Tag: real estate investors

  • How the Green New Deal Would Impact Real Estate Investors

    Depending on your views on climate change, the Green New Deal framework will either conjure up enthusiasm, anxiety, or perhaps a combination of the two. The proposed bill, which has since been explained as a framework towards what we ought to work towards, calls for “maximum energy efficiency”. Based on scientific research, which concludes climate change is imminent and potentially disastrous, the proposal aims for net-zero emissions in the United States by 2050. As part of the plan to get there, this means every building in the country would need to be upgraded for maximal energy efficiency, water efficiency, safety, affordability, comfort, and durability.

    As of the start of 2020, approximately 40% of the United States’ carbon monoxide emissions come from either commercial or residential real estate buildings (Neiditch, Forbes). Many of the political proponents of the Green New Deal were pushing it behind the idea that up to $1 trillion of infrastructure and coastal real estate could be damaged by global warming by 2050. According to the Energy Information Administration (EIA), currently, there are approximately 5.6 million commercial real estate buildings in the United States. Specifically in New York City, as part of an ongoing effort to combat climate change, legislation was passed to force buildings that are larger than 25,000 square feet to make energy efficient alterations. The legislation mandates cutting down greenhouse gas emissions 40% by 2030 and 80% by 2050. While the parameters for smaller, residential buildings aren’t as explicit, it’s estimated 95 million homes will be impacted and the cost to owners will be in excess of $400 billion (Neiditch, Forbes).

    While the Green New Deal did not come close to passing as it was originally written and there is unlikely to be sweeping legislation on a national level to overhaul climate change, many cities and states are finding a balance between clean air and economic productivity. Unfortunately, a lot of this conversation tends to be intertwined with politics, but the reality is a rural area in Kentucky (as an example) is not going to have the same availability of economic or human capital resources as a metropolis, like New York or Los Angeles. The lack of availability of these resources puts constraints on the ability of certain regions to advance their technological capabilities, thereby making the real estate investment opportunities unattractive to potential investors.

    Though preparations to meet the 2030 and 2050 targets have begun, there are some more immediate upgrades property owners can make that aren’t as long-term oriented, including switching out lightbulbs for “smart” lighting, upgrading HVAC systems, installing remote-controlled window shades, painting roofs with light-reflecting paint, planting trees, and installing photovoltaics. Additionally, preparation for weatherization is key to having a more energy efficient property. Windows, doors, and insulation can all be switched out and there is legislation to include different types of incentives for property owners to make these changes. Upgrading electric and plumbing systems, as well as installing solar panels can make homes more marketable, considering these changes are becoming more prevalent to the point of necessity. Finally, the Green New Deal framework focuses heavily on “green spaces” – or lawns – that cover more than 40 million acres of land in the United States. Lawns limit biodiversity and encourage pesticide usage and emissions from lawnmowers. The Green New Deal supporters encourage the conversion of these spaces to victory gardens and the expansion of green landscape architecture practices. An example of this is xeriscaping, or sustainable, easy-to-maintain landscaping first used in arid regions, which uses native plants and limits turf areas. This can reduce outdoor water use by as much as 50%, saving water as well as the environment (Neiditch, Forbes).

    So, what does the ambitious Green New Deal framework and the implications it will have on commercial and residential real estate mean for investors? Firstly, investors should focus on high-tech, climate-resilient opportunities in the real estate market. Secondly, residential real estate owners who are not under pressure from legislators to make climate change friendly adjustments to their properties should do so anyway, otherwise they will be far less attractive to prospective investors. Finally, commercial real estate investors, who are under pressure to begin implementing climate change measures mandated by signed legislation, are going to face major hurdles with regards to cost cutting. This legislation poses further challenges to commercial real estate investors, who are already in a difficult position coming out of the pandemic, in addition to facing the necessity to transform their assets to handle the push towards digital transformation. One thing is for sure: the conversation will continue. Being prepared for change is the best way to not only save the environment, but your long-term financial stability as well.

  • How the Green New Deal Would Impact Real Estate Investors

    Depending on your views on climate change, the Green New Deal framework will either conjure up enthusiasm, anxiety, or perhaps a combination of the two. The proposed bill, which has since been explained as a framework towards what we ought to work towards, calls for “maximum energy efficiency”. Based on scientific research, which concludes climate change is imminent and potentially disastrous, the proposal aims for net-zero emissions in the United States by 2050. As part of the plan to get there, this means every building in the country would need to be upgraded for maximal energy efficiency, water efficiency, safety, affordability, comfort, and durability.

    As of the start of 2020, approximately 40% of the United States’ carbon monoxide emissions come from either commercial or residential real estate buildings (Neiditch, Forbes). Many of the political proponents of the Green New Deal were pushing it behind the idea that up to $1 trillion of infrastructure and coastal real estate could be damaged by global warming by 2050. According to the Energy Information Administration (EIA), currently, there are approximately 5.6 million commercial real estate buildings in the United States. Specifically in New York City, as part of an ongoing effort to combat climate change, legislation was passed to force buildings that are larger than 25,000 square feet to make energy efficient alterations. The legislation mandates cutting down greenhouse gas emissions 40% by 2030 and 80% by 2050. While the parameters for smaller, residential buildings aren’t as explicit, it’s estimated 95 million homes will be impacted and the cost to owners will be in excess of $400 billion (Neiditch, Forbes).

    While the Green New Deal did not come close to passing as it was originally written and there is unlikely to be sweeping legislation on a national level to overhaul climate change, many cities and states are finding a balance between clean air and economic productivity. Unfortunately, a lot of this conversation tends to be intertwined with politics, but the reality is a rural area in Kentucky (as an example) is not going to have the same availability of economic or human capital resources as a metropolis, like New York or Los Angeles. The lack of availability of these resources puts constraints on the ability of certain regions to advance their technological capabilities, thereby making the real estate investment opportunities unattractive to potential investors.

    Though preparations to meet the 2030 and 2050 targets have begun, there are some more immediate upgrades property owners can make that aren’t as long-term oriented, including switching out lightbulbs for “smart” lighting, upgrading HVAC systems, installing remote-controlled window shades, painting roofs with light-reflecting paint, planting trees, and installing photovoltaics. Additionally, preparation for weatherization is key to having a more energy efficient property. Windows, doors, and insulation can all be switched out and there is legislation to include different types of incentives for property owners to make these changes. Upgrading electric and plumbing systems, as well as installing solar panels can make homes more marketable, considering these changes are becoming more prevalent to the point of necessity. Finally, the Green New Deal framework focuses heavily on “green spaces” – or lawns – that cover more than 40 million acres of land in the United States. Lawns limit biodiversity and encourage pesticide usage and emissions from lawnmowers. The Green New Deal supporters encourage the conversion of these spaces to victory gardens and the expansion of green landscape architecture practices. An example of this is xeriscaping, or sustainable, easy-to-maintain landscaping first used in arid regions, which uses native plants and limits turf areas. This can reduce outdoor water use by as much as 50%, saving water as well as the environment (Neiditch, Forbes).

    So, what does the ambitious Green New Deal framework and the implications it will have on commercial and residential real estate mean for investors? Firstly, investors should focus on high-tech, climate-resilient opportunities in the real estate market. Secondly, residential real estate owners who are not under pressure from legislators to make climate change friendly adjustments to their properties should do so anyway, otherwise they will be far less attractive to prospective investors. Finally, commercial real estate investors, who are under pressure to begin implementing climate change measures mandated by signed legislation, are going to face major hurdles with regards to cost cutting. This legislation poses further challenges to commercial real estate investors, who are already in a difficult position coming out of the pandemic, in addition to facing the necessity to transform their assets to handle the push towards digital transformation. One thing is for sure: the conversation will continue. Being prepared for change is the best way to not only save the environment, but your long-term financial stability as well.

  • Why Real Estate Investors Refer to Real Estate as an I.D.E.A.L. Investment

    Many real estate investors are familiar with the acronym ‘I.D.E.A.L. Investment’ in the context of real estate investing (Chad Carson, Coach Carson). This acronym is a great, succinct explanation for why real estate is preferred by many investors to other vehicles like dividend stocks, bonds, small businesses, index funds, bank certificate of deposits, annuities, and more.

    Income

    Real estate properties provide excellent cash flow on a regular (typically a monthly) basis and the income size can be quite substantial, depending on your properties’ interest rate, unpaid principal, and property value. This is the primary objective of any investor, which makes real estate a top choice for many. If you aren’t seeing much or any cash flow from an investment, especially after a lengthy period of time, typically it’s not a very successful one.

    Depreciation

    Another big advantage to real estate investing was actually made widely known by Donald Trump in the 2016 presidential campaign; depreciation. Depreciation occurs because for residential buildings, the U.S. government requires real estate investors to spread out most of the cost of real estate purchases over 27.5 years. This creates an annual depreciation expense, which can provide incredible tax benefits. This ‘expense’ doesn’t come out of your bank account, like purchasing materials to sell products, or insurance/maintenance costs. Instead it’s absorbed ‘on paper’ and you see real financial benefits in the form of tax relief.

    Equity

    Generally for real estate investors, as time goes on the more equity they’ll acquire in their own properties by repaying loans, which is directly linked to greater overall wealth. The shorter it takes you to pay off your own financial obligations on a property, the larger your ROI will be. Additionally, you’ll be able to optimize the length of time you’ll see financial benefits from that investment. While it may depend on your financial situation and the real estate market climate, real estate investing is a great way to acquire equity and see positive cash flow simultaneously.

    Appreciation

    Appreciations refers to the idea that your property value is supposed to increase each year. As we’ve seen in recent years, this may not necessarily be the case (primarily due to unpredictable circumstances). However, long-term investors (who comprise a very large segment of real estate investors) are satisfied with the long-term average of property values visibly pointing towards an upward trajectory.

    Leverage

    Leverage can refer to two distinct advantages of real estate investing. Firstly, some indicate this means the initial incurrence of debt leading to equity growth over time (this appears to be covered by ‘Appreciation’). Secondly, leverage can more commonly refer to the idea of using other people’s money (OPM) to earn a positive cash flow. This gives investors the opportunity to use relatively small amounts of cash upfront to gain control over multiple investment properties and earn returns on cash invested. This method isn’t typically used by passive investors, who would be concerned with over-leveraging and what could happen if there was a steep decline in the housing market.