How to GET MAXIMUM PERFORMANCE from your INVESTMENT PROPERTIES Proprietary Information – Property of Simcoe Consulting and Nexzus Publishing) SPECIAL REPORT: How to GET MAXIMUM PERFORMANCE from your INVESTMENT PROPERTIES Go green with your next residential or commercial investment and add more revenue and profit through the use of green retrofits By Jim Simcoe and Andrew Waite Version 4 – June 2010 This report is proprietary and property of Simcoe Consultin g and Nexzus Publishing Group) and is available to clients for their use in identifyin g and recovering grants, incentives , rebates and tax credits. This informat ion is not complete and is not warranted as such. This informa tion shall not be u sed for other than guidance for recovery of personal or business credits. Reproduct ion and use for other than the intended p urpose is prohibited.
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How to GET MAXIMUM PERFORMANCE from your INVESTMENT PROPERTIES
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SPECIAL REPORT:
How to GET MAXIMUMPERFORMANCE fromyour INVESTMENT
PROPERTIES
Go green with your next residential orcommercial investment and add more revenueand profit through the use of green retrofits
By Jim Simcoe and Andrew Waite
Version 4 – June 2010
This report is proprietary and property of Simcoe Consulting and Nexzus Publishing Group)
and is available to clients for their use in identifying and recovering grants, incentives,rebates and tax credits. This information is not complete and is not warranted as such. This
information shall not be used for other than guidance for recovery of personal or business
credits. Reproduction and use for other than the intended purpose is prohibited.
How to GET MAXIMUM PERFORMANCE from your INVESTMENT PROPERTIES
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How to GET MAXIMUM PERFORMANCE from yourINVESTMENT PROPERTIES
TABLE OF CONTENTSHOW TO TURN GREEN INITIATIVES INTO GREEN INCOME
By Jim Simcoe and Andrew Waite
Page No.
1. Introduction – How to Reap Immediate Benefits ………………… 04
2. The Business Case - Financial Incentives for Going Green …… 11 3. The Demand for Green Properties …………………………………… 26 4. What People Want – What Buyers & Renters Want………………. 30 5. Who Has the Money? Fed/state/local agencies funds? ………… 34 6. What Money is Available? (Incentives, Grants, Rebates, Tax Credits)
……………………………………………………………………………….. 35 7. How to Successfully Apply for Funds ..…………………………….. 37 8. Retrofitting Rentals as High Performance Rental Properties ….. 43 9. High Performance Green Appraisals…………………………………. 44 10. Green Mortgages (To be written and available in v.4) ..………….. 54
11. Marketing for a Premium Return ……………………………………... 55 12. Avoiding Green Washing ………………………………………………… 60
13. Green Positioning for Better REO Opportunities…………………… 62
14. Resources …………………………………………………………………… 64
15. Bibliography ………………………………………………………………… XX
16. Appendices – Capital Expense & Operating Expense Recovery…. 66
a. San Diego County, San Diego & adjacent cities
b. San Diego City and County Template - Initial Incentive
Recapture
c. Projected Ongoing Operating Cost Improvements with simple
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This study will show you how to go about learning, acquiring and benefiting
from these incentives. This is how to make money as an enviro-capitalist.
FROM GREEN POLAR BEARS TO GREEN BACKS
PUBLISHERS NOTE: My background includes responsibility for selling
systems, services and advertising. I have worked in the computer business,
the law and accounting, run the commercial side of an Indy 500 winning race
team and published magazines in the technology, investment and real estate
industries. At the end of the day, any business needs revenue and profit to
remain in business and the numbers all must go on a spreadsheet. Good and
bad.
We started our research on Maximum Performance from your Investment
Properties and were surprised at the inability of many green proponents to
articulate why it made economic sense. Lots of good “feel good” but few
make it “look good” on a spreadsheet.
They truly have not explored and developed the core reason for sales
success by showing a client why it works for them and delivers a measurable
return.
The green movement generally does not understand the difference
between capital expenses or operating expenses and then the knock on effect
these investments generate. They do not monetize their theory as in their
opinion developing real financial reasoning apparently destroys the purity of
their message.
They do not “do spread sheets as doing laundry and making beds” is for
ordinary people and not leaders of this movement. This report tries to changethis and deliver clear economic justification for “going green to bank green.”
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an increase in property value by following the urban renewal and purchasing
investment properties in these locations.
The bulk of incentives are given for energy efficiency improvements and
employing a green strategy in any building upgrade.
For fix-and-flip or buy-and-hold investors, these incentives can make a
difference and provide the bonus between a marginal and a profitable
investment. The incentives and rebates subsidize work that the investor would
complete anyway. Now the investor gets paid to do something they planned
upon doing anyway.
In addition, the subsidy to buy materials and labor actually improves the
property value and helps make the sale or rental at a potentially higher value.
IMPORTANT CAUTION
MARKET TIMING AND POTENTIAL INCENTIVE EXPIRATION
The current market desirability of going green is a benefit for real estate
investors. Do not expect this to last beyond the next 18 months. After
that there is a potential these incentives will be gone as funding will
have run out.
The environmental popularity combined with public and political
pressure to save energy has pushed utility companies and government
agencies to offer incentives to save energy, reduce water use and relieve the
pressure on city sewer and trash services. In tough economic times that
pressure increases exponentially. Costs remain constant, revenue drops and
taxes become harder to raise.
Once the tipping point occurs in the momentum to achieve the tangible
and financial benefits of going green, and the rebates and incentives are used,they will start to become less available. The utilities, municipalities and other
government agencies will no longer need to offer these as energy and water use
has been reduced and a sustainable trend established. Enough people will
have embraced the concept of green building. All new builds will be required to
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follow sustainable green strategies. Renovation of existing buildings will be
required to follow sustainability building standards so that the majority of all
housing will have a reduced total cost of ownership because of lower energy
use.
C. HIGH PERFORMANCE PROPERTY – A SALES OR RENTAL ADVANTAGE
Companies like Mercedes Benz and Boeing get to be class leaders and
flagship brands that represent quality because of, attention to detail and
associating themselves with high-performance and execution excellence.
Customers choose to do business with these brands expecting products or
services that are best in class.
Green real estate projects should set a similar standard. They are
regarded as environmentally-friendly, but now green projects are increasingly
being thought of as high-performance and more recently financially rewarding
projects.
Green residential projects tend to be built better, use improved materials
and provide superior energy savings with less negative environmental impact.
They may cost a little more to implement, may attract incentives, cost less to
operate and are more comfortable and safer for those who live and work in the
resulting buildings. The performance of these properties is perceived as
superior in every way to non-green projects. But this still is about money.
An investor using a green renovation strategy is ahead of the majority.
Green real estate investors’ properties are considered to be of higher
construction quality and lower energy usage, therefore worth more money.
BEWARE - This is only the case if the property is conscientiously
marketed by a competent real estate professional who understands the value of green positioning. It is the combination of these elements that provide a strong
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CASE STUDY – CASE CLOSED ON HIGHER RENTS
Benefits from going green are easily realized by property managers and owners
in terms of incentives, fewer vacancies, enhanced marketing and savings in
both time and money. While going internally by reducing paper and saving onpostage is great, many owners or investors don’t really see the true benefit until
it is leveraged at the direct interests of their owner landlord. This is the
external application if being a green property manager.
Smart property managers can deliver real benefits for tenants and
returns for owners by making rental properties more energy efficient. The
bonus is positioning these rentals as efficient retrofitted rentals that cost less
to occupy.
Spin to Spreadsheet
Property management system provider Propertyware has a
GreenPropertyManager.org initiative. They appealed to their customer
HomeLovers who decided to examine a customer-focused energy efficiency
strategy by way of a proof of concept. The theory was that green property
rented faster and for premium rents but would this prove to be true in
practice?
The first step was understanding specific rental property efficiency. What
changes need to made to increase both energy and investment efficiency. If
there were any government incentives that may apply how could they be
captured to partially fund this retrofit?
The second step was to actually retrofit a typical rental property with
energy efficient solutions and apply for and collect any available incentives.
The third step was to prove that the property was considered a preferred
rental by the market and therefore could demand a higher price and attract
more tenants.
This case study consciously ignores the extensive list of other benefits
from adopting other internal and external efficiency strategies.
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More importantly is the attraction of a better tenant
demographic that are willing to pay higher rents for a lower cost of
occupancy because of lower energy use. The owner clearly benefits
in terms of incentives, fewer vacancies and more reliable tenants
The fact a property manager can generate fees and higher rent
also means greater income to the property manager.
HomeLovers has transitioned from proof of concept to
improving the income for both their owners and their business.
TAKE AN IMMEDIATE MARKET ADVANTAGE
Now take an immediate advantage.
Position, list and present your property as a green property whether it is
for sale or a rental. This property has been renovated in a green friendly
manner. It is managed in a way that pays attention to environmental impact.
This will reduce your competition significantly.
By positioning this way, you can attract more buyers or renters in a
demographic that is prepared to pay premium prices even in a down market.
Put simply, this is a class of buyers or renters that wants to live/work in
places that are safer and cost less to operate. This demographic will pay more
for that opportunity. This is only half the story.
The grants, rebates, green loans and tax credits pay an investor to
develop property reflecting these cost saving and investment justification
values. Green upgrades and marketing strategies will position as a higherquality product and a market differentiator that should translate into financial
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150 miles a day from Lancaster & Palmdale. They could no longer reach their
place of work.
After major repairs were made and the highway reopened, The County of
Los Angeles approached HealthNet and asked them to consider setting up a
satellite call center in Palmdale. Fortunately the technology and the economics
of successfully building and operating a remote call center made sense. This
was only half the story.
The day the center opened, the sixty employees instantly saved $5,000 a
week in gasoline costs, 60,000 miles of travel and recovered 900 hours or 15
hours a week per person to reinvest in their lives and families. Back then Los
Angeles was not considering the impact on the environment short of reducing
the amount of traffic on the freeways.
GRANITE COUNTERTOPS AND CROWN MOLDING DOES NOT TRUMP A
TWO HOUR COMMUTE
The interesting note is the way master planned communities are
conceived and planned. Commercial and office development follow residential
development, and then only when enough “rooftops” and people exist to
generate enough volume to justify local business and employment. This means
the first people to buy in these neighborhoods are forced to commute extended
distances over under-engineered roads until enough volume occurs.
This is backwards and makes remote neighborhoods a hard sell for a
developer. Betting in future growth and development into a self contained
community is a leap of faith. Until that happens, this means residents are
forced to spend more on gasoline, energy and time.
As an investor considering an investment purchase that will appeal tothe largest universe of homebuyers or renters, consider a little less well located
house and assure your tenants more convenience from a well located life.
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3. THE DEMAND FOR GREEN PROPERTIES
Buyer Statistics & Green Surveys Point the Way
The demand for green properties is currently greater than the supply of green properties. People will pay a premium for a certifiably green property or
rental home even in a down market. This is only half the story.
Various grants, rebates incentives and tax credits make it cost-effective
and relatively easy to begin implementing. Smart investors can capitalize on
this trend and reap financial rewards.
This study is designed to introduce what these strategies are, what steps
can be taken and why they result in financial returns.
Right now there are more buyers and renters desiring green homes than
there are green homes to buy or rent. Increased awareness on safety and a
heightened focus on energy cost reductions are combining to create a market of
green buyers/renters that builders and real estate rehabbers have not kept up
with. Put simply, the supply for green has not kept up with the demand .
Some compelling statistics:
Earth Advantage Institute, Portland OR found that in the year through
July 2009 traditionally newly built homes sold for an average of $173 per
square foot while similar green certified homes sold for an average of $193 per
square foot or a premium of nearly twelve percent, not counting any green
building grants, incentives, rebates, green loans or tax credits. (FYI, this
paragraph also included on page 7)
This study was under-written by product providers, builders and real
estate professionals who needed to validate claims that green strategies
improved financial performance in home sales. The abstract of this 2009 study
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Certified Home Performance: ASSESSING THE MARKET IMPACTS OF
THIRD PARTY CERTIFICATION ON RESIDENTIAL PROPERTIES Earth Advantage Institute
May 29, 2009
Abstract The report presents an analysis of the market performance of third-partycertified sustainable residential properties in the Portland and Seattlemetropolitan areas. In each location, a sample of third-party certified homeswas selected and comparable homes were found. The author documents thatcertified homes in the Seattle metro area sold at a price premium of 9.6% whencompared to non-certified counterparts, based on a sample of 68 certifiedhomes. In the Portland metro area, certified homes sold at a price premiumranging between 3% and 5%. In addition, the certified homes stayed on themarket for 18 days less than non-certified homes. These results are based on asample of 92 certified homes and comparable properties approved by a project
appraiser.This investigative research effort also includes surveys and interviews
with the builders of third-party certified homes and their residents. The authordiscusses the inherent limitations of current valuation practices for homes withsustainable features. Finally, the report includes a synopsis of related researchon the relationship between marketing initiatives and the sale price of third-party certified properties. Executive Summary CERTIFIED HOMES ARE WORTH MORE
This report explains the basis for this statement, using an analysis of third-party certified sustainable homes in the Seattle and Portlandmetropolitan areas. Moreover, the report shows that there are severalimportant issues inherent in this seemingly simple statement. The reportconcludes with recommendations to further expand the study of the marketperformance of third-party certified sustainable homes. It supports heightenedcollaboration among residential appraisers, real estate brokers, homebuilders,and sustainable building advocates to improve a common understanding of themultiple issues involved in home valuation and communicating the results to alarger audience.
How one defines a building’s value may vary. Market sales information is
based on standard approaches to building appraisal that do not account forperformance-based cost savings. Further, standard approaches do not considerresident health or broader environmental benefits that result from themeasures required to achieve third-party sustainable certification. Publicunderstanding of general sustainability concepts has certainly improved in thepast 5 years. At the same time, more homebuilders recognize the potentialmarket advantages of building certified homes. However, for many consumers
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and some homebuilders, the connection between quality home constructionand sustainability is not always understood. COMPARABLE PROPERTY STUDY RESULTS
Earth Advantage Institute selected Taylor Watkins of Watkins &
Associates in Portland to serve as the project appraiser for the comparableproperty analysis. Watkins recommended the parameters for defining acomparable home and reviewed suggested comparables for their suitability. Theparameters used to identify a comparable home are listed in the study. Thegoal was to test the hypothesis that certified homes would demonstrateimproved market performance in terms of sales price and time on market thancomparable, non-certified homes.
In Portland, a sample of 92 certified homes and 340 comparable homeswas compiled. The certified homes were built between 2000 and 2008, with amajority sold in 2006 and 2007. Most certified homes were matched with 3 or 4comparables. Certified homes were geographically distributed throughout the
metro area.The Portland study found that:
• Certified homes sold 18 days faster than non-certified homes.• Certified homes sold for 3% to 5% more than non-certified homes. In astatistical analysis with a 95% level of confidence, the overall price differencewas found to be 4.2%.
In Seattle, a sample of 68 certified homes and 207 comparableresidences was determined. Like the Portland sample, most certified homeswere matched with 3 or 4 comparable homes. The Seattle analysis alsodocumented superior market performance in terms of the sales price achieved.• The expected percentage change for sales price was found to be 9.6% more for
the third-party sustainable certified homes.• The certified homes did not sell faster, and stayed on the market an averageof 5 days longer (or 40% more time on the market).
These findings are positive factors that will work to the benefit of sustainable home builders and consumers, providing welcome news during atime of reduced home market activity. CONSUMER INPUT
The same issues that determine how much someone is willing to pay fora house - location, amenities, and size – are involved whether one is shoppingfor a certified sustainable home or not. However, residents living in third-party
certified homes should also understand the sustainable features and thepositive impact of those features on the longevity of their homes. The studyrecommends public education so that current and future residents of certifiedhomes will have a greater understanding of those benefits.
Earth Advantage Institute, Master Builders Association of Pierce County,and Olympia Master Builders conducted surveys of residents living in eitherEarth Advantage® or Built Green® certified homes. Residents value the
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sustainable attributes of their homes, particularly energy efficiency andimproved indoor air quality. Of those surveyed, 90% reported that they wouldchoose a certified versus a non-certified home for their next residence if allother factors were equal. Collectively, the residents also agreed that they wouldpay more in order to continue to live in a sustainable home. Eighty percent of
the survey respondents living in a third-party certified home reported that theywould pay up to 5% more in order to move into a home that had been certifiedas sustainable versus one that had not. SELF-CERTIFIED AND THIRD-PARTY CERTIFICATION Consumer surveys were taken from residents living in both self-certifiedand third-party certified homes. In many respects, their answers were similar.Both groups agreed that energy efficiency and indoor air quality were extremelyimportant. In one area of difference, residents of self-certified homes reportedthat sustainable certification was less of an influencing factor in their decisionsto buy a particular home than did residents of third-party certified homes.
(Thirty-one percent of residents in self-certified versus 61% of residents inthird-party certified homes reported that the certification was an influence intheir decisions to buy their homes). Additionally, 56% of third-party certifiedhome residents reported that their utility bills had been lowered by moving intoa certified home versus 46% of non-certified home residents. HOMEBUILDER INPUT
Thirty-five builders responded to an online survey and an additional 10Earth Advantage homebuilders provided in-person interviews. The homebuilders answered questions regarding any costs associated with building athird-party sustainable certified home and trends in those costs over the past
five years. They were also asked to assess current appraisal methodologies.Home builders responded that awareness for sustainable features in a homehad grown significantly over the past five years. Despite this, however, demandfor third-party certified sustainable homes had not directly increased as aresult.
The survey asked if there were added costs associated with building asustainable residence. The majority of the respondents – 74% - indicated thatbuilding a home to certification standards was more expensive than building ahome to code. However, they also noted that the change in cost is comingdown. (See Table 5.4.) The increase in construction costs was observed to bebetween 5 and 10%. As builders become more experienced with the
specifications of a given program, and as their networks of sub-contractors andother knowledgeable professionals become more extensive, they have seensome of these cost increases go down. Home builders join the call for increasedpublic awareness related to sustainable building practices and increasedcollaboration among sustainable building advocates.
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Editors Note: This study was done prior to the roll out of most of the incentives, grants, rebate and tax credits discussed in this Maximum Performance from your Investment Properties from this report.
Other references substantiating the argument that green upgrades aredesirable come from The National Association of Realtors and McGraw Hill
Construction reports.
MARKET MOMENTUM DOCUMENTED
1. Surveys conducted by the National Association of Realtors (NAR Profile
of Buyers’ Home Feature Preferences, August 2007) have predictably
found that nine out of ten Realtors® say their clients are interested in
energy-efficient features of green homes and the potential cost savings
of such features. An overwhelming 90 percent agree there will be even
more interest in green building practices into the future.
2. McGraw-Hill Construction (The Green Home Consumer: Driving
Demand for Green Homes, November 2008) surveyed a representative
sample of one million U.S. households (equating to three million
consumers) to find those individuals who had purchased green homes
over the last three years. Going green was the top reason cited by
survey respondents for remodeling their home. Environmental benefits
such as lower energy costs and healthier air were identified by 42% of
respondents as their main reason for home improvements. The study
also found that:
- 70% of buyers are either more or much more inclined to purchase a
green home over a conventional home in a down housing market.
- Overall, lower income buyers say they found tax credits and
government programs, indoor air quality benefits and green
certifications to be the most important incentives for them to buy green
homes.
- Making homes greener is now the number one reason for home
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7. HOW TO APPLY FOR FUNDS FOR YOUR PROJECTS
Applying for and receiving grants, incentives, rebates and credits are
both an art and science. The government agencies and non-governmental
organizations we've spoken about have money to give and will do so willingly aslong as you ask for it correctly. Remember their mind-set. They are chartered
to give this money to deserving projects BUT they also want to make sure they
can easily comply with their internal documentation requirements. This is the
government.
There are at least four requirements for gaining the maximum amount of
grants, incentives, rebates and credits:
1. Complete all documents in legible print and make sure to include every
item they require. It sounds basic but you'd be amazed how many people get
their applications rejected or miss the deadline to receive funds because their
paperwork is incomplete or illegible. If what you submit is missing anything
there is a strong chance it will be consciously overlooked as it is additional
work to correct this.
2. Follow their time-line and procedures. Make sure you are doing what's
required when it is required. Do not do it before or late.
FOLLOW THE RULES & PAY ATTENTION TO THE CLOCK
Jim Simcoe reports he recently had a client who completed some energy
efficient work prior to getting an energy audit (as per the rebate program
instructions). All the work he had completed (roughly $3500) was disqualified
from the rebate because he didn't follow the right procedure. So make sure you
follow the exact time-line and step-by-step instructions they give you.
3. Learn which rebates can be combined and apply for everything. Some
programs overlap and do not restrict you from pursuing more than one rebate
for one energy efficiency measure you complete. For example, you might be
able to get a $2000 state rebate for insulating your walls with eco-friendly
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MAXIMUM PERFORMANCE FROM YOUR INVESTMENT PROPERTIES:
DOING IT YOURSELF VS. USING EXPERTS
In this field both time and expertise translate to money. Investors who
use expert advice benefit for two simple reasons: Time and money.
Greening up a portfolio is a full time task. The research necessary to
identify the programs, find the points of contact, navigate, define and fulfill the
compliance requirements of a rebate or an incentive or grant application
requires unfamiliar expertise. It can be a simple process if the applicant
investor knows what they are doing. Alternatively it can be a nightmare
because of the unfamiliar bureaucratic processes. Missing one checkbox on an
application can lead to delayed application and rebate payments. In some cases
this means failing to meet simple rebate requirements and being rejected
entirely for a simple administrative oversight. A botched application can
literally cost thousands of dollars.
The application familiarity and execution process can be arduous and
time-consuming. It typically takes two to three months researching all of the
applicable rebates, tax incentives, credits and grants that are available to you.
After spending this time, it is possible the applicant will still miss thirty to fortypercent of the money available. Worst still, blow the program expiration date.
If after reading this report and understanding the investment
opportunities, you want us to help with specific and affordable advice, then
please follow the process outlined below.
It is our belief, based on experience, that the time-to-money ratio,
barring any changes to known and current administrative processes, will be
faster and result in additional payments, rebates or incentives to the applicant.
For more information on this program you may contact
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MONETIZING THE STRATEGY
One unsurprising realizations in examining this area of improved
investment performance through green retrofits was the vague expressions of
benefits to a total lack of investment justification. Green advocates don’t seem
to do numbers. This is the opportunity we decided to embrace, implement,
prove and document.
The steps to reach a payback can range from simple and relatively
inexpensive with a 12 to 36 month payback to a more extensive approach that
is more expensive and takes a longer to reach a full return on investment. We
do not get anywhere near advocating solar systems or arguments for going off
the grid as most are not feasible or economically practical. Solar installations
are still marginal even with tax credits, because this assumes the tax payer has
income to recover the credit against any taxes owed.
The real goal is to identify the steps that bring the highest and best
returns fastest and with the least hassle.
MATCHING RETROFIT STEPS TO INVESTMENT RETURN OPPORTUNITIES
Determine what needs to be done to match energy efficiency grant
fulfillment requirements with the best recovery potential then execute these
retrofits. What is the capital cost and then how will these generate any capital
recovery or operating expense and income improvements. Any applicable tax
credits are specific to the tax payer. Any increased valuation for the property is
specific to the property and the appraisal strategy that is followed.
Going green is about two things – material and performance –This
discussion is about applying strategies and materials to get to improved
building performance and by definition an improved investment performance.This begins with an energy audit that typically is conducted in the context of
the retrofit. This must be done by a contractor that is recognized as providing
audits that are accepted by the utility or agency that you are expecting to
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One big win in an audit is that it often finds pending building system
problems and catches minor issues before they escalate into more major and
therefore expensive issues.
B. SINGLE FAMILY RESIDENTIAL RENTAL
Steps you can take range from something as simple and inexpensive as sealing pipe leaks to
substantial investments like a high-tech energy-management system. Commonly, the more pricey
the investment, the longer you have to wait for a payback. But you will come out ahead.
Parkchester North, a 55-building condo co
mplex in the Bronx, installed insulated windows. Over the next 20 years, the management
projects that this one retrofit will save the complex more than $500,000 in energy use.
As well, a property's asset value gets strengthened when environmentally friendly technologiesreduce operating costs. And there are the more intangible effects that also add value.
Like New
For instance, just as new buildings, in ads and promotional materials, are quick to trumpet their commitment to sustainable design, so, too, can older buildings evoke social consciousness andenvironmental responsibility by doing energy-conserving retrofits that can attract co-op or condobuyers. A green building is healthier and more comfortable than otherwise because interior air quality is improved and prospects like the idea of being responsible citizens, especially if theycan also save on their utility bills.
For a building contemplating these kinds of improvements, the key is to compare the upfront costof a green-related retrofit with its projected payback in terms of energy savings. The best way tostart is with an energy audit by a certified contractor or consultant. The audit will give thebuilding a handle on what needs to be done, what can be done, and what the estimated price tagwill be. Audits can be carried out separately or in combination with a full capital-needsassessment and capital plan.Here are examples of some of the more easily accomplished retrofits:
• Upgrade your lighting. Substitute compact fluorescent lighting for fluorescent bulbs.CFL bulbs last ten times longer than conventional ones and slash energy consumption by66 percent.
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• Install bi-level lighting in public areas such as staircases, hallways and the laundryroom. These setups change from dim to bright only when sensors detect foot-traffic,rather than burning lights brightly around the clock. The result? A 50 percent decrease inelectricity consumption.
• Prevent heat leaks. Check pipes and ducts for leaks, and seal them accordingly. Inspectthe whole building envelope for cracks and other openings from which heat can escape.
• Save in the kitchen. Substitute Energy Star appliances for older refrigerators(particularly profligate wasters of electricity) and ranges.
There are many other available retrofits, including the installation of photovoltaic cell arrays onthe roof to harness solar energy, or planting a green roof in which vegetation provides an extralayer of insulation that deters heat loss while reducing summer cooling needs by as much as 25percent.
Making Condense of It All
Two recommended but substantial investments involve your heating system. Both yieldimmediate savings in fuel consumption, but recouping the capital outlay can take three to sixyears.
High-tech condensing boilers are much more energy-efficient than conventional ones becausethey condense and recycle exhaust gases to preheat water entering the boiler recapturingenergy that otherwise would escape up the chimney. This increases the efficiency of fuelconversion to energy to over 90 percent, compared to the 80 percent or less of conventionalboilers. This not only saves money but also reduces emissions into the environment.
However, condensing boilers are up to 50 percent more expensive to purchase and install thanthe conventional variety and require more maintenance. The savings will pay for this addedexpense, but only after a few years.
Condensing boilers also cannot be used in steam-heating systems so the best route to higher efficiency in that case is with a computerized energy management system. An EMS useselectronic sensors throughout the building to continually monitor room temperatures and ensurethat heat is correctly distributed. More advanced EMS installations also provide zone controls for finer adjustment of heat-balance. Fuel costs are reduced because the monitors feed the boiler much more accurate information than a thermometer-based system. Long-term maintenance
problems are also minimized because the EMS alerts management as or before they arise.
There are many shades of "green" available to the enterprising co-op or condo board, enablingthe adaptation of relatively simple strategies now and to phase in further improvements later.Retrofits quickly show up in bottom-line savings while continuing to add to the value of apartments. Operating costs are pared, the building's value increases and you make a significantcontribution to decreasing harmful air emissions and to mitigating climate change.
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adjustments to the comps in order to make their features more in-line with
those features of the subject property.
Making and applying these adjustments is where the expertise of the
professional appraiser becomes necessary in understanding how much or how
little value a fireplace or other feature may have without knowing the
neighborhood, talking to real estate professionals and recent buyers in the area
about the importance of these amenities is in that particular location and
market. The result is a figure that shows what each comp would have sold for if
it had the same components as the subject.
2. Cost Approach
Another appraisal approach is the cost approach. How much would a
property cost to replace, that is, rebuild, minus "accrued depreciation?" This is
defined as the depreciation that has occurred since the property actually was
built. The cost approach includes concepts like "economic life" and "effective
age" that are mostly of use in determining the value of special use properties,
special purpose properties or properties where subsequent structural
improvements greatly impact value.
The cost approach is most useful for new properties, where the costs to
build are known. The appraiser estimates how much it would cost to replace
the structure if it were destroyed. The land cost is included in the value.
3. The Income Approach and Capitalization Rate
The third approach to value is the subject property based on income they
generate for their owners -- the most obvious examples being rental properties
such as apartment buildings, non owner-occupied houses and duplexes and
the like. The rental income an owner might reasonably expect from a property
is part of its value. For a purely owner-occupied residential property, this maynot be applicable, but it can be important if the property is to be rented out or
used otherwise to generate income, such as a rental home, store or office
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In Portland, OR:• Certified homes sold for 3% to 5% more than non-certified homes. In astatistical analysis with a 95% level of confidence, the overall price differencewas found to be 4.2%.• Certified homes sold 18 days faster than non-certified homes.
In Seattle, WA:• Certified homes sold for 9.6% more than non-certified homes.• The non-certified homes stayed on the market an average of 5 days longer (or40% more time on the market).
IT’S INCOME PROPERTY!
The economy and the inherent professional conservatism of real estate
appraising and valuation professions promotes a risk adverse approach to
valuation. They are not willing to pioneer new methods or considerations. This
is particularly true in the appraisal of residential real estate, compounded by
the current economic environment
Use of the tradition methods of comparative valuation or replacement
cost of buildings residential is appropriate if primarily for single family. The
simple answer is to legitimately redefine the property from an owner occupied
residence to its true character as a rental property and commercial exercise.
In 2008 about seventy two percent of all residential sales are owner
occupied while the remaining 28% are income property. Small multifamily are
almost always income property.
Therefore the argument is to consider the single family rental property
just like the small multifamily and to use the capitalization rate method of
valuation, after all the debt service and other expenses will be offset by rental
income.
This is a perfectly acceptable and normal approach to valuing an
investment property that does not cause the residential appraiser to move intoan area they are unfamiliar with. The premiums offered by increased income
and the expected reduction of operating costs allow a better capitalization rate.
The variable is that the appraisal group or appraiser must be comfortable
with commercial valuations versus a strict residential approach.
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IntroductionThis topic contains information on insulation and energy efficiency of the improvements.
Insulation an d Energy Efficiency of the Improvements
An energy-efficient property is one that uses cost-effective design, materials, equipment, and site orientationto conserve nonrenewable fuels.
Special energy-saving items must be recognized in the appraisal process. The nature of these items andtheir contribution to value will vary throughout the country because of climactic conditions and differences in util itycosts.
Appraisers must compare energy-efficient features of the subject property to those of comparable propertiesin the “sales comparison analysis” grid to ensure that the overall contribution of these items is reflected in themarket value of the subject property.
Then on page 537 of the Fannie Mae Selling Guide allow any income
adjustments to be used as an added argument for appraisal considerations
using a background of comparable valuations of similar properties.
B4-1.4-20, Appraisal Report Review: Income Approach toValue (04/01/2009) Introduction
This topic contains information on the income approach to value.Part B, Origination Through Closing Subpart 4, Underwriting PropertyChapter 1, Appraisal Guidelines, Appraisal Report Assessment - May 27, 2010 Income Approach to Value
Fannie Mae does not accept appraisals that rely solely on the income approach to value as an indicator of market value.
When the income approach to value is used, the appraisal report must include the supporting comparablerental and sales data, and the calculations used to determine the gross rent multiplier.
The income approach to value is not appropriate in areas that consist mostly of owner-occupied properties
since adequate rental data generally does not exist for those areas.
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this. A green advertisement versus the same ad language with no references to
green efficiencies generated three times the number of responses.
PREMIUM RENTAL CASE STUDY - May 2010
Columbine Property – Phoenix AZ Objective: To improve rental yield by promoting as energy efficient. Outcome: Achieved a 10% increase above market rate rent.1. Proposed market rent for this property was $1,095.2. Property rented for $1,195 generating a monthly premium of $100 overmarket rent and annualized at $1,200.
Conclusion - This unequivocally proved that a premium rent was gained frompositioning, advertising and selling a rental property as a maximumperformance with a lower cost of occupancy because of increased energyefficiency. Process: 3. An ad was created and posted on CraigsList.com that emphasized “green.”(see below).4. Prospective tenants responded to the 'green' web ad.5. The Leasing Representatives at the property management company needs to
be coached to emphasize the energy efficiency and tenant savings.Note well: In this case, even though the sales rep did not think 'green' was afactor in the rental sale and they did not mention 'green' as an advantage in thesales process, they achieved a rental premium of 10% above market or $100more a month or more $1,200 on an annual basis. Sample Ad Copy:
Save $$$ monthly in this energy-efficient 'GREEN' home with pool!
This home is scheduled to receive numerous green energy-efficient upgrades prior toyour move-in that are projected to lower your utility bills by 30% or more!
Upgrades like improved insulation (to keep it cooler in the summer and warmer in thewinter); energy-efficient showers and sinks, etc.This is the only affordable 'green' home in Peoria and can literally save you hundreds
of dollars a year on your utility bills.If you're interested in seeing the home, please email XX, thanks!