Another month of slight rate drops, although bank accounts can still beat out Treasury bonds and/or brokerage cash sweep options by a significant margin.
Here’s my monthly roundup of the best interest rates on cash for June 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and also invest in longer-term CDs (often at lesser-known credit unions) when they yield more than bonds. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 6/2/2020.
High-yield savings accounts
While the huge megabanks make huge profits while paying you 0.01% APY, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.
- Patriot Bank has the top rate at the moment at 1.75% APY, guaranteed until 7/31/20. I wouldn’t count on anything after that, as nearly every place else is below that with most likely headed back to the ~1% APY range. There are several other established high-yield savings accounts at above 1% APY for now.
Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.
- No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 1.20% APY with a $500 minimum deposit. Ally Bank has a 11-month No Penalty CD at 1.20% APY with a $25,000 minimum deposit. CIT Bank has a 11-month No Penalty CD at 1.15% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
- Lafayette Federal Credit Union has a 12-month CD at 1.61% APY ($500 min). Early withdrawal penalty is 180 days of interest. Anyone can join via partner organization for one-time $10 fee. Note that you will have to park $50 in a share savings account while a member.
Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.
- Vanguard Prime Money Market Fund currently pays an 0.32% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.20%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
- Vanguard Ultra-Short-Term Bond Fund currently pays 1.61% SEC yield ($3,000 min) and 1.71% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
- The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.87% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.83% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that there was a slight drop in net asset value during the recent market stress.
Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. Right now, this section probably isn’t very interesting as T-Bills are yielding close to zero!
- You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 6/2/2020, a new 4-week T-Bill had the equivalent of 0.12% annualized interest and a 52-week T-Bill had the equivalent of 0.17% annualized interest.
- The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 0.57% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a -.04% (!) SEC yield. GBIL appears to have a slightly longer average maturity than BIL. Expect that GBIL yield to drop significantly as it is updated.
US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.
- “I Bonds” bought between May 2020 and October 2020 will earn a 1.06% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
- In mid-October 2020, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.
Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore.
- The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.
Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore.
- Consumers Credit Union Free Rewards Checking (my review) still offers up to 4.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. The Bank of Denver has a Free Kasasa Cash Checking offering 3% APY on balances up to $25,000 if you make 12 debit card “signature” purchases and at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a savings account that pays 2% APY on up to $50k. Thanks to reader Bill for the tip. Find a locally-restricted rewards checking account at DepositAccounts.
Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.
- Lafayette Federal Credit Union has a 5-year certificate at 2.02% APY ($500 min). Beware that the early withdrawal penalty is 600 days of interest! Anyone can join via partner organization for one-time $10 fee. Note that you will have to park $50 in a share savings account while a member.
- Pen Air Federal Credit Union has a 5-year certificate now at 1.85% APY ($500 minimum). Early withdrawal penalty is 180 days of interest. Their other terms are competitive (relatively), if you want build a CD ladder. Anyone can join this credit union via partner organization ($3 one-time fee).
- You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard has a 5-year at 1.05% APY right now. Be wary of higher rates from callable CDs listed by Fidelity.
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.
- Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. Watch out for higher rates from callable CDs from Fidelity.
- How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. As of 6/2/2020, the 20-year Treasury Bond rate was 1.24%.
All rates were checked as of 6/2/2020.
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Company fired me, and 6 months later want me back.
At the beginning of January I was fired from my job for "misconduct". I was the manager of my own department and I had a technician under me who was spouse to the operations manager above me. The spouse/technician would purposefully defy instructions and even told me that he "chooses to ignore me". This happened multiple times, and I would get mad enough to argue about it, and that's what I was fired for. I was allowed to get on unenployment insurance and have been collecting it since, but the company did appeal against it at the beginning (which they said they wouldn't do) and I still won my counter appeal case.
Fast forward 6 months; the main investor/owner of the company calls me asking me if I'd like to work there again, because apparently he was never consulted about the spouse working full time in my department and didn't even know I was fired. He told me he'd be firing the husband and wife and wants me to work the first 30 days on a 1099 contract as a trial to see if I want to take a full time position with them again.
I asked for $4k for the entire month and he agreed, but there arent any clear goals or a contract, just come in for 30 days and see if I like it. He's also aware of my unenployment benefits, and told me to not say anything about payment and keep claiming, so that if I don't want to stay after the 30 days I can just keep claiming UI. I told him I wasn't comfortable with that.
I don't have any other job leads within my area, but I also don't feel very comfortable working with the company again. In all honestly I'd prefer to just stay on unemployment till a new company gives me an offer, rather than risking it for a company that fired me before.
I'm curious what I should do about this situation and the best way to cover my ass if I end up comitting to this contract job. I think I'd feel more comfortable if there was a well defined contract, and if I was able to control my own hours and work a maximum of 30 hours a week, so I could tell UI my earnings and that im working part time. I also feel I lowballed my asking price and I could've asked for much more, my original salary was 45k/yr.
Anyway, if you read all this and you have any suggestions or insight, then please share!
Tldr; husband and wife combo get me fired from job 6 months ago, owner/investor wants me back on a 1099 contract for 30 days as a trial, says the two will be fired. Not sure what to do.
PS. I absolutely plan to tell UI of my earnings and was never comfortable with the thought of committing fraud.
A 31 Year Old’s Journey to $5,000,000 in Rental Property Value
Today, I have a great article to share with you from Kyle Kroeger on how to invest in real estate. He has a goal of reaching $5,000,000 in rental property value, and is sharing his plan today.
The prospect of retiring early on real estate is highly intriguing to me. It should be for a number of people and I’ll highlight a bit more below.
For millennials, like me, we don’t have it easy. Despite the mainstream media’s thoughts, millennials have faced a Great Recession, massive student loans and a global pandemic already at a young age.
We’ve seen a lot but that can be used to our advantage for financial planning and life goals.
That’s okay if things are a bit harder for millennials financially. It’s a bit more fun when things are hard.
Here I’m ready to show you why real estate investing can be a great asset class.
- How This 29 Year Old Is Building A Real Estate Empire
- How This 34 Year Old Owns 7 Rental Homes
- 20 Ways I Saved a 20% Deposit To Purchase My First Investment Property At 20
- 11 Tips For Renovating An Abandoned 115 Year Old House On A Budget
I’m the prototype millennial that loves buying expensive coffee, avocado toast, iPhone apps, blah blah.
So what? Life is short, so enjoy what you love.
I went to a large public university for undergrad and come from a very much middle of the road family in the Midwest. I knew I wanted to study finance in undergrad as I had more of an analytical mindset and liked numbers.
When I graduated from college, I had a decent amount of student loans. The total amount was somewhere over $60,000 worth of student loans. While I was at school, I really didn’t realize how much student debt I had and how that would impact my financial future.
My family has always had a hardworking mentality, so I worked part-time while attending undergrad (each year).
The problem was that money went to keeping the lights on and paying bills. Not tuition.
Upon graduating, I landed a job in investment banking in Chicago. It was tough to crack into, but the pay was intriguing and the opportunity to get some great experience was invaluable. Even if it meant dealing with unique personalities and long hours.
If I could slug it out for 3 years, I knew I could focus on working, saving and paying off my student loans. I followed a disciplined approach of prepaying my loans as much as possible.
After 5 years of working in finance, I was able to successfully extinguish my $60,000 of student loans. Following my student loan repayment, I quickly saved to purchase my first house. That became my first foray into my comforts of using real estate to build wealth.
Why Invest in Real Estate?
Working long hours and being chained to my desk made me realize quickly that there is so much more to life than work and making a ton of money. After my first house purchase, I realized that investing in real estate is very straightforward and manageable.
I believe the minor fixes, capital costs for repairs, etc. are generally overblown.
If you do it right, you can manage through those costs and use low cost of capital (mortgages) to build wealth over the long-term. The key thought here is long-term.
Real estate investing is a marathon, not a sprint. Multi-generational wealth can be built through real estate. There are plenty of case studies to back it up. The fact that real estate is illiquid actually works to your benefit.
If a macroeconomic event occurs, you simply can’t panic sell. You’ll have to stick it out and work through the issues firsthand. The best part is you are in control, so you can control your destiny in a way.
When you invest in index funds or stocks, you have no control. You can analyze and make decisions that may improve your odds of generating an attractive return, but you are not making the day to day decisions.
To me, the pros outweigh the cons on whether or not you should invest in real estate.
Here are some pros of real estate investing:
- You maintain full control of your holdings.
- There are multiple types of real estate (single-family, multi-family, apartment).
- There are income-oriented markets like providing options for low-income, suburban and urban communities.
- You can invest in specific markets. So specific that you can invest on a particular street that piques your interest.
- Real estate is simple. We aren’t investing in the next Facebook or Instagram.
Here are some cons of real estate investing:
- It can be time-consuming.
- The debate is out there whether real estate outperforms alternatives.
- It requires a learning curve. Even the most experienced investors are still learning.
Finally, there is no one-size-fits all approach to real estate investing. In fact, there are plenty of strategies out there that can tailor to your risk tolerance.
Related content: Renting or Buying? What’s the better decision?
Real Estate Investment Strategies
Here are some general investment strategies to help you understand the risk profile (in order of least risky to most risky). Generally, higher risk can lead to higher expected returns.
1. Core Real Estate
Think of core real estate as purchasing a property for cash flow. The property is in great shape, needs limited repairs and is fully leased. This is one of the most common forms of passive real estate investing. Core investing will end up being the least risky and lower returns.
2. Core Plus
Core plus has a little more risk. Think of core real estate as a base, but it requires you to provide some additional value to the property. For example, you are looking at a property that has 50% of the units in a 4-plex that are renovated. The other units need to be renovated and leased out at higher rates.
You can come in and provide additional value by renovating and finding new tenants. This is the in-between on the risk scale. There is an opportunity for improvement albeit at not too much risk.
3. Opportunistic / Distressed
For simplicity, I’ll group opportunistic and distressed together. This is usually the higher risk and higher return investing within real estate. You’ll likely need some significant expertise in real estate and some sort of angle. A common example is a fix and flip strategy. You seek out properties that are dormant and attractively priced. You already know plenty of contractors and resources to fix the property for an eventual sale.
There are plenty of other strategies and subsets of these but the above should give you a general feel for high-level strategies.
For me, I like core plus because it’s straightforward enough and offers attractive risk/reward. You don’t need to know how to fix a water heater or know every nut and bolt of a house. You simply look for cash flow improvement opportunities in high-demand markets.
Journey to $5 Million in Real Estate Value
The main goal with direct real estate investing is to make cash flow passive while still maintaining as much control as possible. You can do things like real estate crowdfunding or invest in REITs, but you’ll lose control and have less flexibility if you are trying to create generational wealth for your family.
If you own a ton of stock and want to pass it down to your family, what’s stopping them from selling? If you do real estate investing right, you can pass a full-fledged business down to your family that also provides consistent cash flow.
Why $5 Million in Value
$5 million isn’t a hard number but rather a goal. This number also seems like a lot on it’s face and it is. But this is a total aggregate value of property. Not equity.
It doesn’t happen over the course of a year or two. It’s a multi-year process that takes time and patience. This amount of property value presents a great opportunity for income and scale without too much hassle.
You can remain a “small business” in the real estate space and not overload your life with stress.
The math of real estate investing for beginners
The math to why $5 million in rental property value is pretty straightforward. I’d like a six-figure ($100,000) income into perpetuity as a baseline. This would allow me to live comfortably from real estate only while also holding a substantial equity position.
So, the math is as follows:
Targeted Income divided by Cash Yield = Equity Value in Real Estate
Targeted Income = $100,000
Cash Yield = 8%
Cash yield represents the annual cash flow from rental properties relative to your equity position. For example, a rental property earning $8,000 per year of income to you on a $100,000 downpayment would equity to a cash yield of 8%.
This would equate to an equity value of $1.25 million in a real estate portfolio ($100,000/8%). So, if you can meet that bogey of a cash yield you are in good shape. If you exceed it (8+%), you can potentially reach your income goal faster.
So how do I get from $1,250,000 of equity in real estate to $5,000,000?
Well, for investment properties you should have a downpayment of 25% to purchase the property. So, $1.25 million of equity implies $5 million of real estate value ($1.25M/25%).
I built a rental property spreadsheet to help me stay accountable when pricing out real estate transactions. The model serves a number of purposes. Most importantly, I use it to:
- ensure I’m putting an offer on a property that meets the above criteria (realistically), and
- use it as a budget to track my forecast to what was actually received. The model can become a glorified 5-year forecast for each investment.
I walk through how I use the rental property spreadsheet here while walking you through an exact case study.
I hope you find the complete walkthrough helpful.
How to Get There / How Long It Takes
$1.25 million of equity is a lot of money. Absolutely, but you can get there over time. People do it everyday with their 401(k) and Roth IRA contributions.
It will absolutely take time.
Like your retirement contributions, you should have a full roadmap of how you plan to get there. I have 3 real estate properties right now so I’ve already gotten started on the plan.
With much more work to go, however.
Here is a plan for 8 years to get to the desired income goals and a $5 million rental property value. The assumptions include:
- Starting income of $120,000 with a 5% income increase each year.
- Focus on saving 35% of your pre-tax salary each year for real estate investing.
- Reinvest any cash flow earned from existing rental properties.
Financial Wolves’s Retire on Rental Income Plan:
These are not my exact income and checking account balances but they are a somewhat close representation.
So, as a 31 year old millennial it should take me about 8 years of hard work to eventually retire on real estate. That would put me in a position to earn a steady living from real estate before I’m 40 years old.
There are a few interesting things that stand out from this plan:
- Income is very important: Increasing your income is crucial with real estate investing. Without a continuous flow of reinvestable cash, it becomes harder to acquire more real estate.
- Compound interest is no joke: Compound interest from the cash flow of your properties is a huge value driver. When you are in property acquisition mode, you should harvest as much cash as possible to continually make acquisitions. The sooner the better as the cash flow snowball benefits are massive. Finally, you can see at the tail end of the investing cycle you can start investing in larger properties. Once you start dealing in larger dollar amounts, you are in the big leagues.
- Rental properties cash flow can be substantial: If you can do real estate investing as a side hustle to your ordinary income, the cash flow benefits can be exponential. Look at the cash balance build up during the back end years (years 5-8). You simply can’t acquire enough property.
Once you achieve scale, you’ll have a ton of financial flexibility. Plus, the above assumes no amortization on the loans so your equity balance will likely be compounding along the way. This will give you extraordinary residual value to work with.
Tips for Getting Started In Real Estate Investing
Here are some tips for getting started with real estate investing.
1. Just Start
One of the best pieces of advice I received was from a savvy real estate investor. They said you simply just need to give it a go. It’s true.
If all goes wrong or you don’t like it, at least you can cross it off your bucket list… Hey, I was a real estate investor once.
Not only should you just start. You should start by trying to manage your real estate properties without an asset management firm helping you. This will help you understand your properties. You’ll get used to the ins and outs of repairs, requests and leasing.
With technology now, you should be able to efficiently manage everything. As you scale, start thinking about how an asset management firm can help you. Yeah, back to the reduce time without sacrificing too much income point.
2. Use Technology
Technology continues to be a very underrated component of real estate investing. Back in the day people would have to manually account for everything.
Some old-time real estate investors still think that you need to take 2 am calls about a leaky pipe… Or, you need to manually collect checks from tenants to bring them to your bank. Reduce your time by using resources like Landlord Studio to do all the required bookkeeping.
Or, a tool like Cozy to manage rent payment with multiple tenants in one unit. You’ll get paid instantly and Cozy even sends out rent payment reminders. What’s not to love?
3. If You Struggle That’s Okay
If you struggle with your property and it requires capital contributions from you right away, that’s okay. Let’s be honest. No one invests to lose money. A property can require a ton of work one year but then nothing for the next 5 years.
Just because something bad happens in the short-term doesn’t mean you completely messed up the long-term. At the end of the day, things can get resolved. When I sold my first property, I realized that anxieties and the stress that I had about the property at the onset were definitely not worth it.
Conclusion – Is Real Estate Investing Worth It?
At the end of the day, real estate is not for everyone. However, you can use this as a baseline for whatever asset class you are interested in. To me, real estate provides the optimal solution for building long-term wealth that requires limited time.
You can build a fully operating business out of your real estate holdings that will give you the flexibility to do the things that you enjoy in life. Here are a few tips that I will try to follow along the my real estate investing journey:
- Stay disciplined with your investing. Stick to one strategy and be excellent at it.
- Focus on the long-term.
- Scale your time and don’t be afraid to outsource.
- Build a team of people you trust.
- Retire early and enjoy life.
It’s not that simple and will take a ton of work to get there, but my early estimations is that it will be totally worth it. Between blogging income and a small real estate business, I should be able to work where I want and when I want.
Have you or will you try real estate investing? Let me know in the comments below. I’d love to answer any questions.
Author Bio: Kyle Kroeger is the owner of FinancialWolves.com. Financial Wolves is a blog focused on helping you make more money to achieve financial freedom. After repaying student loans, I’ve shifted my focus to make more money from side hustles, real estate, freelancing, and the online economy. Follow us on Pinterest, YouTube, Twitter, and Facebook.
The post A 31 Year Old’s Journey to $5,000,000 in Rental Property Value appeared first on Making Sense Of Cents.
Eco-Friendly Home Modifications That Impact Your Home Insurance
Table of Contents
- Solar energy
- Geothermal heating and cooling
- Rain harvesting
- ENERGY STAR products
- Final thoughts
As the green revolution continues to gain popularity, homeowners are discovering practical ways to reduce their carbon footprint. One of the most meaningful ways is by making eco-friendly modifications to your home and making sure your homeowners insurance takes them into account.
Benefits of eco-friendly home modifications:
- Lower utility costs
- Reduced carbon footprint
- Save money on energy costs
- Potential tax credits
Whether you’re on the market for a new energy-efficient home or interested in upgrading your current space, you must make sure your policy is ready to accommodate those changes. While many insurers are extending their coverage to include green renovations, not all offer this additional coverage.
We’re here to guide you through how typical eco-friendly home modifications impact your home and your homeowners insurance. We’ll break down four home improvements you can make to your home, the benefits, installation considerations and insurance implications.
One of the most common eco-friendly home modifications, solar energy is the cleanest and most abundant resource available to us. A big investment, solar energy gives homeowners a way to save money and generate their own electricity.
Benefits of solar energy
Lower energy costs
In the U.S., the demand for solar energy is at an all-time high. As the prices of installation have dropped, solar energy has become an economical choice for many homeowners. The lifespan of solar panels is typically around 25-35 years, so they are a long-term investment that will continue to pay off.
Increased home value
In addition to saving money, installing solar equipment to your home can increase its value, sometimes by tens of thousands of dollars. While a solar upgrade can be an expensive investment, the increased home value can help you earn back what you spend.
Reduced environmental impact
Besides the potential tax breaks, solar energy has a positive impact on the earth. Solar energy doesn’t produce air pollution or carbon dioxide, which helps reduce emissions and the negative impact on the environment. Solar panels help homeowners take control of their energy consumption and also contribute to the reduction of U.S. dependence on other energy sources.
Solar energy installation considerations
Not every roof can support a solar energy system. Hardware options will differ by weight and sizes, so make sure you understand what a roof needs to be able to support them. Even for roofs that are designed to support solar panels, installation can have unintended consequences. If your roof is damaged during the installation process, your insurance policy may not cover it. Make sure you contact your provider to discuss your coverage and avoid being forced to pay out of pocket to cover damages.
While the hardware cost continues to drop, the soft costs associated with solar installation aren’t dropping nearly as fast. At the end of 2018, the average price of a residential rooftop system was around $18,000, before tax credits or incentives. Approximately 64% of the total cost of residential systems. These costs include, but are not limited to:
- Sales tax
- Indirect corporate costs
- Supply chain costs
- Transaction costs
Even though solar energy is much more affordable than it once was, it is still out of reach for some. Thankfully, there are financing options for homeowners.
|Solar power financing options|
|Third-party ownership||40% of homeowners with solar energy systems use third-party ownership. Under this type of agreement, homeowners spread out their payments over time and share the responsibility of maintenance with the third party.|
|Solar lease||A solar lease requires the homeowner to pay fixed payments to the solar leasing company. The homeowner will pay any electricity usage that extends beyond what the system generates.|
|Loan financing||Solar loans are designed to help homeowners stretch the system’s cost of the system over the length of the term while directly owning the panels and all the benefits that result from them.|
As a way to reward homeowners for choosing solar energy, the U.S. government offers tax breaks and incentives.
- Tax credits — There are both federal and state tax credits given to homeowners, allowing them to deduct a percentage of their solar costs from their taxes.
- Solar renewable energy certificates (SRECs) — If you live in a state which requires that a certain amount of their allotted yearly energy has to come from solar power, you will collect SRECs. You can sell SRECs to supplement your income.
- Performance-based incentives (PBIs) — PBIs are paid to homeowners (per kilowatt-hour) for the energy that’s produced by their systems. The rate is set at the time of installation.
Solar energy insurance implications
Most homeowners insurance policies cover rooftop panels, though you may consider increasing your coverage to include the cost of the entire system. Remember, all insurance policies are different. Examine your policy and contact your provider to see what your needs are since other options like ground-based and carport systems are not always covered.
Shamor Paul, co-founder of Sunly said, “A solar power system, if designed and installed by a professional, and carrying all necessary approvals and inspections, should not be an issue to get insured. As it is an added asset to the home, the premium may increase to cover the replacement cost.”
If you plan to sell the extra energy you generate, consider additional liability through Green Energy Insurance. This coverage would protect you in case of a net-metering accident that damages property or harms the employees of the municipality.
Geothermal heating and cooling
One of the lesser-known energy options, geothermal systems use the earth’s heat to warm and cool your home. There are three main types of geothermal technologies: ground source heat pumps, direct use geothermal and deep and enhanced geothermal systems.
Geothermal heating and cooling benefits
Lower energy costs
Geothermal systems yield substantial energy savings for homeowners. Up to 65% more effective than regular HVAC systems, installing a geothermal system in your home can reduce your energy costs by approximately 70% per year.
Another advantage of this method is its single system design. You can avoid worrying about multiple components that can break at any point and reduce maintenance costs. These systems also have an extremely long lifespan, so there won’t be a need to replace parts regularly.
Increase home value
Geothermal energy is a long-term investment that results in considerable savings. Even though installing a geothermal system is expensive, you are adding a significant amount of value to your home. Unlike solar energy, which requires visible hardware, most of the geothermal components are buried underground. This not only protects the investment but also means that the curb appeal is high.
Reduced environmental impact
An effective way to reduce your carbon footprint, geothermal systems use 25% to 50% less electricity than conventional options and don’t contribute to the burning of fossil fuels or greenhouse gas emissions. As an added bonus for your family’s safety, this type of energy eliminates the chance of a carbon monoxide leak in your home. Choosing to pursue geothermal energy is one of the most environmentally-clean home improvements you can make.
Geothermals installation considerations
While geothermal technology can thrive in any environment, it doesn’t mean that any home is suited for it. When evaluating your home for a geothermal system, your provider will consider three things:
- Soil properties
- Groundwater available
- Available land
The installation cost of a geothermal heat pump generally ranges somewhere between $10,000 to $25,000. The upfront cost is noticeably higher than traditional options, but the savings over the lifespan of your system can be worth it. Low operating and maintenance costs also supplement the initial costs, leaving you to break even on the entire system in under ten years.
Like solar energy, there are federal and state tax incentives and select financing options available to help mitigate the cost. Figure out what incentives you’re eligible for here.
Geothermal systems insurance implications
With such an expensive system, making sure your insurance covers your investment is crucial. Start by contacting your provider to see what is included. If you have an extensive system, you may need additional coverage. Most components of a geothermal system are buried underground, which means they are safe from external dangers like vandalism, hail or wind damage. But if you live in an area that is prone to earthquakes, be wary. Since homeowner insurance policies do not cover earthquakes, you should take out an additional policy to cover your investment.
Rain harvesting is one of the easiest eco-friendly home modifications. Collecting water for future use, it also reduces storm water pollution. You can use the rainwater you harvest for outdoor irrigation or utilize it in your home for laundry, cleaning or purified human use.
Benefits of rain harvesting
Lower water costs
Collecting rainwater allows you to be less reliant on water companies. And if you have enough to meet your daily needs, it will drastically reduce your water bill. Another great benefit about harvesting rainwater is its storage life. Since rainwater is not always consistent — and in some areas scarce. having a reservoir of rain can help you get through dry seasons.
Rain harvesting systems generally have low maintenance costs, especially if you are collecting water for outdoor use with no purification requirements. After installation costs, you shouldn’t expect to dedicate funds for regular maintenance.
Increased home value
Having a well-maintained rain harvesting system can have a positive effect on your property’s value. If you plan to sell your home, most potential buyers might find the eco-friendly system attractive and vital as the demand for clean water continues to grow.
Reduce environmental impact
Harvesting rainwater impacts the environment in multiple ways. Collecting rainwater allows you to lessen your reliance on companies and reduce the demand for groundwater, which keeps increasing every year.
Collecting rainwater also reduces the chances of soil contamination. Runoff water can pick up contaminants from pesticides and other pollutants and spread them to the surrounding water sources. Eliminating the chance for excess water to run off by collecting and reusing it is a way to mitigate the negative impacts of pollution. In addition to increasing your home value and reducing an environmental impact, rainwater harvesting systems give your home an emergency water supply.
Rain harvesting installation considerations
Rainwater harvesting systems can be easily integrated into most homes, though some things can rule out suitability entirely. Your roof and gutters are at the center of property compatibility. Depending on the material they are made of, they could potentially introduce contaminants into your water supply. Older pipes or galvanized roofs may cause lead, copper or zinc contamination. So before installing any system, make sure you identify what materials your roof and gutters are made of.
Not every climate is a match either. Infrequent rainfall negates the purpose of rain harvesting systems altogether. If you live in a particularly arid climate, for example, you would not see a quick return on investment.
You decide how intricate you want your water harvesting system to be. It can be as simple as one tank or more complex with pumps and purification technology. The price of these systems can range from hundreds to thousands of dollars, depending on which system you choose. The initial cost of setting up a water harvesting system is high, and the return isn’t as quick as what you see with geothermal systems.
A rainwater harvesting system requires a big time commitment from homeowners. You’ll have to regularly check your tanks and make sure they are clean. So while it won’t cost as much some of the more involved home modifications, it requires more of your time.
State and local restrictions
There are no federal laws concerning rainwater harvesting, though some states do have restrictions on how much rainwater you can collect. States also specify where and when you can collect rainwater and limit how it can be used. For example, there are generally stricter guidelines if the water is intended for drinking.
In climates where rainfall is not frequent, states may restrict collection to ensure that the water that does fall flows to its rightful water drainage system and is not limited to a number of people. Read more about the laws and legislation of states here.
Rain harvesting insurance implications
Contact your broker before installing a system to make sure your home insurance policy will cover it. Much like solar panels, rainwater harvesting requires above ground, outside fixtures. This means that the equipment is susceptible to damage. When going over your current policy, make sure you consider potential damage to the system, as well as to your home. Leaks or floods as a result of your rainwater harvesting system may not be covered under every policy, so adding coverage is always a good idea.
ENERGY STAR products
ENERGY STAR appliances and products use less energy than the traditional options on the market. To be considered an ENERGY STAR product, it must meet the energy requirements set by the U.S. Environmental Protection Agency (EPA). As a homeowner, choosing appliances and products with an ENERGY STAR will help you save money, energy and contribute less to harmful emissions.
ENERGY STAR Benefits
Lower energy costs
The average homeowner can save hundreds of dollars on their energy bills by choosing products with the ENERGY STAR. Designed to be energy efficient, the appliances you replace will impact how much money you save on your energy bills. For instance, a traditional clothes dryer can use the same amount of energy as an ENERGY STAR model dishwasher, refrigerator, and washing machine combined.
Beyond just certified appliances, ENERGY STAR also offers installation of doors and windows designed to control air leakage and sunlight transmittance.
Increase home value
There is no denying that replacing appliances with ENERGY STAR models is a significant investment. But once the installation process is over, you’ll be rewarded with incremental home value ranging from hundreds to thousands of dollars. While the increase may not be as substantial as installing solar panels, energy efficiency is a selling point for many buyers on the market.
Reduced environmental impact
ENERGY STAR’s mission is to reduce the impact we have on the environment. Since 1992, the label has helped reduce greenhouse gases by more than 3.5 billion metric tons, which is proportional to the yearly emissions 750 million cars would produce. While saving money on electricity bills directly benefits homeowners, the environmental impact ENERGY STAR products reduce cannot be ignored.
ENERGY STAR Installation considerations
The benefits of switching to ENERGY STAR certified products cannot be overstated. But updating your home with these types of appliances will require a considerable amount of money, especially if you plan to make replacements all at once.
Depending on the appliances you want to replace, your energy savings may not be as significant at the beginning. For example, a dishwasher will most likely yield fewer savings than a refrigerator because it uses less energy by default. If updating all of your appliances is unrealistic for your budget, create a long-term plan to gradually switch to all ENERGY STAR products.
To help offset some of these costs, the government offers federal income tax credits for making energy-efficient improvements to your home. However, to claim the tax credits, the improvements must be made to your home before 2021.
ENERGY STAR Insurance implications
Adding ENERGY STAR appliances and updates to your home generally doesn’t impact your insurance. Most homeowners insurance policies have coverage for energy-efficient appliances. Contact your insurance provider to better understand what type of coverage you need and what incentives they provide.
Eco-friendly home modifications are considerable investments but benefit homeowners with savings, increased home value and tax credits. More than that, these home modifications are changes homeowners can make to help the environment. Personal responsibility for your carbon footprint is part of living in the global community. No matter how many changes you are able to make, every bit makes an impact.
The post Eco-Friendly Home Modifications That Impact Your Home Insurance appeared first on The Simple Dollar.
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