The process of obtaining PACE funding can be summarized in three steps.
- Framework - A state passes legislation that allows a county, local, or municipal government to establish a PACE program.
- Project - Authorized PACE lenders help business owners choose energy improvement projects that are both economical and in line with each owner's business objectives.
- Financing - PACE programs process applicants, approve projects, and make funds available to building owners. Once funds are distributed, the PACE lender attaches an assessment to the property's tax bill.
Repaying a PACE Loan
PACE loans are repaid on an annual basis as a line item on the property tax bill. The length of the repayment term can be up to 20 years, however, it cannot exceed the life expectancy of the upgrade.
For example, if a PACE-funded project involves the installation of a water heater and the life expectancy of the water heater is 12 years, then the repayment term cannot exceed 12 years.
What You Need to Know About PACE
While there are many successful yet different business models of PACE programs throughout the country, there are a few important keystones that hold true for every PACE program.
- PACE is voluntary for all parties involved.
- Can cover 100% of a project's costs and fees, including labor and project development
- Financing terms of up to 20 years
- May be combined with incentive programs on utility, local and federal levels
- Pace-funded projects are permanently affixed to the property.
- PACE assessment is filed as a lien on the property
What Will PACE Pay For?
PACE funding can be used to finance renewable energy installation, energy efficiency, water conservation, and natural disaster preparedness projects.
PACE covers the following upgrades and more.
- New heating and cooling systems
- Lighting improvements
- Solar panels
- Water pumps
- Fuel cells
Almost any type of property is eligible for PACE-funded projects.
- Multi-family homes
Commercial PACE (C-PACE) has funded nearly 1700 projects totaling $712 million and created over 10,000 jobs. More than two-thirds of the projects funded ranged between $75,000 and $750,000.
Residential PACE (R-PACE) has approved over $5 billion to fund 220,000 home upgrades. 42,000 jobs were created from these projects.
How Is PACE Different?
PACE loans differ from traditional financing options in several important ways.
- Down payments -- No down payment is required.
- Selling the property -- PACE financing is attached to the building instead of the owner. When a property owner obtains PACE financing, the property is used as collateral. If the property is sold before the PACE-funded project is repaid in full, the balance owed remains attached to the property and becomes the responsibility of the new owner.
- Equity Vs. Credit Score -- The amount of PACE financing a property owner qualifies for is determined by the property's equity instead of their credit score. This makes PACE a viable financing option for property owners who want to complete clean energy projects on their property but have poor credit.
Where Is PACE Financing Available?
Legislation that enables PACE is active in 35 states and Washington D.C. There are currently active PACE programs in 20 states and D.C.
To find a PACE program operating in your area, click here.
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