... Whether you are an established investor, just beginning, or desiring to raise funding to create your own project.
You may be hearing new buzzwords in the world of real estate investing, such as “green”, “sustainable”, “eco-friendly”, or even “regenerative”.
That’s because the real estate market is changing.
As more people realize the real social and economic danger to current and future generations posed by climate change, many individuals, companies and even governments are rethinking our approach to how we design the spaces and communities in which we live.
On the investment side, more and more individuals, family offices, and even sovereign wealth funds are looking for ways to invest in sustainable and environmentally friendly projects as they realize they can meet their investment goals while also aligning with their environmental values.
You may already be aware of the United Nations’s 11th Sustainable Development Goal which aims to “make cities and human settlements inclusive, safe, resilient and sustainable”
Therefore, sustainable real estate development is rapidly emerging as a major real estate sector, with many new opportunities for investors of all backgrounds.
After working on 15 sustainable development projects with a team who has raised hundreds of millions of dollars for developments including many successful high end projects, we at New Earth Development understand the market and want to see you succeed in your real estate investing journey - whether that includes our firm or not.
That’s why we created this article as a resource for you to be informed about today's investment landscape so you can make the wisest choice for your investment portfolio.
1) Understand What Sustainable Real Estate Is
The terms "sustainable" and "green" are often used interchangeably when referring to construction and development, but there is a subtle difference between the two.
Green buildings and developments are designed to be energy efficient and use less water. They may also use recycled materials and renewable energy sources.
Sustainable buildings and developments are designed to meet the needs of the present without compromising the ability of future generations to meet their own needs. They are built using materials and methods that minimize environmental impact and conserve resources.
In other words, all green buildings are sustainable, but not all sustainable buildings are green.
The term “Regenerative”, on the other hand, refers to a slightly different idea.
Both regenerative and sustainable real estate projects are designed to have a positive impact on the environment, but there is a key difference between the two. Sustainable real estate is designed to minimize harm to the environment, while regenerative real estate is designed to actively improve the environment.
Here are some of the key differences between regenerative and sustainable real estate:
Sustainable real estate focuses on reducing the environmental impact of buildings and infrastructure. This includes things like using energy-efficient materials, conserving water, and reducing waste.
Regenerative real estate goes beyond simply reducing its environmental impact. It actively seeks to improve the environment by restoring damaged ecosystems and creating new ones. Regenerative real estate also focuses on the social and economic impact of real estate development. This includes things like creating jobs, providing affordable housing, and supporting local businesses.
When a real estate project aims to do better than maintain the ecological status quo around the project, they are considered "regenerative". Regenerative real estate projects aim to leave the surrounding area better than they found them by improving the local ecology and community through systems that sequester CO2, clean the water supply, provide opportunities for locals, and inspire residents to live fully expressed lives.
Here at New Earth Development, we have been specializing for 7 years in developing regenerative communities by combining all of the cutting edge natural building, permaculture, economic and operations technologies to create world class eco-living experiences.
For the purposes of this article though, we will use the term “sustainable” real estate since that is where much of the real estate market is right now.
2) Define Your Sustainable Investment Goals
There are many reasons to invest in sustainable real estate, and which one is right for you depends on a number of factors.
It is important to first consider all of the reasons you want to invest, both in terms of your financial and lifestyle goals.
Your financial goals: What are you hoping to achieve with your investments? Are you looking to generate income, build wealth, or both?
Your risk tolerance: How much risk are you willing to take with your investments?
Your time horizon: How long do you plan to hold onto your investments?
Your environmental goals: What are your environmental goals? Are you looking to reduce your carbon footprint or create a legacy of environmental stewardship?
Your personal goals: What are your other personal goals? Do you want to live in a sustainable home, invest in your community, have a more relaxed lifestyle or spend more time in nature?
Once you have considered the above factors, you can start to define your investment goals.
Here are some examples of specific investment goals for sustainable real estate:
Generate income: You could invest in a property that is LEED or Living Build Challenge certified and rent it out to tenants who are looking for a sustainable home and earn a profit each month in the amount of rental revenues minus financing and maintenance expenses.
Build wealth: You could invest in a property that is located in the path of development in a desirable area which has the potential to appreciate in value over time.
Reduce your own carbon footprint: You could invest into and live in a property that is energy efficient and uses renewable energy.
Invest in your community: You could invest in a property that is located in a community that is working to become more sustainable.
Build your sustainable legacy: You could invest into the creation of a sustainable or regenerative development project which allows residents an entirely new lifestyle to transform generations to come. This is what we are focused on at New Earth Development, for example.
It is important to remember that your investment goals may change over time. As you learn more about sustainable real estate and your own financial situation changes, you may want to adjust your goals accordingly.
3) Decide If You Are An Active or a Passive Investor
The biggest distinction you have to make is whether you are looking to make an Active Investment, or a Passive Investment.
Active Real Estate Investments
Active real estate investments involve buying and managing properties. This can include tasks such as finding tenants, collecting rent, and making repairs. Active real estate investors typically have a lot of experience in the real estate market and are willing to put in the time and effort to manage their properties.
Pros of Active Real Estate Investments:
Potential for higher returns: Active real estate investing can potentially offer higher returns than other types of investing. However, it is important to note that there is a higher risk involved in active real estate investing.
Chance to build equity in property: When you buy a property, you are essentially buying an asset that can appreciate in value over time. This means that you can build equity in the property, which is the difference between the value of the property and the amount you owe on the mortgage. Equity can be used to finance future investments or to provide a source of income in retirement.
Tax benefits: There are a number of tax benefits available to real estate investors, such as depreciation deductions and tax credits. Depreciation deductions allow you to deduct the cost of the property over time from your taxes, which can reduce your taxable income. Tax credits can provide you with a dollar-for-dollar reduction in your taxes.
Potential for appreciation: The value of real estate can appreciate over time, which means that you can sell the property for a profit. However, it is important to note that there is no guarantee that the value of the property will appreciate. If the market shifts unexpectedly, the value of the property could decline - resulting in a loss.
Cons of Active Real Estate Investments:
Require significant time commitment: Active real estate investing can be a very time-consuming activity. You will need to find tenants, collect rent, and make repairs. You may also need to deal with legal issues or other problems that arise, unless you find an experienced management team to do this for you.
High risk (unless you’re sure you really know what you’re doing): Active real estate investing can be a risky investment, especially if you are not experienced in the real estate market. You could lose money if the property value declines or if you have difficulty finding tenants. It is important to do your research and understand the risks involved before you invest in active real estate.
Require experience and knowledge: Active real estate investing requires a certain level of experience and knowledge. You need to understand the real estate market, how to find good deals, and how to manage properties. If you do not have the necessary experience or knowledge, you may want to consider passive real estate investing, described further below in this article.
Management headaches: Active real estate investing can also be a lot of work. You will need to deal with tenants, repairs, and other management issues. This can be time-consuming and stressful.
Examples of Active Real Estate Investments:
Buy and hold: This is the most traditional strategy, where you purchase a property, add sustainable features such as solar panels, low energy HVAC systems, and perhaps a permaculture garden, then hold it for the long term. This strategy can be less risky than other strategies, but it also offers lower returns comparatively. However the reductions of the energy bill and increase of livability of the home make the home more attractive to renters, potentially increasing your monthly rent rate.
Fix and flip: This strategy involves buying a property that needs repairs or renovations and then selling it for a profit. This strategy can be more risky, but it also offers the potential for higher returns. Be sure to explore all of the tax credits available for any certified Green improvements you make to the house.
Wholesaling: This strategy involves finding properties that are undervalued and then selling them to other investors for a profit. This strategy can be less risky than other strategies, but it also requires more time and effort.
Multifamily investing: This strategy involves investing in multiple units of housing, such as apartments or condos. This strategy can be a way to diversify your portfolio and reduce your risk, but unless you have a management company you trust, will require much of your time and oversight.
Commercial real estate investing: Traditionally, this strategy involves investing in properties that are used for commercial purposes, such as office buildings or retail stores. This strategy can be a way to achieve higher returns, but also requires more specialized knowledge.
Our team at New Earth Development specializes in a mixed-use regenerative development strategy where commercial real estate forms the town center which is used for co-working, elixir and juice bars, organic restaurants, zero waste grocery, and sustainable and ethical retail shops, while the neighborhoods are filled with net-positive designed sustainable residential real estate.
If you are interested in active investing and want to create your vision to start your own sustainable or regenerative land project, check out this Free Masterclass: How to Plan & Fund Your Regenerative Land Project. In the free masterclass you'll learn how our regenerative community development model works, as well as how to plan and fund your own project.
Passive Real Estate Investments
Passive real estate investments involve investing in real estate through a third party, such as a real estate investment trust (REIT), a real estate crowdfunding platform, or direct with an active real estate developer.
Passive real estate investors do not have to be involved in the management of the property, but they still share in the profits. In some cases, passive real estate investors are called “Limited Partners” because of their limited decision making in the project.
Pros of Passive Real Estate Investments:
Lower risk: As long as you invest in an experienced team with a solid plan and ensure the investment is asset-backed by real estate, passive real estate investments are among the lower risk investments on the market across any asset class as long as there is strong market demand for the house product being brought to market.
Low time commitment: In most cases, all that is required of you after making your investment is your optional review of monthly investor reports. Before making an investment into a project, make sure the development team or other active investor has a third party CPA firm that handles the monthly reports to ensure transparency and accuracy of all financials.
No management headaches: Since you are placing an investment in another team to directly manage the project, the day-to-day operations become the responsibilities of the development team rather than more action items on your plate.
Potential for diversification: When you don’t put all of your eggs into an active real estate investment basket, you can be free to diversify your investable assets across many different opportunities. Or if you find an asset management firm you trust, you can place your investable assets with them and allow them to do the due diligence process of vetting investments on your behalf.
Cons of Passive Real Estate Investments:
Potential for lower returns: Compared to active residential or commercial real estate investing, a passive investor will see a lower percentage return per dollar invested. However, because they are not actively involved in the project, the passive investor sees a near infinite percentage return per hour invested. For those who have more money than time, or those who want to delegate and let their money work. for them, this is an excellent strategy. Residential real estate passive money lending typically returns 8-12%, while commercial or mixed use passive money lending can return 15-25%+.
Lack of control of the project: Becoming a passive investor in a project means you’re trusting the management firm to make decisions. You may be asked to have a seat on the Board of Directors with voting rights, but in most cases the project will be driven exclusively by the active investors or general partners.
Examples of Passive Real Estate Investments:
Real estate investment trusts (REITs): REITs are companies that own and operate income-producing real estate. There are many different types of REITs, including those that invest in sustainable properties.
Real estate crowdfunding: Real estate crowdfunding platforms allow you to invest in real estate projects with a small amount of money. There are a number of real estate crowdfunding platforms that focus on sustainable real estate projects.
Green bonds: Green bonds are bonds that are issued to finance environmentally friendly projects. These bonds can be a way to support sustainable development and earn a return on your investment.
Impact investing into a fund: Impact investing is a type of investment that seeks to achieve both financial and social returns. There are a number of impact investing funds that invest in sustainable real estate projects.
Impact investing directly with active investors or developers: Taking a position as a Limited Partner in a residential, commercial or mixed-use development project can be a great way to earn higher rates of return than the stock market and other investment vehicles, while hedging your risk because your investment is typically asset-backed by the land of the project. By picking the project you want to invest into directly without going through a fund first, you are able to earn a higher percentage return by not paying the fees to an intermediary fund.
4) Determine Your Investment Strategy
Now that you know what your goals are and you also know whether you are an active or a passive investor, you can start defining your investment strategy.
Every investment strategy, whether you are an active or passive investor, depends on you first understanding the market.
The biggest force determining market behavior you need to understand right now is that 78% of homebuyers are interested in sustainable homes, according to a 2021 survey by the National Association of Realtors (NAR). This is up from 64% in 2019. The survey also found that 57% of homebuyers are willing to pay more for a sustainable home.
Modern-day consumers are preferring to purchase sustainable and regenerative homes for the following reasons:
Reduced energy costs: Sustainable homes are designed to use less energy, which can save residents money on utility bills.
Improved indoor air quality: Sustainable homes are built with materials that are less likely to off-gas pollutants, which can improve indoor air quality and reduce risk of respiratory problems. At New Earth Development, we ensure the finest indoor air quality by building homes and commercial spaces using either hempcrete or sugarcrete which have incredible properties including fire resistance, mold resistance, soundproofing, moisture control, insulation, durability, renewability, and low-VOC (volatile organic compound) ratings.
Increased comfort: Sustainable homes are designed to be more comfortable to live in, with features like passive solar design and insulation that can help regulate the temperature.
Increased property value: Sustainable homes are becoming increasingly more popular, which can lead to an increase in property value.
Reduced environmental impact: Sustainable homes have a lower environmental impact than traditional homes, which helps residents reduce their carbon footprint.
Peace of mind: Knowing that they are living in a home that is good for the environment and their health gives residents peace of mind.
At New Earth Development, we fully understand the market of homebuyers who are already demanding sustainable homes, which is why all of our regenerative development projects are focused on deeply serving that niche and we recommend your projects do the same.
It’s important to realize that sustainability is no longer just a cute buzzword. Sustainability is becoming a must for your real estate project to find the end buyer your business model requires.
Other trends to know about in the market today include:
Low but rising mortgage rates: According to the US Federal Reserve, the average interest rate for a 30-year fixed-rate mortgage is 5.78% as of March 1, 2023. This is up from 3.22% in January 2023 and 2.96% in December 2022. The average interest rate for a 15-year fixed-rate mortgage is 4.81%, up from 2.65% in January 2023 and 2.51% in December 2022. While rising, current mortgage rates are still relatively low compared to historical standards. The highest average interest rate for a 30-year fixed-rate mortgage in the last 50 years was 18.63% in 1981. The lowest average interest rate was 3.29% in 2021. This means that some people will be downsizing the size of home they were considering buying, but there is still strong demand for homes.
Limited inventory: The supply of homes for sale is low, which is also driving up prices. This is due to a number of factors, including the pandemic, which has slowed down construction and led to more people staying put in their homes. This means there is strong demand for quality new house construction.
Remote work: The rise of remote work has made it possible for people to live in more places, which has increased demand for homes further away from major cities. This is especially true in areas with good internet access and amenities, and places where there are natural attractions to take breaks and unwind in nature. Every one of our development projects focus on providing the highest quality internet and amenities for remote workers which makes marketing much easier.
Rising inflation: Inflation is rising, which is making it more expensive to buy a home in some markets. This is because the cost of materials and labor is going up, which is driving up the cost of new construction. At New Earth Development, we combat this by sourcing locally available, natural building materials and processing on-site as much as possible.
Supply chain disruptions: Supply chain disruptions are also affecting the housing market, as they are making it more difficult to get materials and labor for new construction. This is also contributing to the rising cost of homes. All the more reason to source locally available materials rather than source through complicated international supply chains.
And of course, as is the case with all investments, every investment carries risk so it is important that you educate yourself on the niche you pick and surround yourself with subject-matter experts.
If you are interested in investing in sustainable or regenerative real estate projects and would like a free investment strategy consultation, click the link below. After you fill out the application, a member of our team will meet with you personally to explore the opportunities available in the world of sustainable and regenerative real estate informed by years of experience in the field, so you can make the best decisions possible for your portfolio.
5) Deepen Your Network
As a sustainable real estate investor equipped with clear goals, it is important to have a strong network of projects to invest in and other investors to connect with and learn from.
This network can help you stay up-to-date on the latest trends in sustainable real estate, find new investment opportunities, and get advice from experienced investors.
There are a number of ways to deepen your network as a sustainable real estate investor. Here are a few tips:
Attend industry events: There are a number of industry events that cater to sustainable real estate investors. These events are a great way to meet other investors, learn about new projects, and get updates on the latest trends.
Join online forums and groups: There are a number of online forums and groups for sustainable real estate investors. These forums are a great way to connect with other investors, ask questions, and share ideas.
Reach out to other investors: Don't be afraid to reach out to other investors, even if you don't know them personally. Many investors are happy to connect with other investors and share their knowledge.
Get involved in the community: Get involved in the sustainable real estate community in your area. This could involve volunteering for a sustainable real estate organization, attending local events, or joining a sustainable real estate club.
By following these tips, you can deepen your network as a sustainable real estate investor and position yourself for success.
Here are some additional benefits of having a strong network as a sustainable real estate investor:
Access to exclusive investment opportunities: Your network can give you access to exclusive investment opportunities that are not available to the general public.
Reduced risk: By investing with other investors, you can reduce your risk. If one investment goes sour, your other investments will help to mitigate your losses.
Better decision-making: Your network can provide you with valuable insights and advice that can help you make better investment decisions.
Increased knowledge: By networking with other investors, you can stay up-to-date on the latest trends in sustainable real estate and learn from the experiences of others.
If you are serious about sustainable real estate investing, it is important to invest in your network. By following the tips above, you can build a strong network that will help you achieve your investment goals.
A great free resource for you to continue deepening your network is our free Facebook group called Sustainable and Regenerative Development. The group is full of over 500 sustainable and regenerative real estate entrepreneurs, investors, developers, land owners and service providers. You will definitely meet some fascinating people in there!
To join the group, feel free to follow the link below:
Thank you for your time reading this article!
On behalf of the New Earth Development team, I wish you joy, ease, grace and plenty of abundance on your journey investing in a better world for all future generations through sustainable and regenerative real estate.
Have a Blessed Day,
Co-Founder, New Earth Development