Category Archives: Investment Strategies

Green Home, Home Improvements, Investment Strategies, Solar

The Real Value of Financing a Solar Panel System

August 19, 2024 Terri Pro

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:

Appreciation of the Home: The home’s value increases from $160,000 to $249,000, a gain of $89,000.
Net Loss from Solar Panels: The solar panel system results in a net loss of $-19,000 over 15 years.
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:

Appreciation of the Home:
- The home’s value increases from $160,000 to $249,000, resulting in a gain of $89,000.
Net Loss from Solar Panels:
- The total cost of the solar panels results in a net loss of $19,000.
Total Energy Savings:
- Adding the $39,000 saved on energy bills over 15 years enhances the financial outcome.
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:

Home Appreciation: The home appreciates to $334,880 over 25 years.
Energy Savings: The solar panel system provides $65,000 in savings on energy bills over 25 years.
Financing Costs: The total interest paid on the mortgage amount is $160,000.
Net Loss from Solar Panels: There is a -$19,000 net loss from the solar panel system.
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.

Home Improvements, Investment Strategies

Hey, What’s my Garage Worth?

October 2, 2023 Terri Pro

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

July 11, 2023 Terri Pro

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.

Investment Strategies, Real Estate Market

More Ways To Increase Value

May 9, 2023 Terri Pro

Here are four more examples of ways to increase value.

4. Rent out the property on Airbnb or other short-term rental platforms: If the property is located in a desirable area or popular tourist destination, it can be rented out on Airbnb or other short-term rental platforms to generate additional income. Vrbo.com – (formerly known as HomeAway) is one of the largest vacation rental marketplaces,

Here’s an example of how renting out a property on Airbnb or other short-term rental platforms can generate additional income:

Let’s say a homeowner has a property in a popular tourist destination that they use as a vacation home for a few weeks each year. The homeowner decides to rent out the property on Airbnb during the times that they are not using it to generate additional income. The homeowner lists the property on Airbnb, sets the rental price, and arranges for a cleaning service to clean the property between guests.

After a few weeks, the homeowner begins receiving booking requests from travelers who are interested in staying at the property. The homeowner accepts the requests and the property is rented out on a regular basis. After accounting for cleaning and other associated expenses, the homeowner is able to generate an average of $2,000 per month in rental income from the property.

In this example, the homeowner was able to generate additional income by renting out their property on Airbnb during the times that they were not using it. This can be a good option for homeowners who have a property in a desirable location and are looking to generate steady income without having to commit to a long-term rental agreement.

5. Install energy-efficient upgrades: Installing energy-efficient upgrades, such as solar panels or energy-efficient appliances, can not only save the owner money on energy costs, but it can also increase the property’s value.

Let’s say a homeowner has an older property that is not energy-efficient, and they want to reduce their energy costs and increase the property’s value. The homeowner decides to invest in energy-efficient upgrades such as installing solar panels, upgrading insulation, and replacing old windows and doors with energy-efficient ones.

After completing the upgrades, the homeowner notices a significant reduction in their monthly energy bills. Additionally, the property’s value has increased due to the energy-efficient upgrades, making it more attractive to potential buyers if the homeowner decides to sell the property in the future.

In this example, the home owner was able to reduce their energy costs and increase the property’s value by installing energy-efficient upgrades. This can be a good option for homeowners who want to save money on their energy bills, reduce their environmental impact, and increase the value of their property.

6. Subdivide the property: If the property is large enough, it can be subdivided into multiple parcels and sold separately, or the individual parcels can be leased or developed.

Let’s say a homeowner has a large property with a lot of acreage. The homeowner decides to subdivide the property into smaller lots and sell them separately to increase the overall value of the property. The homeowner hires a surveyor to subdivide the property and create new property lines, and then applies for the necessary permits from the local government.After the property is subdivided, the homeowner lists the new lots for sale. The smaller lot sizes make them more attractive to buyers who are looking for more affordable options or who want to build a smaller home. After selling all of the lots, the homeowner is able to generate a higher overall sale price for the property than they would have if they sold it as one large parcel.

In this example, the homeowner was able to increase the value of their property by subdividing it into smaller lots and selling them separately. This can be a good option for homeowners who have a large property with a lot of acreage that they are not using, or who want to generate additional income by selling off portions of their property.

7. Offer amenities: If the property is a vacation rental or located in a desirable area, offering amenities such as a pool, gym, or hot tub can make it more attractive to renters or buyers and potentially increase its value.

Let’s say a homeowner has a property with a large backyard. The homeowner decides to add a swimming pool, a hot tub, and a built-in outdoor kitchen to the backyard to make it more attractive to potential buyers and increase the overall value of the property.

After completing the additions, the homeowner notices that the backyard has become a more desirable space for outdoor entertaining and recreation. Potential buyers are now more interested in the property because of the added amenities, and the homeowner is able to sell the property for a higher price than they would have if the backyard had remained untouched.

In this example, the homeowner was able to increase the value of their property by adding additional amenities to the backyard. This can be a good option for homeowners who have a large outdoor space and want to make it more attractive to potential buyers, or for those who want to increase their own enjoyment of the property.

Home Improvements, Investment Strategies

Ways to Increase Value

April 11, 2023 Terri Pro

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:

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.

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.

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.