A 16.7% Annual Return For 20 Years? Yes Please!
Updated: Nov 15, 2020
I try not to use "Click Bait" titles at TribalFi.com but there is no question that the one for this post has more lure than a fishing tackle shop.
So let me apologise right away, the intent is not to draw readers in with some adrenaline inducing headline to some dressed-up, wolf in sheep's clothing, get rich scheme. We don't do that here. I am however going to have a certain amount of gusto as I evangelize about the latest opportunity I found this week for my readers to accelerate their path to early retirement.
Before we even start (because as you may already be able to tell, I'm pretty excited about this) let me remind you that this post should not be construed as investment advice and you need to do your own due diligence. Just because I talk about, do it or even recommend it is not a guarantee of return or lack of risk. #JustSaying #InvestAtYourOwnRisk
Ok with that out of the way, if you're a regular reader, you'll know one of my favourite places to put my hard earned cash is into social impacting investments that not only help grow my money but also do a little "sumptin sumptin" to help the world be a teeny-weeny bit better. Whilst I'm not a massive spiritualist, I'm not religious and I'm a capitalist at heart, I do believe that if you have the opportunity to add to, rather than subtract from the future of the universe, you should grab that opportunity by both horns.
I also have a long background in the gas guzzling, coal burning, land fracking energy industry and figure I probably owe a little payback for supporting the frivolity of fossil fuel destruction over the last 20 years. To that end, I have a geeky interest in renewable energy and in particular solar energy.
So when I discovered last year that as an armchair investor anywhere in the world, you can get into renting out solar panels and make pretty good returns from it, I jumped in with both feet and as I type I currently have solar panels on roofs across South Africa with a value of around R1,500,000 / $94,000 / £72,000 that will give me an annual return of 11.9% over the next 20 years. That means on average over the next 20 years, we receive around R20,000 / £1,250 / £960 per month in rental income which will give us a total return (including the capital invested) of just shy of R5,000,000 / $312,000 / £240,000 over the full 20 years. Not too shabby, and in my opinion, about the same as I would get from the stock market.
I've written about that whole process before so if you want more of the finer details about getting into the solar panel business, you can read about that here.
The reason I'm writing about it again now is the game just changed, and it changed for the better. The Sun Exchange is probably the market leader in making solar panel ownership available to the man on the street globally. They use good tech and leverage Bitcoin as a way of investing from anywhere and getting your rental paid back to you so you can convert it to your home countries currency (should you choose to) . They also are based in South Africa so if you happen to live here and don't know or don't trust digital cryptocurrency, you can invest using the good old fashioned South African Rand.
The Sun Exchange announced recently that they intended to branch out beyond South Africa with an aspiration to go global. Well Abe Cambridge (CEO) and his crack team of Sun Exchangers have just announced their first non-South African solar opportunity for a fruit and vegetable exporter in Zimbabwe called Nhimbe Fresh. And it's big, really big. 510kw of solar panels (based on a standard 300w panel, that would be 1700 panels, plus it has 1 MWH (1 million watts) of battery power to run the cold storage fridges that keep the produce fresh.
Unless you're a renewables geek like me, you're probably at the "SO WHAT!" stage about now so let me get to the rub. I have invested in 20 different projects with TSE over the last year and the previous highest IRR (rate of return) has been 2 projects at 12.5%, one was a wine farm in Cape Town and the other a shopping mall in Durban. The Nhimbe Fresh project is projecting a 16.71% rate of return over the 20 year lifespan.
Thats a game changer but it's not all, the rental is paid per solar cell and not for energy produced so even if there's no sun in Zimbabwe (which is highly unlikely) the rental stays the same. It's also denominated in US dollar rather than South African Rand to mitigate currency fluctuation and because it has the attached massive battery, the energy can be used 24x7 instead of only when the sun is up.
Win, win, win, win,win!
IRR can be a tricky little metric and shouldn't be confused with APR (annual percentage return), and whilst I'm too stupid to explain it in a way that's understandable, you can Google it if you really want to understand the finer detail, but for the layman; The rental goes up every year due to inflation so you get more money back each year but it means you average 16.71% annually over the life, it's not a flatline return.
Let me explain that in real life numbers:
You can buy as little as 1 cell for R113.00 / £7.06 / £5.40 and the cell will last for 20 years before it needs to be replaced.
In year 1, you will receive around R13.02 / $0.81 / £0.63 which is around 11.5% of your purchase price.
In year 10, you will receive around R24.05 / $1.50 / £1.16 which is around 21% of your purchase price
In year 20, you will receive around R43.07 / $2.69 / £2.07 which is around 38% of your purchase price
Over the full term, you will receive around R517 / $32.31 / £24.85 which is 458% of your purchase price.
Therefore, your profit will be R384 / $24.00 / $18.46 which is an overall profit of 334.2%
334.2% divided by 20 (years) is 16.71%
Importantly, all returns are forecasted as they're linked to currency inflation, energy production and breakdowns etc. but so far, I've found that TSE's math is usually a little conservative and on the whole I expect the forecasts to be achieved or surpassed.
16.7% is a really great return for someone on the path to financial independence and early retirement. I'm hoping to pick up a lot more before the project is sold out but as always, I put my money where my mouth is when I'm recommending something to my readers and at time if writing, I have already purchased R100,457 / $6,280 / £4,800 of Mrs H and I's cash pot and I hope to double that before it sells out. The good thing is that this is just the first TSE project outside of South Africa so I assume is somewhat a blueprint from moving forward, which is super exciting for me.
To really drive home how this is a game changer for me if I can continue to access this kind of return from TSE across enough projects to de-risk it further:
To achieve our requisite R62,000 / $3,875 / £3,000 per month cost of living, I would need to purchase solar panels to the value of R6,163,698 / $385,213 / £296,33.
Think about that for a minute
That would be the next 20 years income, bought and paid for for 2 people and a dog with a pretty good lifestyle and without having to lift a finger. Also, you'd be creating a bunch of jobs and making a positive impact on the planet.
I understand that's a lot of money, I get it. It's a very small number of people who have that kind of investing power. But there is one group who is most likely to and that's the FIRE community of people saving like mad for the freedom of early retirement.
Either way, I'm in, I loved being in the solar business before this and now I love it even more. I simply don't have the post-tax accessible cash to buy my next 20 years income in one go but I'm about 32% of the way there already with the current projects I've been involved with and by reinvesting that income, I think I can probably be there in 2-3 more years.
One thing not to forget if you do decide to get into Solar Cell ownership is this is not really an investment like buying a share or an ETF, it's more like owning a rental property, so all your rental is taxed as income. However, if you happen to be a reader in South Africa, you can claim full tax relief on solar cell purchases in the same year you buy them if you follow SARS section 12b guidelines so it's similar to investing in your pension from a tax aspect.
If this does have you interested in the solar rental game or simply a 16.7% IRR opportunity, I do recommend a visit to The Sun Exchange where they currently have a couple of projects open, one of which is Nhimbe Fresh, the project I've been writing about here.
Until next time, keep living.