Monday, February 11, 2008

LEED Certification: Is It Worth It?

Environmentalism is a huge topic today. Investors must always keep an open mind, so today we are going to explore LEED Certification and attempt to answer the question of whether or not LEED certification is worth it for real estate investors.

The cost to achieve LEED certification on a residential home is a hard number to figure out exactly, as the LEED certification system is point-based and can be a bit confusing. In addition, LEED certification for residential homes is a newer program, modeled after the LEED certification program for commercial buildings, according to Builder Magazine. To get some background information on the program, read our article about the LEED certification program.

LEED certification can be awarded in four levels: certified, silver, gold and platinum. Each level, of course, requires more points, and thus will be more expensive to obtain for a property. As an investor, in order to make an informed decision, you will need to figure out what the costs will be, and what the potential return will be.

First let's discuss the potential returns. The exact numbers are going to be hard to figure out, but you can be certain that there is a definite added value to "green" products in most places across the U.S. People are generally willing to pay more for "green" products because it makes them feel good. There is also an associated status with it. The same certainly applies to housing. If people were given the choice between two comparable houses, one with LEED certification and one without, many people would choose the one with the LEED certification--and even be willing to pay more for it.

The biggest return for investors will certainly be in the marketing and desirability of their property. While it is hard to put a number on that, in today’s tough marketplace, anything that helps move a property is welcome. Because we are simply looking for the ability to market the property as LEED certified--to show that the house is “green”--it would make sense that all we would really need is to achieve is the minimum certified rating. Sure those higher rankings would be great, but they also are going to cost a lot more.

To figure out the costs, and which items make the most sense for you to take on, check out the LEED for homes rating system. Some of the items will be cheap to implement, while others will be expensive. In addition, there are some points awarded simply for a favorable location and other factors beyond the homeowner's control. Find the items that will be the cheapest to add in and work from there. Once you achieve the point total you are looking for, then you have your cost. If you want to make things easy, you can always just order a modular home, some of which are made to LEED certification standards already. If you want a custom home, or if you want to work from an existing home, you can hire a consultant to help if needed.

Looking at the numbers--which are all hypothetical, really--on the surface, LEED certification would appear to be worth the investment. When obtained in a cost efficient manner, the lowest certification level appears to be the best bet for investors in terms of return. This, of course, is assuming your property is in a market which has demand for "green" products. A simple check could be whether or not you have a Whole Foods or other similar store nearby. If there is one near you, then chances are there are a good number of environmentally and health conscious people around who would be willing to pay for a home with LEED certification.


aadi said...

While design and construction of buildings have used environmentally friendly practices in the past, LEED was developed to provide a streamlined set of building standards. The government has worked to model sustainable green building by achieving certification on many of its state buildings. In order to increase the number of new and redeveloped buildings eligible for LEED certification, the government also offers many incentives within the building industry, including grant funding and tax breaks based on the level of LEED certification attained.
Leed Certification Levels

Lauren said...

I don't understand how having a Whole Foods nearby immediately implies there are environmentally conscious people in that area. Much more in depth studies are needed to determine if constructing a LEED certified building would be economically feasible.