objects/53/PDF Green Real Estate Case Study 2010
Green Real Estate Investing Case Study Introduction: Green real estate investing continues to grow in popularity. For savvy real estate investors, green real estate is the quickest way to higher profits and increased cash flow. In our consultancy, ‘green’ is not the goal. It is a by-product of an intelligent strategy designed to increase the profits for the investor. Profit is the #1 goal for our clients. The five main concepts of green real estate investing are: 1. Create high-performance properties that have no competition. 2. Fulfill the two main desires prospective renters/buyers have: a. Save money. b. Live/work in a less-toxic environment. 3. Increase profits, cash flow, appraised values, etc. 4. Reduce all costs (rehab, holding costs, marketing, vacancy rates, churn, etc.). 5. Leverage all applicable rebates, incentives, Stimulus funds, tax-credits, etc. This case study highlights a specific project done recently in Michigan. This is not theory and the conclusions are not based on projections. This is a real project with real client data.
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Property Specifics: 18633 Prairie is a 1600 square foot, 3 bedroom, 1 bath home in Detroit, Mi. This property required significant cosmetic improvements to both bring it up to code and gain a Certification of Occupancy. A Certification of Occupancy is needed to give the investorowner the ability to place a tenant in the home. This home also qualified for Section 8 housing.
Objectives of the Green-Retrofit: Our objectives in performing a green retrofit on this property were: 1. Increase the appraised value of the property by a minimum of 10%. 2. Receive the maximum rebates and incentives applicable for this property. 3. Reduce our time-to-rent by 20%. 4. Gain a premium market rent for this property.
Methodologies: 1. Performed an extensive Energy Audit on the property. This was done both to understand the rehab issues within the property and maximize the applicable rebates. In this area of Detroit, rebates were doubled if an energy audit was performed. 2. Select and procure all of the green materials for the project. This included paint, ecofriendly carpet, non-toxic floor sealants, etc. Roughly 30 different materials were used on this property. 3. Advised the contractor on the various green methods and materials to be used. Facilitated the training of the construction crew on the green retrofit process. 4. Built a branding campaign for the property for both prospective investors to purchase the home and prospective renters. 5. Worked with the appraiser and gave all of the documentation and Energy Star formula calculations to gain a maximum appraisal for the property.
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Results of the project: Our results at the end of the project were as follows: Results
18633 Prairie
Comparable properties
Appraised Value
$110,000
$100,000
Rehab cost
$11,000
$10,000
Rebates received
$1500
n/a
Total Net Rehab cost
$9500*
$10,000
Market Rent
$850
$800
Rental Premium Received
$600 per year
n/a
Time to rent
2 days
14-30 days
*Does not include any potential tax credits coming back to the investor.
Results
18633 Prairie
Appraised Value Increase
$10,000
Rehab cost savings (after rebates)
$500
Annual income increase from additional rent
$600
Holding cost reductions
Yes
Competitive advantage in market
Yes
Lower utility bills for tenant
Yes
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Conclusions: Upon completion of this project the following conclusions were observed: 1. The demand for green homes was higher than expected. While prospective renters and investors cared little about the environmental impacts of this green home, they did care about 3 main items: a. The monthly utility savings (roughly 35%) they would enjoy. b. The reduction in their long-term operational expenses for the property. c. The amount of money they would get back in the form of rebates and incentives. 2. By using the Energy Star appraisal formula we were able to increase appreciation on this home by 10%. In fact, on all subsequent projects with this client (roughly 20+ homes in the midwest) we’ve been able to increase the appraisal value by 10% on every property. 3. The supply of green materials was greater than anticipated. We found both local suppliers and national brands that were able to deliver the products we specified by the deadlines we required. 4. The costs of the green materials were commensurate with their non-green alternatives. A few items (non-toxic floor sealants for example) cost 2-5% more but the monetary difference was negligible. For example the non-toxic floor sealant cost $18 more than the regular alternative. 5. The additional costs to green this property were projected to be a minimum of 15% higher than a standard rehab. In fact, after considering the rebates received, the green retrofit actually cost less.
For more information on this or other projects, please contact Jim Simcoe at: [email protected] or 760-271-7128.
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Property Specifics: 18633 Prairie is a 1600 square foot, 3 bedroom, 1 bath home in Detroit, Mi. This property required significant cosmetic improvements to both bring it up to code and gain a Certification of Occupancy. A Certification of Occupancy is needed to give the investorowner the ability to place a tenant in the home. This home also qualified for Section 8 housing.
Objectives of the Green-Retrofit: Our objectives in performing a green retrofit on this property were: 1. Increase the appraised value of the property by a minimum of 10%. 2. Receive the maximum rebates and incentives applicable for this property. 3. Reduce our time-to-rent by 20%. 4. Gain a premium market rent for this property.
Methodologies: 1. Performed an extensive Energy Audit on the property. This was done both to understand the rehab issues within the property and maximize the applicable rebates. In this area of Detroit, rebates were doubled if an energy audit was performed. 2. Select and procure all of the green materials for the project. This included paint, ecofriendly carpet, non-toxic floor sealants, etc. Roughly 30 different materials were used on this property. 3. Advised the contractor on the various green methods and materials to be used. Facilitated the training of the construction crew on the green retrofit process. 4. Built a branding campaign for the property for both prospective investors to purchase the home and prospective renters. 5. Worked with the appraiser and gave all of the documentation and Energy Star formula calculations to gain a maximum appraisal for the property.
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Results of the project: Our results at the end of the project were as follows: Results
18633 Prairie
Comparable properties
Appraised Value
$110,000
$100,000
Rehab cost
$11,000
$10,000
Rebates received
$1500
n/a
Total Net Rehab cost
$9500*
$10,000
Market Rent
$850
$800
Rental Premium Received
$600 per year
n/a
Time to rent
2 days
14-30 days
*Does not include any potential tax credits coming back to the investor.
Results
18633 Prairie
Appraised Value Increase
$10,000
Rehab cost savings (after rebates)
$500
Annual income increase from additional rent
$600
Holding cost reductions
Yes
Competitive advantage in market
Yes
Lower utility bills for tenant
Yes
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
Conclusions: Upon completion of this project the following conclusions were observed: 1. The demand for green homes was higher than expected. While prospective renters and investors cared little about the environmental impacts of this green home, they did care about 3 main items: a. The monthly utility savings (roughly 35%) they would enjoy. b. The reduction in their long-term operational expenses for the property. c. The amount of money they would get back in the form of rebates and incentives. 2. By using the Energy Star appraisal formula we were able to increase appreciation on this home by 10%. In fact, on all subsequent projects with this client (roughly 20+ homes in the midwest) we’ve been able to increase the appraisal value by 10% on every property. 3. The supply of green materials was greater than anticipated. We found both local suppliers and national brands that were able to deliver the products we specified by the deadlines we required. 4. The costs of the green materials were commensurate with their non-green alternatives. A few items (non-toxic floor sealants for example) cost 2-5% more but the monetary difference was negligible. For example the non-toxic floor sealant cost $18 more than the regular alternative. 5. The additional costs to green this property were projected to be a minimum of 15% higher than a standard rehab. In fact, after considering the rebates received, the green retrofit actually cost less.
For more information on this or other projects, please contact Jim Simcoe at: [email protected] or 760-271-7128.
491 Second Street, Suite 104, Encinitas, Ca 92024 www.JimSimcoe.com Direct: 760-271-7128
