Justin Velthoen is a real estate investor in Southern California. His company is probably just like yours in that:
1. He has no experience with green real estate investing.
2. He’s curious about green but doesn’t know where to start.
That said, I thought I’d post and answer his questions here for you as my guess is that you may have similar questions. Important point – Justin is not a client, he’s someone who contacted me with questions recently.
1. “I grew up doing construction, and we always tried to re-use whenever possible, but all of this is fairly new to me. Where can a new investor/rehabber go to learn more about sustainable alternatives?”
One of the best (non-internet) sources of training are the local sustainability centers (San Diego link) that offer free seminars and workshops on a variety of energy-efficiency/water conservation topics. These are often slanted towards homeowners but the info is the same and these can be invaluable to a new investor.
2. “While we’re working to get our first property under contract, and have contractors that probably aren’t as environmentally focused as we are, what are a few things can we implement in our first rehab that will make a lasting impact on energy, water and utility savings?”
Use any methods possible to tighten the building envelop including: sealing all duct work, adding adequate insulation, installing wall/light socket gaskets, insulating all exposed pipes, installing a water heater blanket, etc.
3. “As a sailor, and now a surfer and diver, one thing that concerns me is the health and safety of our oceans. What things should we improve on in our landscaping, to hazardous materials, to plumbing and septic issues?”
Xeriscape your landscape whenever possible, make sure you use high-efficiency sprinker-heads, choose naterial materials whenever you can, install a simple, yet high-value rain catchment system, install low-flow toilets, shower-heads and sink aerators.
4. “Where can we go to get an heat and energy audit done for a baseline, and at what stage in our rehabbing business growth should we be looking for that?”
I always recommend getting an energy audit done as the the very first step in your process. Find a qualified auditor here. The audit will give you a complete report, including thermal imaging pictures so you can see exactly what’s going on behind the walls. In addition to using the audit to see problems you can use it to negotiate a better sales price (if you do it before the property closes).
A company in Phoenix that does short sales gets the audit done after they’ve submitted the offer while the bank is reviewing it. They approach the bank, show the audit report and negotiate a better price based on the repairs that need to be done.
5. “I know places like Detroit offer a huge opportunity for energy savings, but how much can a rehabber expect to impact energy, water, and utility savings in a more temperate area like Southern California?”
My general rule of thumb is the more months of the year where you have heating or cooling on, the more impact you can have. In Detroit, it’s probably 7 months of heating, 1 month of cooling. In Arizona, it’s 3 months of heating, 8 months of cooling. So Cal is probably 3-4 months of heating, 3-4 months of cooling. Hawaii is probably one of the only places I’ve seen where they don’t use their or AC very much at all. So, to answer your question, you can have a tremendous impact when you consider both heating and cooling.
6. “I want to communicate my commitment to making the world a better place, but how do I communicate that to investors, contractors, and buyers without “green-washing?”
Great question. The key is to be honest. Say what you’re doing and why. Don’t call yourself a ‘green’ company. Green isn’t a company formation like a C-Corp or S-Corp, it’s a guiding principle and/or belief. Explain what you’re doing and why you think it’s important. Keep it simple.
7. “Some of these sustainable appliances seem to have substantially higher price tags, such as in-line water heaters, solar tube lighting, and solar panels. How do you determine when the return out weighs the cost?”
There’s no hard and fast rule on this. What I do is look at the energy savings, total cost to install and marketability value of the material/item/system. Two examples, based on a 2500 sq ft house with a monthly $300 utility bill and $100 water bill:
Solar- Cost of system (after rebate) = $20,000. Will save 40% on utility bills ($120/month). Takes about 14 years for that to pay back. Most buyers won’t pay more than 3% for a house with solar so on a typical $150k house, that’s only $4500. Not really worth it on this example although keep in mind that I am simplifying things and that there are some instances when it might make sense.
New energy-efficient hot water heater- Costs $500, rebate for $200, so net cost is $300. Saves 30% on water heating, so approximately $30/month. Pays for itself in 10 months and marketability factor is high. People will pay more for an energy-efficient water heater and the cost to the investor is negligible compared to solar.
Hope you enjoyed the questions. This will be an ongoing series so I will post more of Justin’s questions in the next coming weeks.