Eight months ago, Ryan and Shanan Burk of In The Now Investments knew virtually nothing about sustainability and green real estate investing. They were chugging along as rehabbers/wholesalers, buying and flipping dilapidated properties in Detroit. Like other wholesalers they faced challenges finding investors to purchase their finished properties and often had more inventory than investors. However, they were still profitable because they were smart, worked hard and had a strong team.
Then they went green.
In August of 2009 they chose to focus on green real estate investing or ‘green-habbing’ as it is becoming known. Ryan and Shanan realized that the demand for ‘green-habbed’ homes was much greater than the supply. They also saw that a large portion of their rehab construction costs could be off-set by a variety of rebates, tax incentives and credits. So much so that their net cost at the end of a project would be LESS if they green-habbed it.
A quick point- most investors/property managers think going green is more expensive. They think you will spend more on materials, labor and not get much of a return on your money. This is the common refrain heard from almost every real estate expert or real estate blogger. It’s a compelling argument but it’s wrong. If you do it correctly (and that’s a big IF) green is less expensive and will make you money. The key is doing it correctly. So, back to what they did:
In The Now built a team of energy auditors and contractors for each piece of the projects. After fine-tuning the process after several months of trial and error, they completed their first green-habbed home- 18633 Prairie Ave, right in the heart of Detroit. This home stands head and shoulders above any recent rehabs in Detroit for several reasons:
- The utility bills will end up being 30-50% less for the tenant.
- It stays warmer in the winter and cooler in the summer.
- It’s less toxic and the indoor air quality is better than most new homes.
Fast forward to now:
In The Now has completed numerous green-habbed homes in the Detroit marketplace. They are seen as one of the nations only green real estate investment companies. Some of the unexpected benefits they’ve enjoyed include:
- 100% of their green-habbed homes appreciate a minimum of 10% higher than other comparable homes.
- Several of their investors have chosen specifically to work with them because they want green investments and can’t find them anywhere else.
- They’ve been featured in Crains Business Daily.
- They’re creating jobs in Detroit-one of the hardest hit areas of the recent recession.
- They sell their properties faster and for more money.
So, here are the lessons for any investor:
- Possible – Green is doable. Unlike my chances of playing in the NFL, going green is not only possible, it’s an attainable goal. You just have to launch it.
- Profitable – Green will be profitable for you if you do it correctly.
- Fast learning curve – It’s not a long process from Grasshopper to Sensei. In The Now knew little about green-habbing 9 months ago, now they are the experts in the field. If you commit to the learning process, you can accelerate your results quickly.
- Build the right ‘green’ team – There’s a whole cadre of energy-efficiency experts available in almost every market. From energy auditors, thermal imaging specialists, to green painters and plumbers, there are companies that specialize in green construction/rehab. Leverage their skills on all of your projects.
- Only listen to potential buyers – Tune out the naysayers and others who say green is too expensive or not in demand. Listen to buyers/renters in your marketplace and see what they’re saying. They are the only ones whose opinions should count.
- Count everything – Look for rebates on everything you do during your rehab. Rebate applications are a bear to complete and follow up on, but boy are the checks nice when they come in.
- Success leaves clues – Track results on your first few green-habbed deals. Figure out what buyers or renters like best and make sure you continue to offer it. Conversely, see what didn’t sell well and take it out. For example, I had a client who was extremely interested in adding solar to his project. After we looked at the data, he realized that solar was going to cost him $80k and was only worth about $5k in an actual return for him. So we saved him $80k and made the project greener than it would have been if it had solar. Big lesson for him and a big lesson for me (I should have charged him more ).
At the end of the day, green is a very viable strategy for any real estate investor regardless of property type. Some of my most successful clients have been:
- Developers/New Construction
- Multi-family property owners
- Property Managers
In fact, one question to consider is ‘if your not going green, why not?’. As always, I welcome your comments and questions…
Photo: Ryan and Shanan Burk