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For purposes of example, assume the following:
The cost to make 123 Neptune Street a high
performance green home: $5,000
Annual savings in energy costs: $1,200 Capitalization rate: 7%
Return on Investment (ROI)
The return is the annual savings in energy costs. The investment is the cost of the project. Return / Investment Using the example, the equation would be: $1,200 / $5,000 = .24 = 24% = ROI
Estimated Asset Value Increase
Annual savings in energy costs / Capitalization rate In the example, the equation would be: $1,200 / .07 = $17, 143 = Estimated increase in asset value
The payback period is the amount of time is takes to recover the amount invested. Project cost / Annual savings in energy cost Using the example: $5,000 / $1,200 = 4 years, 2 months = Payback
* If the answer included decimals, convert (from base of 10) to months (base of 12). In this example, the answer was 4.166, converted to 4 years and 1.6/10 of a year. So .166 x 12 = 1.992, approximately 2 months.
After completing these formulas, meet with an appraiser to show the increased value created. It is critical to provide them with ALL of the following: 1. Energy Audit report. 2. List of energy-efficient measures completed. 3. List of energy-efficient materials/ equipment installed.4. Project annual utility expense savings based on historical data. 5. Projected asset value increase.
Jim Simcoe is a green real estate consultant, sustainability speaker and author. Mr. Simcoe has been featured on NBC, Fox, SmartMoney.com, San Diego Insider TV, etc. Mr. Simcoe also writes for EcoHome, Personal Real Estate Investor Magazine, San Diego Business Journal, BiggerPockets.com, etc. He is the co-author of the ³Go Green, Bank Green´ study published by Personal Real Estate Investor Magazine in March 2010. Mr. Simcoe is the President of the Board of Directors of the New World Leadership School, the first sustainable kindergarten in San Diego County. He is a Certified Green Building Professional, EcoBroker and Real Estate Broker. He lives with his wife, two daughters and two very spoiled dogs in Cardiff-By-The-Sea, California. He can be reached at firstname.lastname@example.org or 760-271-7128.