Home Improvement Returns: Solar Power Savings
A solar power system is without a doubt the best, most cost-effective way most homeowners can contribute to a healthier, more sustainable environment. It is also a proven way to save on energy costs if you are currently paying upwards of $150-$200 per month to your local utility. But did you know that many different studies, conducted by the real estate and home improvement industries, have shown that solar installations give you a better return on your investment that any other home improvement? It’s true.
Of course, real estate markets differ from state to state, and city to city. Overall, local markets determine the resale value of homes, but some improvements to your house increase its value in any market. It is important to know up front that you need to do some legwork if you want to see your home improvement investments result in an increased sale price for your property. First of all, you should consider the different impacts of various home improvement investments.
Bath, kitchen and beyond … and solar
Improvements to bathrooms, kitchens and other areas of the home, both inside and out, rarely result in lowering a home’s ongoing operating cost. Investments in cosmetic improvements are only worth additional money to the particular people who will value them. The proven, demonstrable monthly savings inherent in a solar system will be important to any buyer.
Most solar installations will pay for themselves in 8-12 years, after which you will essentially be “making money” for the life of the system. A common 3kw home solar system for example shows that the installation performs as well as a 9% stock return, assuming a conservative energy cost increase of 5% annually. The greater that energy cost increase is, of course, the greater your ROI (Return On Investment) will be by locking in the operating costs of solar today.
Economics of solar improvements vs. home improvements
Long-term studies published in the Appraisal Journal indicate that home improvements that save money on annual electricity costs will increase the property’s value by a 20-to-1 ratio. In other words, if you are saving $1,000 a year off your electricity bill by using solar power, the increase in your property value is a cool $20,000. Home buyers choosing between a home that generates free, self-supporting solar power and a typical home that generates thousands of dollars per year in electricity bills will usually make the rational decision, all other things being equal.
In just about every state, increases in assessed property value attributable to solar power systems are fully exempted from property taxes. When you factor in the rebates and incentives, and run the figures over the lifespan of the solar installation, solar power begins to enter the “can’t lose” category. On the other hand, the aforementioned cosmetic upgrades to bathrooms and kitchens and even outdoor landscaping do add to your property’s assessed, taxable value, making it less likely that you will recoup these costs when you sell.
Making the case of the value of solar installations
You may need to do some strategic thinking when it comes time to sell real estate agents and potential homebuyers on the value of your home’s energy efficiencies. There are a variety of ways to do so. A simple chart, comparing the monthly and annual energy costs of your home versus similar homes that rely 100% on the power grid, can be a very compelling part of a sales brochure or web listing. It will be up to you and your agent to communicate these real, tangible savings to all potential buyers. Many people will not even consider energy costs when shopping for a home, and will simply assume that all houses of similar size and location have roughly equivalent utility costs. Having a solar installation power the house will be a stand-alone value point to many buyers that will put you ahead of the competition.
You need to consider not just the actual appraised value set by the market, but the personal values of the possible buyers. For many people environmental awareness and sustainable living are not just words on a bumper sticker, and for those who want to live according to earth-friendly principles a solar system can have a value well in excess of the dollar amount accorded to it. The solar installation may not only set you above the other homes, it may be the difference-maker in their buy decision.
Bottom line facts
The long-term “Appraisal Journal” studies clearly show that homeowners can profit by making wise investments in energy-efficient technologies, regardless of how long they end up staying in their houses. As soon as the decrease in monthly energy costs exceeds the amount of after-tax mortgage interest financing the solar installation, there will be a positive cash flow. This will last as long as homeowners live in the houses, and when they decide to sell they will recoup their entire investment.
The challenge for real estate professionals, appraisers, sellers, and buyers is to take a long enough, hard enough look at the numbers to ensure that energy efficiencies like solar systems are accurately reflected in the market values of the improved homes. If these savings are not part of the formula, the appraised values of solar-powered homes could be unrealistically low. The good news is that the information is getting out there to the marketplace. More and more people are learning that solar power really is the best, and most valuable, home improvement investment.