Millions of dollars in incentive money is available to you as a real estate investor if you know where to find it. We’ve talked previously about where to find rebate money (DSIRE is a great place to start) but haven’t explained the different forms of funds available. Here’s a quick breakdown*:
[*There are exceptions to all of these general rules of thumb. Check your city/state regs. to get specific info on your project.]
Rebates are used to reward behavior. The way they work is simple- you buy a qualified item and get cash back for the purchase. In the energy-efficient world you see this a lot with furnaces, water heaters, AC units, washers and refrigerators. Rebates usually require you provide proof of purchase, fill out paperwork and then you receive a check for a specified amount. Two caveats for investors:
1. Rebates usually CAN be combined with other incentives, etc.
2. Rebates are usually offered to anyone, you do NOT have to be the homeowner or primary resident.
Incentives are used to drive behavior. If you do ‘x’ then you get ‘y’. If you quit smoking you get better life insurance rates. Incentives are often used when you either build/remodel green or reduce energy or water consumption on an existing property. Incentives can include:
1. Cash payments (checks).
2. Zoning/Planning/Engineering dept fee waivers or deductions.
3. Priority in processing zoning, etc. applications.
Often, incentives are local government programs that originate from Stimulus funds. For example, the City of Encinitas gets $100k in Stimulus funds to promote green building. The City Council decides to offer a $2000 cash incentive to any builder/remodeler that gets their project LEED or BuiltGreen certified.
Incentives are largely given to those that own the property. It does not usually need to be owner-occupied.
Green Tax Credits
These are great BUT largely available only to owner-occupied owners, not real estate investors. Enough said.
Energy Efficiency Loan Programs
There are loan programs available to investors for energy efficient measures. Typically, these programs are for larger projects but there are some for single family homes. Often the loan will cover the cost of the energy efficiency upgrades somewhat like a 2nd mortgage. Since the loan is based on the projected savings of the program you can often get lower rates and better terms. Check with your lender for more info.
Hopefully this explains the differences between the types of funds you can receive for green upgrades. While it does take some investigation to find these funds, they can often help you reduce your renovation costs while increasing the value of your property.