Maximizing Investment Property Returns
Property investors returned to the market in a big way in 2023 as rising property prices and tightening rental vacancy rates lured investors back.
While most people, think of improving energy efficiency in their own homes, there are substantial financial benefits for an investment property.
1.Lower Mortgage Rates: Green loans are available to investors who incorporate the right mix of energy efficient features. The biggest advantage of Green Loans is a discounted interest rate which can be up to 1% for a property with a high Loan to value ratio. A lower mortgage rate, equals both increased affordability and greater borrowing capacity for the investor.
2. Lower Operating Costs: Energy-efficient properties typically have lower utility bills due to reduced energy consumption. This translates to lower operating costs for the property owner, which can increase the property's net operating income (NOI) and overall profitability.
3. Higher Rental Rates: Tenants are often willing to pay higher rental rates for energy-efficient properties because they can benefit from lower utility bills. Additionally, in some regions, there may be regulations or incentives that encourage landlords to invest in energy-efficient upgrades, which can further justify higher rental rates.
4. Increased Property Value: Energy-efficient properties are generally more attractive to buyers and investors because they offer long-term cost savings and environmental benefits. As a result, energy-efficient properties may have higher resale values compared to similar non-energy-efficient properties in the same market.
Research by Domain showed that in 2022 the price premium for an energy efficient free-standing home was 17.1% and 12.7% for a unit.
Domain Sustainability in Property Report 2022
5. Market Demand: With growing awareness of environmental issues and sustainability concerns, there is increasing demand for energy-efficient properties among tenants, buyers, and investors. Investing in energy efficiency can make a property more competitive in the market and appeal to a broader range of potential tenants or buyers.
6. Tax Incentives and Rebates: Many governments and local utilities offer tax incentives, rebates, or other financial incentives for energy-efficient upgrades and improvements. Taking advantage of these incentives can lower the upfront costs of making energy-efficient investments in the property, thereby improving the property's overall return on investment (ROI).
7. Regulatory Compliance: In some regions, there are building codes or regulations that require certain energy-efficient standards for new construction or renovations. Investing in energy efficiency ensures compliance with these regulations, avoiding potential fines or penalties and protecting the property's long-term value.
8. Future-Proofing: Energy-efficient properties are more resilient to future changes in energy costs and regulations. By investing in energy efficiency now, property owners can mitigate the impact of future energy price increases and regulatory changes, making the property more attractive and valuable over the long term.
Overall, being energy efficient can significantly enhance the yield, and final sale value of an investment property – it is really a no brainer for any investor.
If you would like to find out how to make this work for you, get in touch today.