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For 'Eco Flippers,' There's Green in Foreclosed Homes

Renovators profit from energy retrofits of foreclosed houses

By Nick Leiber
     June 21 (Bloomberg BusinessWeek) -- When Christine Fisk
toured a foreclosed home in Phoenix that had been renovated to be
more energy-efficient, she wasn’t sold on its environmental
benefits. But the two-bedroom bungalow was just minutes from her
office and in good shape, so the financial adviser bought it for
$150,000. A year in, Fisk is a believer: Her last electric bill
was under $40, far less than she expected. “My day-to-day reality
is dollars and cents, so everything that trickles down into my
pocketbook is important,” she says.
     The retrofit of Fisk’s 1947 home was overseen by G Street,
one of a growing number of small businesses that buy old homes,
renovate them to be more energy-efficient, and sell them. These
“eco flippers” spend tens of thousands of dollars to gut
properties, revamp heating and cooling systems, improve
insulation, and install greener appliances. The business model is
“a convergence of the vast number of foreclosed or short sales on
the market and customers’ increased interest in energy
efficiency,” says Peter Brown, a director at Earth Advantage
Institute, a Portland (Ore.) nonprofit that advocates sustainable
construction methods. “It goes beyond marketing.”
     With 11 million-plus homeowners owing more on their
mortgages than their homes are worth, eco flippers have plenty of
potential inventory. And the idea holds promise for remodelers,
says Kermit Baker, chief economist for the American Institute of
Architects. “The big opportunities are really older homes that
were not built very energy-efficiently to begin with,” he says.
Of course, “It’s a tough time to sell a home. If you’re investing
more and therefore need to increase the sale price of the home,
that’s an even riskier undertaking in this economy.”
     Brent Farrell is convinced that spending $75,000 to $120,000
to retrofit houses in Houston makes economic sense. The founder
of ReCraft Construction Services has completed about 15 green
remodels since 2009 and says that all sold within a month.
Energy-saving features make homes “more marketable, so I will
sell faster,” says Farrell, who expects more than $7 million in
revenue this year, at least 50 percent more than in 2011.
     Countering the doubts of skeptical home buyers about
efficiency claims is crucial. Those concerns can be eased by
groups such as Earth Advantage Institute, the U.S. Green Building
Council, and the National Association of Home Builders Research
Center, which oversee the verification process and issue
certifications. G Street, which has bought and renovated seven
houses in Arizona since 2007, is now focusing on hand-holding
rather than buying homes. The four-employee company charges about
$5,000 for plans, oversight of a project, and help getting the
renovation certified. “We’ll take all the pain out of what
typically is perceived as not an easy process,” says G Street
founder Philip Beere. He anticipates his company will handle
about 1,000 eco-renovations in the next year.
     Why not just tear down drafty old houses and build
energy-efficient ones in their place? It’s cheaper to renovate a
solid existing structure than demolish and start anew, says Aaron
Fairchild, who founded Green Canopy Homes in Seattle in 2010.
“We’re putting capital to work two times as fast as a new
construction homebuilder because we don’t have to go through new
construction permitting” and other hassles, he says. With seven
renovations sold and six more in progress, he plans to double his
staff by yearend, to 20.
     Like Christine Fisk, attorney Timothy Harris hadn’t been in
the market for “a super eco-friendly home” when he and his wife
paid $572,000 for Green Canopy’s first renovation, a 1926 Tudor,
two years ago. Now, he says, “When we tell our friends how much
lower our gas and electric bills are, they’re amazed. I had an
old house that was half the size that cost twice as much to heat.
It’s a remarkable difference.”

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