Greenlording: property management for green-minded real estate investors
When it comes to our investment properties, Lara and I are real estate investors with a bottom line orientation. However, unlike the greedy Wall Street high flyers and Johnny-come-lately real estate speculators that the rest of us have recently been called upon to bail-out, we take a long view with a wide lens to focus on the triple bottom line. The triple bottom line puts profit in its proper place alongside our planet and the people who inhabit it. So I guess you could say we’re Greenlords. And I guess we’ll be so bold as to take credit for the term Greenlording and its definition.
1: Responsible property management done by or on behalf of green-minded investors toward a green exit strategy, motivated by the triple bottom line (antonym: slumlording).
Don’t get me wrong, we’re not so eco-friendly-green that we’re blind to the color of money. To the contrary, we believe that the green exit associated with greenlording is win-win, double-green (environmentally and financially beneficial), with a triple bottom line.
The environmental benefits of greenlording are obvious – our tenants live in healthier homes that consume fewer resources, and put less carbon and wastewater into our air and waterways. But there are also unique and compelling financial benefits associated with being a green-minded investor who consistently reinvests positive cash flow from investment properties into eco-friendly projects of manageable size spread out over several years.
- Reduced Operating Costs - If you pay the utilities for your rental properties, your operating income can benefit directly from relatively small investments in energy efficiency and water conservation projects that lower utility bills. If your properties are in an area where it is customary for the tenants to pay the utility bills, proper marketing will highlight the benefit of lower operating costs associated with such projects, which can improve the cash flow picture by enabling a higher rental rate. In either case, projects like adding insulation, changing to low flow toilets and showerheads, and replacing worn out appliances or heating/cooling equipment with new Energy Star products can pay big dividends. Be sure to seek out any local rebates and/or lending programs related to such improvements.
- Higher Rental Revenue - Anecdotally, we’re convinced that the practice of greenlording increases rent revenue. It just seems intuitive that homes that are proactively maintained and upgraded to become more eco-friendly over time will be easier to rent at higher rental rates than typical rental properties, all else being equal. That said, it is difficult to find studies and data that shine a light on the impact of greenlording on occupancy and rental rates for residential properties. No doubt such studies will be available soon. Until then, we’re banking on the idea that residential real estate trends will track with those for commercial properties, which according to the recent study by the CoStar Group®, showed a 15% higher occupancy rate and a 8.5% higher rental rate nationally in the first quarter of 2008 for Energy Star rated properties vs. their ordinary counterparts. Our own experience of raising rent by 9.1% at a property to which we made some very visible eco-friendly improvements in 2008 fits well with this data.
- Higher Selling Price at Exit - When it comes to quantifying the benefit of greenlording on selling price, one could again extrapolate from commercial to residential using the CoStar Group® study to arrive at an estimated selling price premium for Energy Star rated properties of 26.8%. However, industry expert Jim Amorin of the Appraisal Institute tells SmartMoney that his experience indicates an eco-friendly home typically appraises for more like 10% to 15% greater than a comparable conventional home. Either figure should get any real estate investor’s attention.
- Deferred Taxes - It’s great to have strong positive cash flow from your rental properties, and it is tempting to take that cash flow as profit in any given year. However, similar to investing in a 401K or IRA, a mindset of reinvesting positive cash flow into eco-friendly projects allows you to defer taxes and improves the ultimate ROI of your investment property.
So we’re convinced that expanding the view to see the triple bottom line will help the planet and all of us on it, while it also actually improves the conventional bottom line for green-minded real estate investors.
We hope you’ll go greenlording with us!