Justifying Going Green – 3rd of 3 Posts in this Series

This series of three posts are excerpts from my book, Holistically Green Homes, Eighteen Principles for Designing, Building, and Retrofitting Your Energy Efficient Home.

Here’s a quick way to determine how much you can spend on energy efficiency upgrades and still stay within your overall budget. Assume that the energy upgrades will reduce your utility bills by $100 per month. Yes, savings of $100 or $200 for energy-planned homes are realistic, as confirmed by multiple case studies in my book.

Now go to http://www.amortization-calc.com/  and enter the amount you intend to mortgage at today’s rate (today it was 4.5%) and for a length of 30 years. I used a $300,000 mortgage and came up with a $1,520 monthly payment. Next enter $320,000 for your mortgage amount. Your monthly payment comes out to $1,621 – that’s about $100 more per month. So a $20,000 difference in principle equates to about $100 in mortgage payments. That means you can invest $20,000 in energy upgrades, and assuming those upgrades actually reduce your average utility bills by at least $100 per month, you will break even!

If you can save $200 per month, then you can spend $40,000 more for energy upgrades and still break even on monthly payments.

Now remember, unlike utility bills, the interest you pay on your mortgage is currently tax deductible. In effect, your utility bill savings pay for the added principal and interest! Assuming you DO pay federal income taxes, and because interest is tax deductible, the amount you can spend to break even is not just $20,000, but $25,000 -- assuming you are in a 22 to 25% marginal tax bracket.

And remember that the utility bill savings are income tax free – as compared to other investment income that must be reported to the IRS. Further, as electric, gas and water rates increase, families who consume less will benefit more and more as the years pass – locking in on these savings may be the biggest incentive of all!

Justifying Going Green – 2nd of 3 Posts

This series of three posts are excerpts from my book, Holistically Green Homes, Eighteen Principles for Designing, Building, and Retrofitting Your Energy Efficient Home.

I’m often asked, “How much will it cost to build a new home?” Well, that’s like asking how much a cart of groceries will cost. If you fill your cart with baloney, hamburger, bread, and potatoes, it will cost a lot less than if you fill it with lobster tail, exotic fruits, and gourmet coffees. Cost depends on contents

If you have never lived in a truly energy efficient, passive solar home, questioning whether investing the additional money up front for efficiency will be worth it is understandable. So what are the facts? Let’s look at how much you pay every month to live in your home. If you’re like many of us, you have a mortgage that requires monthly payments on principal and interest. Some mortgage companies also require a monthly payment (often escrowed) for insurance and tax payment. Then you have monthly utility or energy bills. I refer to that total as PITIE: Principle, Interest, Taxes, Insurance, and Energy.

Look at these examples: The monthly payment (PITI) for a standard home is $1,298. The PITI payment for an energy efficient home is $1,450 – yes, the energy efficient home is more. Now add in your energy costs (E). The standard home averages $250 a month, and the energy efficient home averages $75. Add your costs together to get your total payments (PITIE), and voila! The energy efficient home costs $23.26 less per month than a standard home of the same size.

Your overall savings are $279.12 per year, and they’re locked in for as long as the house stands. Your energy savings actually allow you to pay more up front for energy saving features, and still have equal or lower monthly bills. In effect, the energy savings offset the higher mortgage payment. As utility and energy prices increase, your savings increase. Plus, you can currently deduct your mortgage interest off your federal taxes to reduce your tax liability. Further, the now and future energy savings are never taxed as income – in contrast to an investment or interest on a cash deposit. What a bonus!

So what’s the rub? Why isn’t everyone taking advantage of these savings? Unfortunately, most bankers and mortgage underwriters consider only the principal, interest, taxes, and insurance (PITI) in their mortgage calculations. You can avoid that trap by completing the “Uniform Residential Appraisal Report 1004” (www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004.pdf), and shopping for a lender that recognizes the value and accepts the information on this form. To best complete the above form, a pre-construction home energy rating (HERS Index) based on the blueprints should be completed by a certified home energy auditor, and the appraiser should have education and knowledge related to recognizing and documenting energy efficiency in housing.

Simply put, when you build an energy efficient home, you pay more to the bank, less to the utility company, and less in taxes. Plus, you’ve protected yourself against future energy cost increases—a huge savings over time.

And what happens when you sell your home? It is worth more than others because buyers usually ask what the utility bills are before they decide which house to buy. The efficiency of the house may again be documented by a HERS Index. It is all about confirming what is really efficient and green!

Justifying Going Green – 1st of 3 Posts

The following three posts are excerpts from my book, Holistically Green Homes, Eighteen Principles for Designing, Building, and Retrofitting Your Energy Efficient Home.

I am often asked, “How can I justify spending more on my home when others, including relatives, bankers, and appraisers advise me to go with conventional construction techniques? Other builders I talk to say with conviction that the houses they build are just as efficient. So, how can I justify to myself and to others that the energy features in my new home or retrofit home will be worth the extra costs?”

I respond that while energy efficient homes often do cost more to build, that's not always the case.  Depending on your plan, your house might not cost more because a well-designed, energy smart home plan often results in the following:

• Lower subcontractor costs for heating and air because the tonnage required to heat and cool your home may be reduced by up to 50%.
• Less square footage and volume so total construction costs may be the same or lower.
• Selecting less expensive décor items—often an easy and wise choice— to offset the cost of energy features and reduce overall total building costs.

The real question is: How do you justify any addional dollars you spend on a green house so you feel good about spending more instead of less?

Start by getting a pre-construction Home Energy Rating System (HERS) analysis of the floor plan and specifications you've chosen for your home.  This analysis should be performed by an independent, certified HERS rater, who will provide you with an extensive written report that includes scientific calculations of energy savings. The report will give you added confidence that the house, if built according to the plans, will truly be more efficient. You can also use the report to communicate the efficiency to the appraiser and the banker to get a better mortgage. The report verifies how much more efficient your house will be in comparison to others being built. Based on the results, you may objectively decide that you want to add other options to make it even more efficient.

In the end, you can objectively justify building or retrofitting a Holistically Green Home because of the following:

• Lower utility bills—gas, electricity and water—beginning the day you move in.
• You will “lock in through time” energy costs that are expected to continuously escalate. 
• Lower life cycle costs—from construction to resale. An energy efficient home costs less in maintenance, taxes, lawn care—all things considered.
• An efficient home is a good long-term, low-risk investment with tax-free savings—an investment you can live in and enjoy, and the mortgage interest is tax deductible.
• Greater comfort when relaxing at home, and less stress when you receive your utility bills.
• Increased self-esteem for those who live in the home.
• Better health because of better indoor air quality.
• You know you are contributing to a better environment; “You are doing the right thing.”
• Pride and satisfaction of ownership—you will feel and enjoy the quality.
• Higher re-sale price—buyers look for better value and lower operating costs—a trend that will be more prevalent in the future.