The Economic Benefit of Improving your Insulation

While most home owners think of their home as a place to shelter their families and to create great memories it can also be considered the biggest investment in their portfolio.

This is important to consider when contemplating making an investment in home improvements.  Home improvements come in the form of replacements and repairs to mechanical or other components that break down or become obsolete, expansions that provide for more space or changes the purpose of a space, remodels that change the function and appearance of a space or retrofits that make a home more comfortable and energy efficient.  I want to make the case for which of these home improvements lead to a financial return on the money you invest.

A return on investment is created when the financial outlay for your home improvement generates some form of a cash return.  Cash return is created when the improvement reduces your operating costs, or increases the value of your home so that when you sell it you more than make up for your investment.

The list of investments that reduce your operating cost is pretty slim.  The only group of home improvements that lowers your operating costs are those that reduce your energy consumption.  This includes improving your insulation, replacement doors and windows, re-lamping projects, replacing appliances or mechanical systems including HVAC systems and hot water heaters.  Somewhere between 45% and 65% of the energy consumption in your home is spent on conditioning the air for comfort.  Either Heating in the winter, or cooling in the summer.  15% or so of your energy is spent making hot water.  An even smaller portion of the energy load is spent on appliances.  Energy spent on lighting and other electronic devises is also relatively unimportant compared with the portion allocated to heating and cooling.  There are two methods to reduce the amount of energy spent on heating and cooling: Replacing your mechanical system or improving your houses Thermal Envelope by improving insulation or by installing replacement windows and doors.  The analysis shows that among these, improving your homes insulation provides the greatest payback.

Remodeling Magazine does a study every year that gathers national data on the cost versus value of a variety of remodeling projects.  The 2016 Cost versus Value report evaluates the average cost of making an improvement versus the return of that investment upon sale of improved properties.  30 categories of improvements were studied.  Any number greater than 100% means you get your investment back plus some additional.  Any number less than 100% means you are not getting the money you invested back.  Consider this a “Bang for your Buck Meter”.  The bigger the number, the bigger the bang for your buck.

The only project that yielded a value that exceeded the cost of installation was improving your insulation.  Nationally, this home improvement project yielded a 116% return on initial investment.  Wow, that is a lot!  Following insulation improvement were other replacement projects including: Replacement Windows 73%, Replacement Doors 82% Replacement Siding with Foam Backing 68%.  It is clear that Insulation improvement is the best improvement.

It is interesting to note how small most of the projects touted by HGTV and the like are.  Look how little the payback is on these improvements:

             ·         Major Kitchen Remodel: 65%

             ·         Basement Remodel: 70%

             ·         Deck Addition: 58%

             ·         Bathroom Addition: 57%

Journal of Appraisers did a study of “The Value of Energy Upgrades” on appraised values of residential properties.  In this study, the values of comparable homes was evaluated in comparison to the energy consumption of the property.  Imagine two homes in the same neighborhood, with the same square footage and similar fits and finishes.  The homes that consumed less energy were sold for higher values.  Specifically, they found that for every dollar of savings in energy consumption, the house increased in value by $21.50.  So if you were saving $1,000 per year in energy bills, your home would be worth $21,500 more. 

National Association of Home Builders recently concluded a study that shows that the drivers behind these trends are going to continue into the future.  The 2016 study of features desired by current home buyers indicated a whopping 80% of respondents desired high level of insulation as a feature they want in their new homes.  Supply and Demand drive price, so if you have what people want (increased levels of thermal protection) and you are among the few that have it you can conclude that the price of your property will increase. 

The studies are varied and published in a variety of journals.  The conclusion is consistent.  Today’s home buyers want energy efficiency.  If you modify your house (aka major investment) with improved insulation you will generate a return on your investment while benefiting from increased levels of comfort and decrease operations costs.  It is one of the only home improvements you can make that will generate this financial performance.

Comfenergy can help you work through some of the details of determining what a return on investment can look like for your home.  Call for an evaluation today.