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The Benefits of Green Multi-Family

by Jim Simcoe on February 28, 2011 · 6 comments

  

Although green real estate (as a strategy) continues to grow in popularity among real estate investors, it is largely concentrated in the single family residential market.  However, the single greatest ‘green’ opportunity for investors right now is the multi-family (MFU) market. If you’re interested in growing your real estate portfolio you should strongly consider green multi-family.

Five reasons why you should strongly consider green multi-family

1. Demand is greatly outpacing supply.  More prospective apartment renters are demanding green features.  Many will pay more for them.  However there is a serious lack of supply of green apartment developments in almost all markets in the US.  If you green an existing apartment building in 99% of the markets in the US, chances are you’ll have no competition.

2. Green Multi-family is largely unaffected by economic conditions.  When times are tough, people scale down and move into apartments.  When times are good, there are still tons of renters who live in apartments (Students, seniors, Echo-Boomers, single professionals, etc). Green multi-family is like your neighborhood bar. In a bad economy people drink to forget/escape; it a good economy they drink to celebrate.  Either way, green multi-family are like bars without the drink umbrellas- bullet proof to economic conditions.

3. Incentives.  When you get $5000 in rebates to green-hab a home, that’s pretty nice.  When you get a $400,000 loan at below market rates to make your apartment building energy-efficient, that’s awesome.  Put simply, there is a ton of ‘green’ money available to owners of multi-family real estate. The logic being, when you green up one home you help one family.  When you green up a 40 unit apartment building you help 40 families.

4. Faster Increased Profits.   When you green a multi-family, you can increase cash flow and net operating income much easier than sales price on a single family home.  How?  By increasing rent WHILE decreasing your tenants monthly cost.

For example, assume rent is $1000/month, average utility bills are $100/month.  When you cut a tenants utility bills to to $50/month, you can increase their rent by at least $15. When you own a single family rental, this extra cash is nice but it’s not a huge deal.  In multi-family it is because of the number of units you have.  I’ve seen examples where increasing the rent $5/month led to an increase in $200,000 cash flow increase in the first year.

5. Cost savings – Many of your typical expenses go down when you green up a multi-family. For example*:

  • Water and Utility expenses paid by owner – you use less so you’ll pay less.
  • Vacancy expenses – Tenants save $ living in your apartments so they stay longer so your vacancy rate decreases.
  • Marketing – Your apartments are highly desired and have no competition so you don’t have to spend as much $ marketing them.  You are the Brad Pitt and Angelina Jolie of the neighborhood-people come to you.
  • Concessions – You don’t need to give as many since you attract better tenants with a better living environment that they cannot get elsewhere.

*These are just a few of the cost savings you have when you have a green multi-family.

All told, green multi-family makes a lot of sense right now.  Prices are as low as they’ve ever been, lending conditions for ‘green’ are extremely favorable and you have very little competition.  If you ever were going to branch out to multi-family, now is the time.

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{ 6 comments… read them below or add one }

Joe Manausa, MBA March 2, 2011 at 10:57 am

Thank Jim, great article and you really got my attention with “When you get $5000 in rebates to green-hab a home, that’s pretty nice. When you get a $400,000 loan at below market rates to make your apartment building energy-efficient, that’s awesome.” I have a mf unit that I should really explore this as an option. Thanks for the “heads up.”

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Jim Simcoe March 2, 2011 at 11:29 am

You’re welcome, Joe. You should definitely check it out because your area of the US has some great programs. I think you’ll be surprised at what you uncover. Call/email me if you need any help..Jim

Reply

Joe Manausa, MBA March 3, 2011 at 10:25 am

I might just take you up on that Jim! Thanks again.

Reply

Jim Simcoe March 3, 2011 at 3:19 pm

You’re welcome, Joe. Call/email anytime.

Peter L. Mosca March 7, 2011 at 8:53 am

It’s undeniable. Couldn’t agree more. GREEN and sustainable buildings provide value to CRE owners, tenants and investors alike. GREEN and sustainable practices offer a significant return on investment but they also generate health and productivity benefits, recruiting and retention advantages, and reduce risks.

Reply

Jim Simcoe March 8, 2011 at 12:29 pm

Thanks for the kinds words, Peter. I checked out your site/blog and really like your content. You’ve got a good handle on the market. We should do something together in the future…jim

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