Energy star ratings are quickly becoming expected when purchasing a new home. LED lighting, green certifications, and energy star ratings on appliances are the norm, but real estate investors may not be aware that other home building materials such as insulation are also rated.
Real estate investors need to track every dollar spent when remodeling. If the return does not justify the cost then it is typically not worth spending your hard earned money on. So is energy-efficient insulation worth the investment? Read on to learn what types of insulation are available, the cost of install, and the potential return on investment.
Types of energy-efficient insulation
There are two things to take into consideration when it comes to the energy efficiency of insulation -- the type of insulation and the R-value. R-value represents the heat resistance of the insulation and is a key component to determining the insulation effectiveness. Ideal R-values will vary by climate. The U.S. Department of Energy has recommendations for the appropriate R-value based on the area you live in. When it comes to material, it’s suggested investors choose material type based on intended use. Insulation options include blanket, foam board, loose fill, rigid fibrous, and sprayed foam. To help narrow down which insulation is ideal for the job, visit Energy Star for a breakdown of what to use when.
Cost of energy-efficient insulation
According to HomeAdvisor (NASDAQ: ANGI), an average-size home will cost around $1,500 to insulate -- which isn’t a huge expense in the grand scheme of things when it comes to a remodel. Of course overall cost will vary based on material selected, the insulation's R-value, and whether you're installing it or hiring a professional. Loose fill is typically on the lower end of the cost spectrum, with sprayed foam being the most expensive.
It's also worth looking into federal, state, and municipality incentive programs, which can apply to residential and commercial properties. Many agencies are offering rebates and tax credits for using energy-efficient home-building products like insulation. DSIRE has a complete list of incentives by state.
Is it worth the investment?
Energy Star estimates that you can save 15% on heating and cooling costs by sealing the home and adding appropriate insulation. If you're considering this for a rental where you include electricity, then it would quickly pay for itself and the cost savings overtime would definitely be worth it. But if you're remodeling for a flip, you want to consider whether it adds additional value for the homebuyer. Remodeling’s cost vs. value report from 2017 found that you can potentially recoup 107.7% of your investment. This statistic is for retaining its resale value, not implied energy savings. This is an extremely good return on investment for real estate investors when many other remodeling projects may only net a 50% to 90% return.
There are not many small-ticket items that have an actual increase in resale value. Energy-efficient insulation fits that bill. This of course assumes that the insulation is installed correctly and that the energy-efficient feature is marketed appropriately during resale. Even with this great return on investment, it's still worth doing the leg work to determine what material and R-value is best suited for your property, find applicable incentives, and consult with a local Realtor to determine whether it's a high-demand feature in your area.