If you’ve added green features to a property you’re selling, its key that you have a process to quantify the value of those features. Without it, you cannot gain the maximum additional profit increase from that feature.
The 20 Best Books for Aspiring Real Estate Investors!
Here at BiggerPockets, we believe that self-education is one of the most critical parts of long-term success, in business and in life, of course. This list, compiled by the real estate experts at BiggerPockets, contains 20 of the best books to help you jumpstart your real estate career.
Here’s what to do to Value Green Property Improvements:
- Research your neighborhood and get a monthly average utility (water, gas and electric) bill estimate. The estimate should be for similar homes as the one you’re selling. The easiest way to do this is to call the utility company and get the previous bills from the property. If they don’t have it (or won’t provide it) call three property managers and ask them to give you estimates for a similar home. They almost always will have this info on hand as this is a question they get asked a lot.
- Check the EnergyStar.gov site and get some data on the average savings* for the green features you installed.
* You’ll see in the example below how this all ties together.
- Call your local utility company and get their data on their estimated average savings for the green features you installed. It’s very important that you use the local utility where the property is located.
- Take the savings percentage and figure the total amount the new buyer is going to save monthly and annually.
- You are selling an investment property in a neighborhood where comps are approx. $300K. You can sell your place for $300K and anything you get above that is additional profit. To make the math easy let’s also assume that a typical mortgage payment on a $300K property is $3000/month. Let’s say you installed a water heater blanket, weather stripping, foam gaskets, sink and shower aerators and blown insulation in the exterior walls.
- After going through past bills and calling the utility company you see that an average bills are $300-$400 a month for all utilities in this neighborhood for this size house, broken down as follows:
- Water is 50% of the bill ($150)
- Gas and electric are 50% of the bill ($150)
- Based on Energy Star and your local utility company data, you are going to save 50% of your water expense based on the green improvements you made. That equates to $75 saved every month.
- Based on Energy Star and your local utility company data, you are going to save 60% of your gas and electricity expense based on the green improvements you made. That equates to $90 saved every month.
- Your total projected utility bill is now $135 instead of $300. Comp utility bills are still $300 so the buyer who buys your home saves $1980 a year and $9900 in 5 years.
- Here are the impacts to you as the seller:
- Your property is more valuable than any other in the neighborhood because it costs less to live there.
- You can sell your property much faster (no competition, saves $).
- You can sell it for a higher price* since over the long term it will cost the buyer less utility expenses.
*Email me directly if you’d like a copy of a spreadsheet we created to determine the exact break-point of additional profits you can gain on any deal while still having the buyer pay less per month than a comp. On this deal it would have been approx. $18,000 in additional profit to the investor.
Adding green improvements to a property is great! Great for the buyer, the environment, our future, etc. For it truly to be great for you you must know exactly how to quantify those features so you can see what additional profits you are earning.