Can You really force Appreciation on Residential Properties??

Question

Previously we have been taught that forcing appreciation is a great strategy that is used commonly in commercial real estate. By incorporating a new strategy called "greenhabbing", we've found a way to actually force appreciation on your residential..... (click the link below for a video explaining this process)

forcing appreciation video

J Scott · Answer

We "force appreciation" by buying several properties in the same subdivision or area, and doing an over-the-top rehab on the first to reset comps at a higher price point. Once that property is sold, it's generally not too difficult to command similar prices for the other rehabs, and the appraisals get easier and easier with each sale (as you get more comps in that price range).

We sold a house a couple months ago where 3 of the 5 comps were our previously rehabbed properties... :)

We sold a house a couple months ago where 3 of the 5 comps were our previously rehabbed properties...  :)

Matt Stookey · Answer

@Steve.  There are a lot of rebates out there right now...which ones are you referring to (federal, state, local utility company)?  In our area that we focus, Michigan, we've had no problems receiving rebates as long as the project is a residential property and we are the owners of the home (utilities in our name).  DTE is the local utility company in the Detroit area and they have a rebate program which provides cash rebates for "green" retrofits such as eco-friendly insulation that gets blown into the walls.  What I would like to do since I am not the "green" expert per say is to have my Chief Green Officer give you a more thorough understanding on how rebates work depending on your location.  I've been learning as much as possible about the benefits of "greenhabbing" but would like to get Jim in on this topic to answer any questions that I may not know thoroughly myself.  Thanks for the great question Steve and everyone else so far on this forum.  Seems to be a trending topic :)

Steve Babiak · Answer

Most All of the "green rebates" I have seen are specifically for owner occupants only, so I don't know where or how you are claiming you use these rebates for rehabs or landlording.

Matt Stookey · Answer

@Will.  Very good point indeed.  In fact that is why alot of "Green" companies go out of business in their startup phase because the environment took precedence over them making money.  As my good friend Jim Simcoe says, we consider ourselves to be tree-hugging capitalists.  We want to do a good thing for the environment but it HAS to make sense as an investment.  Obviously making money is the #1 goal of a business...so it has to be profitable.  With that said, we've actually spent less money by "greening" up our projects.  By not over-doing it and by substituting in eco-friendly products into our "greenhabs", we've saved an avg. of 10-30% in our overall rehab budget. There are many rebates out there which has made this possible for us. (not to mention saving tenants ~25%+ on their utility bills and the increased value we just forced on the home).    
And believe me, we've seen folks overdue it and lose money because they went overboard with "green" materials so it definitely makes sense to speak with a "green" consultant before jumping into any crazy projects.  Thanks again for the great post Will.

Will Barnard · Answer

Jason - great strategy. I wish that could be done here. Unfortunately, it would be rare to find 3-4 homes on one street all REO and at prices that made sense. Our markets are obviously different. As always, love your input/strategies.

@Matt - One thing to consider is that the cost to install these green systems adds capital expense which increases acquisition costs and thus reduces cash flow. YOu would have to consider the trade-off from increased cash flow with increased capital expense, then calculate if it makes financial sense, if it is a wash, or a loss.

Matt Stookey · Answer

@J Scott.  That's another awesome strategy.  As long as you can lock down those areas with multiple houses and really "control" the comps, that's excellent!  I like the way you guys think J!

Matt Stookey · Answer

@Will.  great points that you have.  Any way that you can force appreciation (value) is obviously a plus (as long as the appraiser notes these value increases).  The way that we are forcing appreciation is to first look at a residential property as an income producing dwelling.  The goal is to decrease your expenses so your NOI is higher (commercial strategy).  By "greenhabbing" our properties, we are decreasing expenses which in turn is increasing our NOI.  There is a formula which is explained in more detail in the video link on the first post in this forum "forcing appreciation video".  Let me know your thoughts once you get a chance to watch it.  Thanks for the reply Will.

Will Barnard · Answer

To answer the topic question, Yes it can be done and not just by "going green". I force appreciate each property I rehab and often times, through the re-arrangment of a floor plan, I often force the appreciation (value of home) through this process. Of course this works for flipping, not sure about holding.

As for the article, I agree that the example between Cinci and DC properties is accuarte, but I am not sure I agree 100% about investing in climates with dramatic temperature changes is better. In fact, I would argue that temperatures such as Southern CA will attract higher prices and more buyers simply because the weather is good all year long. There are many people, particularly of the retirement age (which by the way babyboomers are coming of this age) are moving to warmer climates because they can't stand the harsh winters.

Matt Stookey · Answer

Thanks for the article Joshua!  We are great friends with Jim...smart dude!

Joshua Dorkin · Answer

We actually shared an article on the topic last week on the BiggerPockets Blog:

How Picking Rental Markets Based on Climate Can Make You More Money

Can You really force Appreciation on Residential Properties??

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