Being Green is Financially Rewarding
Being Green Is Financially Rewarding
Energy conservation and use of renewable energy sources are becoming of ever greater priority because the price of energy has increased in recent years and is expected to continue increasing for the future. Furthermore, it is thought that the use of carbon fuels is affecting climate in ways that will significantly affect the world in the decades ahead. We’re being told to drive less, buy more fuel efficient vehicles, use fluorescent bulbs, and keep our homes warmer in summer and cooler in winter.
In addition to market forces which have caused increases in energy costs and will do so in the future, there are substantial national and global pressures to deal with predicted climate change by significantly increasing the cost of energy in order to reduce use. Whether this comes about via a straightforward tax on carbon (the word “tax” impedes this approach) or via a cumbersome cap-and-trade system as currently being proposed (providing Wall Street with trillions of dollars in future trading profits), energy cost are certain to rise substantially in the long-term.
Although much of the energy news is slanted toward the homeowners, all landlords will also be affected by potential climate change and most have been and will continue to be impacted by increasing energy costs. Accordingly, landlords should take serious looks at the ways in which they can reduce energy use by their properties.
Homeowners can usually justify spending thousands of dollars on capital improvements to their residences that will conserve energy or provide energy. This is partly because they are willing to wait the years required to receive payback via governmental tax credits, various rebates, and lower energy costs. It is also partly because most homeowners expect that the improvements will increase the value of their properties by a large percentage of the cost of the improvements and they expect to recoup most of their remaining investment upon eventual sale of their homes.
For a number of reasons, it is harder for most landlords to invest the required amounts in their rental properties. This is partly due to the fact that many landlords do not have capital available for reducing their properties’ energy usage because they have a relatively low cash flow from their properties. It is likely that it is also partly due to the fact that many landlords do not realize all the potential financial benefits of minimizing energy use.
Landlords should be concerned about long-term solutions to global energy issues because they are citizens of the world and hopefully want to be good citizens. However, they should also be concerned because they will be personally affected financially by what happens. They will pay the same high prices for gasoline and sources of energy for heating, cooling, and otherwise operating their homes as will others in this country.
Obviously, landlords should be interested in energy usage related to those items which they pay for the benefit of tenants – that is, common area utilities. However, landlords should also understand that reducing energy costs paid directly by tenants affects the amount of rent the tenant is willing or able to pay. Most tenants are on limited fixed incomes and the more the tenants must spend on energy, the less they can spend on rent. In other words, the rising costs of energy will increasingly limit the levels of market rents. Accordingly, minimizing energy costs paid by both the landlord and the tenants will improve net cash flow for the landlord.
Ways of reducing utility costs include the following:
- Install tamperproof low-flow showerheads and faucet aerators.
- Rebuild leaking toilets, replacing large tanked toilets (Can reduce water costs by thousands of dollars for large apartment complexes where owner pays for water). Adequately monitor units for water leakage in toilets, sinks, tubs, showers, and laundry facilities whether water is paid for by tenants or owner. In addition to saving on the cost of water for tenants and/or owner, adequate monitoring can minimize the risk of damages to sink cabinets, flooring, and wall bases.
- Prevent the use of common area water for washing vehicles or paved areas can help keep the landlord’s water costs down.
- Where owner pays for heat in complexes having central heating, a new boiler and insulated piping can save hundreds a year, even thousands for large complexes.
- Having common area lighting on only when actually necessary, via timers, motion sensors, and/or photo cells can result in significant savings. Install mechanical or electronic timer or motion sensor switches in laundry rooms to avoid lights left on for long periods when rooms are not occupied.
- Provide convenient ways to turn off exercise machines and TVs.
- Replace incandescent bulbs with compact fluorescent bulbs. In 2007 Congress set energy standards that essentially ban incandescent bulbs by 2014, beginning with 100W bulbs in 2012 and ending with the 40W bulbs in 2014.
- Replace outside faucets with caps or install locking faucets to eliminate use of water for washing vehicles and paved areas.
- Where possible, convert from house water, gas, and electric meters to individually metered units. Where not mechanically cost effective to convert to separate metering, allocate costs among units using a fair and legally acceptable allocation method.
- Install non-carbon energy systems such as solar water heating.
Regarding the item 9, tenants will almost always be more careful about wasting energy when they have to pay for what they use rather than have energy costs included within their rents. When the rent includes the landlord’s costs for energy, the tenant may not realize that he is paying for the “free utilities.”
The cost of separate water, gas, and electric meters being installed by the utility service provider depends on both location of the property and how the property is plumbed. The cost of the meters themselves can vary substantially, from nothing to more than a thousand dollars each. The cost of the necessary modifications and installations can also vary substantially, from a few hundred dollars to more than a thousand dollars per unit, depending on how the building is plumbed and wired.
If installing separate meters, where each tenant is responsible to the water provider for the unit’s bill, is not economically feasible because of the cost of the meters and their installation, landlords can consider sub-metering. With sub-metering, meters from other than the water provider are obtained at a significantly lower cost and tenants reimburse the landlord for their fraction of total usage as determined by the sub-meter compared to the existing meter for the entire building.
Unfortunately, it is not always financially feasible to convert to either individual metering or sub-metering because of the manner in which the water, gas, or electrical system is constructed within the walls, floors, or ceilings of a particular property, making the necessary changes prohibitive. The only way to determine the costs of the two approaches is to (1) get meter prices from both the water provider and sub-metering vendors, (2) check out the current plumbing to get a preliminary idea of modifications that will be necessary so that you can judge estimates from plumbing contractors, and (3) get estimates for the necessary plumbing modifications other installation costs from qualified contractors.
Another solution that is relatively low cost, though somewhat less desirable, is that the landord allocate water usage among the tenants in accordance with some quantifiable and equitable method.
One method often used for water is to allocate usage according to number of occupants. Since most water uses vary in proportion to occupants, this is usually considered more equitable than basing allocations on unit area or even number of bathrooms.
Allocating gas and electricity is somewhat more difficult because the amount of energy related to heating and cooling of units is less directly related to the number of occupants.
Landlords must keep in mind that, no matter which route they go, they would not be able to change the terms of a lease during the lease period. For month-to-month tenants this is usually 30 days.
Regarding item 10, federal and state governments often provide tax incentives and utility providers sometimes provide rebates for solar, wind, and other energy systems. However, owners must also be certain that their tax situations allow them to benefit from tax credits and that the payback period for a system at current system and conventional energy costs is cost effective. Such system conversions will likely become more beneficial as systems costs continue to decline and energy cost increase.
In summary, by making their properties more green landlords can both reduce their own energy-related operating expenses and make it possible to charge higher rents, both items contributing to better cash flow.