Category Archives: Home Improvements

Green Home, Home Improvements, Investment Strategies, Solar

The Real Value of Financing a Solar Panel System

When buying a home with solar panels, it’s crucial to understand the financial implications. Let’s explore a scenario where a home has a market value of $160,000 and how a solar panel system can impact the property’s value.

Cost and Appreciation of the Home. In this scenario, the home is initially valued at $160,000. Over 15 years, it appreciates to $249,000. This appreciation represents a substantial increase in the home’s value, providing a solid return on investment for the homeowner.

The 8600 watt solar panel system is also included in the sale but at an additional cost. This presents a more complex financial picture when purchasing a home. While it offers significant energy savings, the overall cost of the system impacts the bottom line. With a total financing cost of $43,500 over 15 years and estimated energy output  potential of $24,500, the cost of the panels result in a net loss of approximately- $19,000.

Valuating the Net Financial Position

To understand the complete financial picture, we combine the appreciation of the home with the net loss from the solar panels:

  1. Appreciation of the Home: The home’s value increases from $160,000 to $249,000, a gain of $89,000.
  2. Net Loss from Solar Panels: The solar panel system results in a net loss of $-19,000 over 15 years.
  3. Total Gain: Subtracting the net loss from the appreciation of the home during that time, the homeowner’s total gain amounts to $70,000.

Is It Worth It?

This example illustrates that while the solar panel system incurs a net loss, the overall appreciation of the home significantly outweighs this loss, resulting in a substantial net gain. When considering whether it’s worth paying extra for a home with solar panels, factors such as long-term energy savings, potential increases in home value, and financing costs, if getting a mortgage should be considered.

In this scenario, the home’s appreciation far exceeds the net loss from the solar panels, making it a financially sound decision for the buyer. As energy costs continue to rise, the potential benefits of solar energy systems become even more compelling for savvy home owners.

Although the net savings cannot be added into the appraised value, the home owner can add the yearly energy savings to the net gain amount to provide a clearer picture of the overall financial benefit of the solar panel system.

Yearly Energy Savings: The solar panels save approximately $2,600 per year.

Total Energy Savings Over 15 Years: Total savings amount to $39,000 over 15 years. 

 

Calculating the Net Gain with Energy Savings:

  1. Appreciation of the Home:
    • The home’s value increases from $160,000 to $249,000, resulting in a gain of $89,000.
  2. Net Loss from Solar Panels:
    • The total cost of the solar panels results in a net loss of $19,000.
  3. Total Energy Savings:
    • Adding the $39,000 saved on energy bills over 15 years enhances the financial outcome.
  4. Overall Net Gain:
    • Combining the home’s appreciation, the solar panel loss, and the energy savings:
    • Net Gain: $89,000 (appreciation) – $19,000 (solar panel loss) + $39,000 (energy savings) = 109,000

But would there be  a positive net return and still be worth investing in Solar panel system in the short term if the cost of financing of my house were included?  

Including the Cost of Financing in the Short Term

If purchasing a home with solar panels and financing for the $160,000 home is considered, the buyer generally pays a cash down payment of $32,000 and finances the balance of $128,000@5% for15 years = $96,000.

The total energy net gain is $109,000- $96,000 financing = $13,000 Net Gain, however if we also subtract the price of the  Down Payment of $32,000 then there is a total net loss = -$19,000 which yields a negative return for a 15 year time period in this short term purchasing scenario.

The Long Term Net Position

However, over a 25-year period, with a home purchased for $160,000 and financed for $128,000 at a 5% interest rate, the financial outcome changes:

  1. Home Appreciation: The home appreciates to $334,880 over 25 years.
  2. Energy Savings: The solar panel system provides $65,000 in savings on energy bills over 25 years.
  3. Financing Costs: The total interest paid on the mortgage amount is $160,000.
  4. Net Loss from Solar Panels: There is a -$19,000 net loss from the solar panel system.
  5. Down Payment: An initial down payment of $32,000 is made.

Taking all these factors into account, there is an overall net gain of $28,880! This means that, despite the costs associated with financing, the solar panel system, and the down payment, the appreciation of the home and the energy savings result in a positive financial outcome for the home buyer over the long term.

Conclusion

Despite the initial investment and depreciation, this particular solar panel system contributes positively to the homeowner’s financial position, making it a worthwhile consideration when considering adding a solar panel system to an existing home or purchasing a home with a solar panel system as a long term investment.  Estimates will always vary according to each solar panel system and is different in terms of the cost, amount of panels as well as energy output and energy savings. To find the energy out put of your solar panel system, check out this  Solar Panel Calculator.

 

Green Home, Home Improvements, Solar

Shining a Light on Solar Panels

Shining a Light on Solar Panels: Unlocking the Value in Real Estate Appraisal

Are you considering adding solar panels to your home? Beyond the environmental benefits, did you know that solar panels can also contribute to the overall market value of your property? Real estate appraisers take a multifaceted approach to evaluate the impact of solar panels, considering various factors that go beyond the initial installation cost. Let’s delve into the key aspects that appraisers typically take into account, breaking down the evaluation process.

 Cost Approach: Unpacking the Initial Investment When appraising a property with solar panels, appraisers often begin with the Cost Approach. This involves considering the initial purchase and installation costs of the solar panel system. The age and condition of the panels also come into play, with well-maintained and newer systems being valued more highly due to their extended economic life. This physical depreciation is factored into the overall effective age or condition of the home.

 Income Approach: Powering Up Future Savings The Income Approach centers around estimating the income generated by the solar panels over time. This income can be derived from savings on electricity bills or even income generated by selling excess electricity back to the grid. Let’s break it down: Imagine your solar panels save you $1,500 per year on electricity bills. The appraiser then applies a discount rate (let’s say 5%) to calculate the present value of these future savings. In our example, that’s approximately $24,000, reflects the financial benefit you receive from the solar panels over the years and is not directly added to the market value of the property. Instead, the income approach is used to incorporate the present value of the future energy savings into the overall valuation.

Market Comparison Approach: Solar Panels in the Neighborhood Appraisers also employ the Market Comparison Approach, looking at comparable properties with similar solar panel installations in the local market. This helps gauge how solar panels impact property values in a specific location. If homes with solar panels are selling for 3% more than those without, this percentage increase is factored into the overall market value calculation. In our hypothetical scenario, a home without solar panels is estimated at $250,000, while one with solar panels is valued at $257,500 (3% higher). This implies that, in this case, solar panels could add $7,500 to the market value.

It’s important to note that different appraisers may use slightly different methods, and the impact of solar panels on market value can vary based on local market conditions and buyer preferences. As solar technology continues to evolve and awareness of its benefits grows, the value of solar panels in real estate may see further enhancements. So, if you’re considering going solar, not only will you be contributing to a sustainable future, but you may also be enhancing the value of your home. Find a Solar Company in AR https://www.cnet.com/home/energy-and-utilities/arkansas-solar-panels

Home Improvements, Investment Strategies

Hey, What’s my Garage Worth?

When it comes to home improvement projects, one of the key considerations is the return on investment (ROI). The ROI measures the financial return or profitability that can be gained from a particular project. It essentially evaluates the value or gain generated from the investment made in improving or renovating a property.

Garage additions and renovations have historically shown positive ROI in many regions. The actual ROI can vary depending on factors such as location, the size and quality of the garage, and local real estate market conditions. Because of these factors, it’s important to note that there truly is no tried-and-true mathematical formula that precisely calculates ROI for home improvements – there will always be a variance.

To calculate the return on investment (ROI) for a garage project, you’ll need to consider the cost of the project and the expected increase in your property’s value as a result of adding the garage. Here’s a simplified formula:

ROI = (Net Gain / Cost of Project) x 100%

Cost of Project: This is the total cost of building the garage. Make sure to include all expenses such as materials, labor, permits, and any additional costs related to the project. Let’s assume the cost of your 22 x 23 garage project is $30,000.

Net Gain: To calculate the net gain, you’ll need to estimate how much the addition of the garage will increase the value of your property. Let’s assume the garage adds $40,000 to the value of your home.

ROI = ($40,000 – $30,000) / $30,000 x 100% ROI = ($10,000 / $30,000) x 100% ROI = 33.33%

In this simplified calculation, your estimated ROI for the two car’ garage project is 33.33%. This means that for every dollar you invested in building the garage, you can expect to gain an additional 33.33 cents in home value.

Keep in mind that real estate markets can be complex, and the actual ROI can vary greatly based on many factors including local market conditions and the specific features such as the size and the quality of construction.

Expert Tip: The only official way to calculate the net gain of the improvement is to determine the home’s value after the improvement is made. There is a unique type of appraisal called an “as-completed appraisal” where an appraiser will look at your renovation plans and your current home value and determine how much value the improvement will add to the property value upon completion. 

This type of appraisal is  normally completed if the home owner is  applying for a “renovation loan” and is based on the equity of the home , however this type of appraisal  can also be used by the home owner to see exactly how much value you are getting from your new improvement.

Remember, every home improvement project is unique and has its own set of variables. Your garage serves as more than just a place to park your car; it can be a valuable asset that adds both functionality and appeal to your property. Whether you’re looking to sell or simply want to understand the worth of this space, evaluating the value of adding a garage is an important step in maximizing your home’s overall value.

 

 

 

Home Improvements, Investment Strategies, Real Estate Market, Real Estate Market Analysis

Getting an appraisal when you are already in contract

What happens in a scenario where the buyer decides to have an appraisal performed after the home is already under contract? What are the possible outcome if an appraisal comes in above the contract price or below it?

 If  the Appraisal is above the contract price: 

If the appraisal comes out higher than the contract price, it may be seen as a positive outcome for the buyer. It means that the property is valued higher than what they agreed to pay, potentially indicating that they got a good deal.

However, since the buyer has already agreed to purchase the property for $320,000, they are typically obligated to honor the contract. The buyer may still proceed with the purchase at the agreed-upon price or renegotiate with the seller based on the new appraisal value. Renegotiation could involve trying to lower the price or requesting additional concessions from the seller.

Appraisal below the contract price

If the appraisal comes out lower than the contract price, it can create some challenges for the buyer. The lender (if involved) might only be willing to provide a loan based on the appraised value rather than the contract price.

In this case, the buyer may face several options: a) Proceed with the purchase as planned, covering the difference between the appraised value and the contract price with additional cash from their own funds. b) Renegotiate with the seller to lower the purchase price based on the appraised value. This renegotiation is typically subject to the willingness of the seller to adjust the price. c) Terminate the contract if there are contingencies in place that allow for this, such as an appraisal contingency.

The buyer may be entitled to have their earnest money deposit refunded if they decide not to proceed with the purchase due to the low appraisal.

It’s important to note that the specific consequences and available options may vary depending on the terms outlined in the purchase agreement, any contingencies present, local real estate laws, and the willingness of both parties to negotiate or modify the contract. Consulting with a real estate professional or an attorney would be advisable in such situations to fully understand the implications and potential outcomes.

Before you make a home purchase

It important do research about your neighborhood. Try to find similar homes in the same price range so you can see how your house compares in quality and size etc. And even if there is no mortgage involved, it is always prudent to have an appraisal on a property you are interested in before you enter into a legal agreement. Purchase agreements should always have a contingency in the event the property appraisal comes in below or above your offering price. An appraisal could save you the loss earnest or deposit money, paying too much or even a possible breach of contract.

Home Improvements, Investment Strategies

Ways to Increase Value

What are the Top ways owners can increase their property value or generate revenue from their properties? In this two part blog I will give a 7 ways on how owners can increase their property value or generate revenue from their properties:

  1. Make improvements: Making improvements to the property can increase its value and make it more attractive to potential buyers or renters. Examples of improvements could include upgrading the kitchen or bathrooms, adding square footage, or improving curb appeal.

Let’s say a homeowner has a property that was built in the 1980s and hasn’t been updated since. The kitchen has outdated appliances, the bathrooms have old fixtures, and the carpet is worn and stained. The homeowner decides to invest in making improvements to the property by renovating the kitchen, upgrading the bathrooms, and installing new flooring throughout the property. After the renovations are completed, the homeowner hires a professional appraiser to evaluate the property’s value. The appraiser takes into account the improvements that were made and compares the property to similar properties in the area. Based on this analysis, the appraiser determines that the property is now worth $50,000 more than it was before the renovations were made.

In this example, the homeowner was able to increase the value of their property by investing in renovations and upgrades. The improvements not only made the property more attractive to potential buyers, but they also increased the property’s value in the eyes of the appraiser.

  1. Rent out a portion of the property: If the property has additional space, such as a basement, garage, or extra bedroom, it can be rented out to generate additional income.

Let’s say a homeowner has a property with a detached garage that is not being used. The homeowner decides to rent out the garage as a storage unit to generate additional income. The homeowner cleans out the garage, installs shelves and locks on the doors, and advertises the space for rent on local classifieds websites and social media.

After a few weeks, the homeowner finds a tenant who is willing to pay $150 per month to use the garage for storage. The homeowner and tenant sign a lease agreement that outlines the terms of the rental, such as the payment due date and the length of the lease.

In this example, the homeowner was able to generate additional income by renting out a portion of their property that was not being used. By turning the unused garage into a rental unit, the homeowner was able to generate steady monthly income without having to make any significant investments or changes to the property.

Keep track of your project costs with these free project cost templates.

  1. Convert the property into a rental property: If the property is not currently being used as a rental property, the owner can consider converting it into one. This can generate steady monthly rental income and potentially increase the property’s value over

time.   Let’s say a homeowner has a property that they inherited from a family member but they already have a primary residence. The homeowner decides to convert the inherited property into a rental property to generate monthly rental income. The homeowner hires a property management company to handle tenant screenings, lease agreements, and maintenance issues.

After making some minor improvements to the property, such as repainting the walls and upgrading the appliances, the property is listed for rent. After a few weeks, a tenant is found and they sign a lease agreement for a monthly rent of $1,500.

In this example, the homeowner was able to generate steady monthly rental income by converting the inherited property into a rental property. This can be a good option for homeowners who have a property that is not being used or who are looking to generate additional income without having to sell the property.  To keep track of your  rental income, Zillow offers Rental Income and Expense Forms and Tools  to down load and use for free. You can get them here.

End of Part 1.