If you’re like most real estate investors, you might have the following 2 objections about green real estate investing.  These are the two I hear most often in my work:

1. You do not believe there is a market of people who want green properties.
2. You do not know how to quantify the profitability of going green on your properties.

The first objection is usually handled when we discuss the true definition of ‘green’ real estate.  Put simply a green property:

1. Saves the end user (homeowner, tenant) money every month on utilities.
2. Creates a healthier living environment for that end-user.

With that said is there anyone who is not interested in saving money every month and living in an environment that is LESS toxic?  Probably not.

The second objection has been harder to address.  When I first started in this business several years ago there was no data at all around this topic.  Even now, there are precious few data sources to point to.  So I am pleased to say that my team and I recently developed a sophisticated formula to project the increased profits available to an investor by greening up an investment property.

Our formula is designed to give you the following:

1. Give you the projected max price you can charge for a green home in any market.
2. Give your end buyer the numbers that show that it will actually SAVE them money if they spend more to purchase your property.

Here’s a brief example:

In a certain neighborhood in Los Angeles, all of the homes sell for roughly $200,000.  The utility bills for those homes average $300 per month. With our formula, we can show an end-buyer that it will be less expensive for them to spend $215,000 to purchase your home than to buy a comparable home at $200,000.  We show them that the combined total of their mortgage payment and utility bills will be less on our place (at $215k) than the total monthly payment at a comparable home ($200k).  As the investor, you net an additional $15k AND you’re helping to create a sustainable neighborhood.

The end buyer loves it because although they pay more for your property, their monthly expense actually goes down.  Since most buyers get a mortgage that additional $15k they spent is never fully re-paid. Their monthly savings is real money that they save right now.

Here are a few of the benefits to you:

1. You net $15,000 more on the sale of this property.
2. You’re able to sell the property faster and thus have less holding costs.
3. You know the exact price that is the break-even point for a buyer.  With  that you can price your property accordingly.
4. You can do this on any property for sale in any part of North America.  This can be used on residential, multi-family, and commercial properties.

Some (not all) of the factors involved in our formula include:

• Average sales prices in the neighborhood
• Average Days on Market
• Sales price to List price ratios
• Current mortgage rates and programs
• Down-payment amounts (0%, 5%, 20% for example)
• Projected utility savings
• Green rehab expense
• Rebate, incentive money coming back to you
• Number of (if any) green properties currently for sale
• **There are roughly 25 more inputs into our formula**

This formula has been a labor of love for my team.  We recognize that real estate investors deserve to know how much additional profit they can expect to earn on any green real estate investment.  Many thanks to Kevin Gaynor, our Project Manager for his tireless work on this project.  If you’re interested in learning more or would like to have us run one of your properties through this formula,please contact me below.

This entry was posted on Tuesday, September 7th, 2010 at 4:05 pm