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Why Smart Investors are Going Green

by Jim Simcoe on March 5, 2010 · 6 comments

  
green real estate investing

I am a tree-hugging capitalist.

If you’re a real estate investor, you should be as well.  Going green is the single greatest advantage for any real estate investor in any real estate market. 

Why?

Four main reasons:

Bigger Pockets- Put simply, green properties sell (or rent) faster and for more money.  Green properties cost less to operate (usually 30-60% less) and are more valuable.  In fact, they appraise average of 10-15% higher than a comparable home according to a study done by SmartMoney in 2008.

Higher Demand- The demand for green properties (SFR, rentals, commercial, multi-family, etc) continues to skyrocket.  As consumers become more educated about green living they are more frequently demanding green elements. ‘Green’ used to be only for the tree-huggers. Now it’s for anyone who wants lower utility bills and a healthier, more comfortable place to live or work.  The fact that ‘green’ is en vogue right now is a bonus.

Limited Supply- Green homes continue to account for a very small piece of the residential marketplace.  Even with builders and rehabbers hopping on the green bandwagon, supply is far less than current demand. It will be several years before this ratio starts to even out.

Free Cash!- Right now there are literally billions of dollars available to real estate investors to either build or rehab green. Money is available through a variety of rebates, incentives, tax credits, etc for all levels of green property upgrades.  From $2 lightbulb rebates to $250,000 subsidies for green building, the incentives are there.  A great place to find them is the Database of State Incentives for Renewables and Efficiency.

In this current economic climate it pays to be a tree-hugging-capitalist-real-estate-investor. You make more money, get your expenses subsidized, create healthier, high performance properties, have little competition, tons of demand and protect the planet in the process. Going green is a no-brainer because right now it’s an opportunity and an advantage.  Soon it will be regulated and required everywhere.  The question isn’t whether to pursue green; it’s when.

And the answer to that for savvy real estate investors is right now.

Photo: earcos

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{ 6 comments… read them below or add one }

John March 5, 2010 at 11:18 pm

yes, thats true! but this is leading towards destructing our farming land on earths…sad :(

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Erik March 7, 2010 at 9:18 pm

@ John, there’s no need to destroy farmland to make houses green. For one thing energy efficiency is relatively cheap. It hardly costs more for an Energy Star appliance than for a non-Energy Star appliance, and there’s often a tax credit available to cover the difference.

I’m not sure what the farmland comment is referring to except sprawl or maybe electrical generation. Sprawl is its own problem but I for one got tried of commuting and downgraded my expectations/needs so I could live closer to work. As for electrical generation, there a growing global trend is toward Feed-In Tariffs (FIT), which are basically a long-term contracts between a utility and an electricity generator at a contracted price. This is the step beyond Net-Metering. In Net Metering if you have solar panels on a roof your meter runs backwards at times when your home generates more electricity than it consumes. At night when the sun is down your meter runs forwards measuring the electricity your home uses from the grid. There are a number of state incentives for installing wind or solar power on a home. As a landlord I have no incentive to install solar on my southern Cal. rental’s roof because the tenant gets the lower electric bill and there’s no way I could recoup my investment through higher rental rates.

FIT would allow me to install a solar photovoltaic (PV) system on my rental’s roof with it’s own meter. The main meter measures how much electricity the house uses (used by and paid by the tenant). The second meter measures how much electricity is produced by the PV array on the roof and fed into the utility’s power grid. This allows a separate contract between myself as the building owner and the utility for the power produced, irrespective of tenant’s electrical usage. Having lived through the rolling-blackouts in the CA summers years ago FIT seems a good way to expand electrical generation where it’s actually consumed. Rather than having to run huge transmission lines to buy hydro power from the Pacific NW, or from coal/NG-fueled power stations in the mid-west, more power could be produced right in the heart of California where it’s being consumed. Basically every rooftop can become a mini-power plant with a price contract with the utility. Prices are set by the state to ensure a reasonable ROI of 5-10% assuming efficient operation by the site owner (don’t let trees shade your PV array). Basically this reverses the miracle of deregulation that ruined California last decade. The PV array owner gets a contracted price with built in ROI if they run things efficiently, the utility gets locally-produced power reducing their costs, and best of all the peak production is during the middle of the day matching peak utility demand.

Sorry for the long post guys, just got excited about this as I’ve been looking into PV lately and was sad I couldn’t do anything for my Inland Empire (lots of sun) rental house.

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Paul July 28, 2012 at 11:42 pm

@Erik
So from your post are you installing a FIT system onto your Inland Empire Rental house and will it pencil out?? I also have rental houses in Hemet, Menifee and Perris and would install a FIT system if it works. I have also been looking at Solar systems (hadn’t done much research yet though) and would do it if it works out. Let me know what you think. My one rental house in Perris has almost an acre, all sun exposure, and could really load up on panels. Thanks!

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Jim Simcoe March 8, 2010 at 2:49 pm

Great comments, guys. @Erik, I agree with the crux of your argument and think that for solar to really become widespread there needs to be a financial incentive to make it a no-brainer for an owner. Right now, for it to pencil, you almost need to own a commercial building and run a business out of the same location. Otherwise you’re paying the majority of the costs and not really enjoying a commensurate return.

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Mark S. March 10, 2010 at 10:17 am

Thank you so much for sharing the state database of incentives. I’m going to start pouring through it to see what I can find, if anything, to get some free money for making some improvements.

Reply

Jim Simcoe March 10, 2010 at 10:43 am

You’re welcome, Mark. You should be able to find stuff in your market. Good luck and let me know if you need any help..Jim
.-= Jim Simcoe´s last blog ..Some advice for ‘green’ businesses… =-.

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