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The Pareto Principle of Green Investing

Jim Simcoe
3 min read
The Pareto Principle of Green Investing

The Pareto Principle states that 80% of your results from 20% of your efforts.  He actually said it more eloquently than that but you get the idea.  The same principle can be applied to being a successful green real estate tycoon.

There are literally several thousand different things you could do on any property to contribute to it’s energy efficiency, reduced carbon footprint, operational cost savings, etc.  Most, if not all, investors should only pursue those that offer the highest value return.  Again, 80% of your results will come from 20% of your efforts.

So, if you told me you could only devote 20% of your efforts to greening your investment properties, here are the two areas I’d tell you to put that focus.  There are a solid ten you could focus on but these two represent the 20% that will deliver 80% of the results.

The Two Areas to focus on for Green Investing Would Be:

Rebates and Incentives:

Find all that apply to your project.  There is simply too much money available to you as an investor to ignore.  The payback is usually much greater than the invested time.

For example, many of you have to buy water heaters on your rehabs.  Almost every city in the US offers a rebate (usually a few hundred bucks) on water heaters.  The time to fill out the application and send it in with a receipt is usually under 30 minutes.  If a water heater costs $400 and you can get a rebate for $200, a half hour of your time to save $200 seems like a good deal to me. Rebates are often offered at the city, county, state, federal levels and can be found through most local utility companies.  In addition most rebate programs don’t have combining restrictions.  Meaning that a $400 water heater may have a state rebate ($200) and county rebate ($100) and a NGO (non-governmental organization) for $100 that can all be combined. Net cost = zero.

Look for rebates on appliances, energy audits and specific energy-efficiency measures (solar, geo-thermal, solar water heating, etc.).  While you might find some small programs I would advice not to bother looking for rebates on specific materials.  Better to get your purchase price discounted though effective negotiation and green project leverage.

Results of rebate efforts: Higher quality, more energy efficient items at lower costs than regular alternatives.  You save money AND get better stuff.

Building Envelop:

Focus on tightening the building envelop as much as possible. Use low-cost methods to ensure a tight building envelop with less air leaks and gaps.  Use the least amount of energy to keep it warm in the winter and cool in the summer.

Blown wall/attic insulation; spray foam window/plumbing insulation; switchplate foam gaskets; weatherstripping; window film; cool roofs; vapor barriers; etc are all great methods to provide a tight building envelop.

I’d also suggest getting an energy audit performed so that you can see where the problem areas are before you begin the work.  Energy audits can cost less than $400 and come with applicable rebates.  Even if they they didn’t check out this math:

1. Cost of energy audit: $400
2. Utility savings (based on completing repairs found in energy audit) : $150/month
3. Increased price someone will pay for your property* (to save on their utility bills): $5000
4. Not a bad return…
*There is a proven formula we use to determine exactly how much a potential buyer will spend.  If you’d like more details contact me in the comment section.

Results of tightening the building envelop:  People living there will save money every month on their utility bills. You, the investor, can charge a higher sales price or higher rent due to an improved building envelop.  People will pay more because their total net out-of-pocket monthly expense to live in the home will be less.

The results of using Vilfredo Pareto’s principle is that you make more profit. It’s as simple as that.  Let this principle, created by yet another great Italian (yes I’m biased) guid you on your path to green real estate riches.  Ciao..Jim

Photo: Brock Builders via Flickr

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.