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Green Brand Development – The Dos and Don’ts of Eco-Friendly Real Estate Flipping

by Glenn Espinosa on February 16, 2013 · 7 comments

  
Green Eco

If you’ve been following me at all, you may have read from my blog or forum posts about my company’s recent decision to go ‘green’. As I type this, we are currently my local market’s first eco-friendly home redevelopment firm focusing on existing home rehabs. Prior to this, my company had been successfully flipping homes since early 2011 without the need to go green. Our formula was a simple one – provide better homes than competitors at lower prices. Using this formula we enjoyed an average market time of 14 days and never sold for less than 95% of our asking price. So, you may ask why we decided to abruptly change our successful flipping formula by going green?

If it Ain’t Broken, Fix it Anyway

The reasons for why my company went green are numerous but mainly we are simply listening to the market. The American public has spoken and it is clear that they want ‘green’ homes. Recently publishing results from their Green Home Builders and Remodelers Survey, McGraw Hill Construction, an industry leader in American construction, found that eco-friendly home building represented an impressive 17 percent – or $17 billion – of the overall American home construction market in 2011. This is a massive jump from just 2 percent in 2005 and 8 percent in 2008. Even more, that number is expected to rise to as high as 38 percent within the next four years with increased market share of $87 billion to $114 billion! So, with that information in mind, the companies deciding to transition into green, in my opinion, are future-proofing their businesses and positioning themselves to be industry leaders.

But, not everything is rosy in the green world as an interesting dichotomy exists within the American public that real estate investors have to take into consideration. Simply put, Americans are tired and downright annoyed from the constant daily bombardement of so called ‘green’ products and services. And, they have the right to be – since it’s inception, greenwashing has been deceptively used by some companies to increase profits and manipulate public opinion. I’d venture to say that the average American consumer has grown to become skeptical of green claims and that if used deceptively, green marketing can actually hurt one’s business.

Marketing the Unmarketable

So, how does this translate to real estate and how should one go about navigating the world of green? By spending the past few months researching numerous green companies and emulating the one’s who were most successful, I’ve found the answer simply rests on one word: trust. In order to successfully leverage the green label and reap it’s benefits, real estate entrepreneurs have to focus on earning the trust of their local market by building a strong, honest and reputable brand. The American public is smarter than they perceive to be and they can quickly sniff out a fake from the real thing. So, if you want to become a REAL green company, you have to do it the right way – the hard and sometimes expensive way. I’ll show you what I mean. Here are a couple of strategies that we are implementing at our company and some lessons we’ve learned along the way:

1) Be Careful with Eco Friendly – A few years ago (90′s to early 2000) a green company would have focused on their environmental impact in order to attract customers. Save a tree, reduce carbon emissions, avoid landfills – all these marketing campaigns have their place but they should not be emphasized for modern day real estate companies looking to go green. Instead, consumers want to know what directly affects them and their everyday lives. Don’t think about how your house can save the world but think about how your house can bring direct value to your end buyer.

2) If Not Eco Friendly, Then What’s the Point - The world ‘green’ has been thrown around so much the past couple years that no one knows exactly what it means anymore. But, I’ve found that the most successful real estate firms focus on three tenents: Energy efficiency, healthy and environmentally friendly. Guess which two are most important right now?

3) What features do you include - There are a lot of things you can do when building or renovating a house to be green. If you think of all the options, you can be there for days and quickly become overwhelmed with what features to go with as opposed to others. Do I need rain barrels, solar panels,  ductless heaters, etc.? At our company, we’ve found it easier to base our rehab decisions after having organized improvements between two categories: saves end buyer money and doesn’t save end buyer money. After these two lists are put together, pick all the cost effective improvements on the saves money column while choosing only a select few from the other column. What does this mean? It means solar panels are out for now but little things like low flow faucets, dual flush toilets and efficient windows are in.

4) Healthy is In - So we’ve already talked about how eco friendly doesn’t bring end buyers direct value but what about healthy conscious features? In my opinion, and it’s what my company is focusing on, health conscious features are MAJOR selling points that few companies are emphasizing. The reason for this is because health conscious features such as no VOC (volatile organic compound) paints, hypoallergenic flooring and extensive home sealing that increases a air quality brings DIRECT value to home buyers. In the near future, the companies who can leverage health features the best will reap the most benefits.

5) Marketing! - If you’ve been in real estate for anything longer than 1 day you will have realized that marketing plays a big part of this industry. Going green and being successful at it depends squarely on your ability to market your green homes. I’ve already harped on it but marketing green can be done incorrectly and sometimes its as simple as using the wrong buzz words. Also, making false claims can ruin a business. What we’re doing to combat this is by bringing in a third party energy auditor to keep us honest. And, we didn’t just go with any energy auditor. We shopped around and found the go-to energy auditor in our area.

6) Think Beyond Today - Any Joe Schmo can come in and make a quick buck in real estate but only the best can build a brand that can withstand the test of time. Set your standards high NOW, and reap the benefits later. By building your brand and becoming a company people can trust to provide high quality homes, your homes will sell themselves. So, before you think about taking shortcuts to going green – think about your brand and if you really want to be known as the shortcut company?

7) Leverage the Community - By going green you open up a range of opportunities to partner with your local community. Take advantage of these opportunities as they help to build your brand, improve your marketing and positions you and your company as industry leaders. At our company, we have an energy workshop scheduled for later on this month that will educate our local community on methods to reduce their monthly utility bill as well as healthier options to use in home.

There are a few of naysayers in my local market who don’t believe in our vision and are projecting us to fall flat on our face. They say that green features aren’t needed to sell a home and that we are leaving money on the table when we choose to go above and beyond a typical flip. In some cases they may be right – but going green has a learning curve (an expensive one) and we jumped in knowing this from the beginning. We are still chugging away against the grain and we like to remind ourselves – we’re not here to flip one home, we’re here to build a trustworthy brand that others will look up to.

So what do you think? What kind of company and reputation are you building? What are your thoughts on going green?
Photos: Ole Houen

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{ 7 comments… read them below or add one }

Jason Grote February 16, 2013 at 8:33 pm

Glenn, we almost took the Greenhabbing plunge about a year ago. I thoroughly looked into it and calculated the costs. Somehow, I even convinced my ultra-conservative family (business partners) to begin going green on our flips. I had a “consultant” on the hook to oversee my first project to get me going, but just had a gut check.

Living in one of the top 3 most progressive green cities in the US (Austin, TX), I still could not see the value in the short or medium term. It is speculative for the long term, though it does not appear that “going green” is going away anytime soon!

So, in a highly-progressive green city, the rebates that are offered nationally and locally are of little value. They do not appear (on paper) to make up for the extra cost of highly-efficient upgrades or environmentally friendly products in the entire house.

Even in Austin, if you have a house in a location where someone wants to live, you will have no problem selling it whether you went green or not. This project that we were going to kick-off our “going green” received an offer in 24 hours for $10k over our asking price without green improvements.

Glenn, I personally think that most people looking at existing homes are mostly indifferent about green remodeling. Now, new construction is a MUST. In fact, the City of Austin was one of the 1st cities in the nation to adopt the 2012 codes for building and energy efficiency. So, by default, new construction is mostly green.

I am not “naysaying”, but I personally think green remodeling is highly speculative for now! Thanks for the interesting blog!

Reply

Glenn Espinosa February 19, 2013 at 12:56 pm

Jason,

Sorry for the late reply. I truly appreciate your response and I too have grappled with the decision for going green. You are correct that green is no where near necessary to sell a house. In this market, homes priced well and in good locations will sell fast and for a premium in most cases.

You are also correct in that on paper, green can actually hurt your bottom line. My first green flip will have an increased rehab cost of about 8-10% as opposed to a normal flip. We are not calculating a price premium on the home but we are expecting to sell it faster than normal – If this is not the case then of course our profits go even lower. The goal in the long run is to streamline our green rehab processes and to get extra costs down below 5%.

So you may ask exactly why we are going green if there is no direct positive effect to our bottom line. Well the answer to that question goes all the way back to what my company is trying to do – build a strong, local brand leader providing niche homes. There are currently no other green flippers in my area and we feel that we can capitalize on the existing home market. In the long run I’d rather have 100% of a small market than be just another player in a big market.

Thanks again for the awesome response.

Glenn

Reply

Mike February 17, 2013 at 9:35 am

Glenn, what has been more profitable for you? What knd of buildings do you flip? Very interesting post/business model.

Reply

Glenn Espinosa February 19, 2013 at 1:00 pm

Mike,

So far, with the green learning curve, my normal flips have been more profitable. The goal is to streamline the process and to get my green associated costs down to +5% and to lower my DOM even more.

We are also finding it easier to market our company to finance partners who share a common vision, so that is an added benefit.

We have also started a green multifamily flip and I’ll be detailing that process as it starts to gain more traction.

Thanks for the comment, Mike.

Glenn

Reply

Chris February 17, 2013 at 10:58 pm

Glenn,

I think you’re on the right track. As you mentioned, a business can only operate within the constraints of their resources. I’ve run the numbers and they can work. Some homes may receive more benefits than others but in the end you are improving the overall housing stock in regards to efficiency and health. That is huge!

Its great that new homes sre more efficient, but most local governments are not like Austin, TX. The reality is energy costs are going up, dramatically, and 80% or so ofthe housing stock for the next 20-30yrs already exists. The answer is more people/companies like yours, Glenn, that are on the front-end of this and taking action. As energy prices increase, and there are certain people/organizations that will make sure that will happen, home efficiency will be in great demand. If you look around you can already see this in the marketplace today.

Great work and keep us updated on how things go.

Reply

Glenn Espinosa February 19, 2013 at 1:04 pm

Chris,

Thanks for the response. I agree with you in that increased energy prices will force more people to look for energy efficient homes. Increased energy prices are actually on of the pain points that we will be stressing to the home buyers when it comes time to market out home.

Even with the influx of new home construction, the fact remains that an overwhelming amount of homes are older and could benefit greatly from energy efficient upgrades.

Glenn

Reply

Madonna Machado August 11, 2013 at 11:27 am

Hello Glen, It was very refreshing to find your blog today. My husband and I have wanted to start our retirement by flipping homes. Yes, maybe a little later then most. But we want to start doing what we both love. Building is my husband department . And when we suddenly thought about creating a more eco friendly home instead of the ‘ usual’ remodeling, we both lit up. And now how. That is my department , is to begin research. Thus finding your blog was right along what we wanted to hear. Thank you for caring for this planet and doing what you believe is right. These homes that tend to be so unhealthy in and now making them a better place to live, one house at a time. Look forward to reading your next article.

Reply

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