By Rob Jafek | Boomerang Capital, Principal
The field of ESG, which stands for Environmental, Social and Governance, has been of concern to investors for some time. In discussions with partners interested in ESG, they have been particularly interested in the rehab space and how it functions within ESG considerations. This is because rehabbing a home (renovating or restoring an existing structure) can often be a more environmentally friendly or green option, compared to buying a new build or constructing a new home, for several reasons.
When you rehab a home, you’re using what’s already there, essentially recycling or upcycling an existing structure. This conserves the materials and energy that would otherwise be required to construct a new building. New construction typically involves the extraction of raw materials, manufacturing, transportation, and construction processes, all of which have environmental costs.
Older homes can be upgraded with energy-efficient features, such as better insulation, energy-efficient windows, and modern HVAC systems, which can often surpass the energy performance of many new builds. Retrofitting an older home is often more sustainable than demolishing it and starting from scratch.
New construction generates a significant amount of waste, including excess materials, packaging, and demolished structures. Upgrading an old home produces substantially less waste in comparison. By salvaging and repurposing existing materials, we contribute to a more sustainable approach, mitigating the environmental impact associated with waste disposal.
Older homes often come with mature trees and landscaping that have environmental and aesthetic benefits. Working with the existing landscape can also have added financial benefits. New builds typically start with a blank slate, which may require new landscaping that takes years to mature, and additional hardscaping to accommodate the greenery. This new landscaping can also be costly.
Bottom-line, the net effect of all of this is a lower carbon footprint and less waste, a positive ESG impact. The construction of a new home, from sourcing materials to transportation to on-site construction, can have a significant carbon footprint while also creating excessive waste. While new builds require all new materials, which can be significant in cost and volume. Rehabbing doesn’t require the same level of new resource consumption.
Note that this lower carbon footprint also has lasting effects. New builds tend to be further away from work and other necessities, meaning that the occupants of those new builds will be doing more driving. And more driving means more emissions. Proponents of ESG refer to this problem derisively as “urban sprawl” and they are not fans.
There are lots of reasons to be fans of rehabbing homes, and its not just for the value they add to the neighborhood. Considering the criteria of ESG the benefits of flipping older properties can have longer, environmental, benefits. One more check in the “PRO” column when tackling your next real estate investment project.