Picture an ethical investment opportunity, and what springs to mind? You might imagine startup founders finding innovative ways to curb carbon emissions or promote renewable energy, or ESG funds pledging to avoid controversial industries like fossil fuels, weapons, or tobacco.
*This article was first published in Nasdaq.
One thing you probably don’t think about is real estate, and that’s a missed opportunity. There aren’t many sectors after all that touch as many people or as many aspects of our daily lives. Think of just about any social or environmental challenge and the built environment will have a critical role to play in developing scalable and effective solutions.
The trouble is, ethical real estate is currently seen as a luxury: A flagship store or a high-end condo building might trumpet its LEED certification, but you don’t see many mass market developments built with a serious commitment to social and environmental impact. That needs to change. Prestige projects are wonderful, but to drive impact at scale, responsible investors need to focus their attention on more mainstream and affordable real estate developments.
A Better Way To Invest
Before we dig deeper, let me acknowledge the elephant in the room: Yes, I’m a real estate investor and yes, I make my money buying apartment complexes for middle income families. Now, when I tell people that, they often assume they know the whole story – they think of predatory landlords exploiting people and offering shoddy housing to those who’ve fallen on hard times.
That stereotype is part of the problem. The reality is that I got my start in this industry after winding up down on my luck myself. When I got kicked out of my apartment, I realized just how dehumanizing losing one’s home can be.
I managed to put together the money to buy and fix up a unit in a rundown building in Washington Heights. Having dealt with my fair share of dodgy landlords once I got involved in real estate I wanted to do things differently – to show that property owners don’t have to be villains and that investing in real estate could be a force for good in the world. I knew though that if I wanted to show that real estate investment could be a form of activism, I couldn’t just buy and run swanky condos for rich folks. I needed to show that it was possible to make money and do good by developing clean, healthy, sustainable places where people who are anything but wealthy can live with dignity.
Four Strategies For Success
So, what is required to alter the method of managing real estate investments? Well, naturally, it involves a transformation in mindset, an absolute commitment to contribute positively rather than to exploit individuals. But it also takes a few actionable strategies designed to turn mainstream property investment into a win-win for property owners, the residents, communities, and society as a whole. Here are four key methods that investors can use to turn real estate into a force for scalable social change while still bringing in a strong ROI:
1. Aim Higher
As investors, we’re used to thinking about deals in terms of the money they’ll bring in and that’s perfectly reasonable. But as responsible investors, we need to aim higher and find ways to drive both profits and social change.
Plenty has been written about doing good in other industries, but in real estate, we’re still feeling our way through this maze. And that’s a big opportunity, though: Investors that find ways to create win-win deals, with responsible underwriting and property management, will stand out from the crowd and emerge as leaders in the responsible real estate sector.
2. Use the Campsite Rule
Anyone who spends time in the great outdoors knows that campers should always strive to leave their campsite in a better condition than they found it. That’s a basic moral principle that can be applied to many walks of life, including real estate projects.
Especially when investing on the lower end of the value spectrum, there are often opportunities to complete long overdue updates or to add simple amenities that dramatically improve the quality of life for our residents. A little thoughtfulness goes a long way. Something as simple as a fresh coat of paint or new planters in common areas can have a big impact on the way people feel about themselves and their homes.
3. Make Sustainable Pay
By taking advantage of tax credits, grants, or preferential loan rates, it’s often possible to turn environmental improvements into a net positive for your bottom line. The key is to use this as an opportunity to bring benefits to everyone involved: More efficient lighting or water fixtures can reduce utility bills and significantly lower the overall cost of living for residents, for instance.
Again, it’s important to find ways to promote sustainability, not as a luxury for the wealthy, but as a fundamental part of the way we now live. Bringing green spaces and sustainable building practices into affordable projects can be a great way to have a broader social impact – by showing that it’s possible to build green in any community and that people of all income levels want and deserve healthy, clean and sustainable living spaces.
4. Find Your Tribe
It’s vital to remember that not everyone sees things the way that you do. Not all investors care about the environmental or social impact, so to maximize your impact, you’ll need to find people who share your values. Real estate provides a great way to do this since many projects are developed through syndication with groups of people coming together to bankroll a major project. That’s a powerful force multiplier for responsible investors. Find partners who share your values and you can amplify the impact of your own investments to drive change on a far larger scale.
Keep On Building
If you’ve watched this far, you’re clearly curious about the ways that you can help make the world a better place. I’d urge you to consider real estate. It may not be the most obvious responsible investment option – but precisely because of that, it’s a place where individual investors can have an outsized impact.
As responsible investors, after all, we’re always trying to leverage our capital to generate returns while also driving positive social change. Real estate is a great way to do this, because the projects we create endure over time, touch the lives of many people, and help reshape entire communities for the better.