Photo: Marc Royce
Q: My husband and I own a large Colonial home that dates back to 1825. It's 4,000 square feet, so as you can imagine, the heating-oil costs are sky-high: about $800 a month in the winter (and that's after the price of oil went down). My husband would like to install solar panels and a geothermal heating system to help wean the house off fossil fuels, but the investment wouldn't be cheap—at least $40,000. We could tap into our home equity line of credit [HELOC], but I'd rather use that borrowed money for other improvements, such as a badly needed master bath and exterior restoration. I'm pro-green, but I want to make sure the project will enhance our home's eventual resale value. I also want to decide quickly because I'm afraid the bank may cap our HELOC, which has already happened to some of our neighbors. What's your take on the economics of going green?
A: I am all for reducing our dependency on fossil fuels, but you shouldn't move forward unless you are absolutely sure you can handle it financially. You get no extra points for taking on debt for an eco-friendly project if in fact it puts you, your family, and your house at risk. And I am not getting a great feeling here. For starters, trying to get in under the wire before the bank decides to slam shut your HELOC is lousy reasoning. If the bank is concerned enough about your home's value to want to cap your HELOC, take that as a warning that home values in your area are under pressure. If you're worried about resale value, you need to assess how your local market has fared during the deflation of the housing bubble.
And no matter how great you and I think going green is, that doesn't mean you will recoup 100 percent of the cost if you sell your house in the next few years. The best move you can make is to call a seasoned real estate broker in your area and ask his or her opinion on whether prospective buyers put a high value on environmentally friendly home renovations.
Given that we are in a recession, I'd advise you to proceed with this project only if you already have an eight-month emergency savings account funded at a federally insured bank or credit union. Taking on heloc debt ramps up your family's risk; you'd now have a new debt you'd need to make good on. If you and your husband decide to go green, the good news is that you may be able to qualify for substantial federal green-energy tax breaks. The Emergency Economic Stabilization Act of 2008 authorizes a 30 percent tax credit for homeowners who install solar electric systems between January 1, 2006, and the end of 2016. A solar water-heating system is eligible for a $2,000 credit, and you can also qualify for a credit of up to $2,000 for a geothermal heating system. A tax credit is a fabulous deal: It is a dollar-for-dollar reduction of your tax bill. That's better than a tax deduction, which only reduces your taxable income. For example, a $100 tax credit reduces your tax by $100. If you are in the 25 percent tax bracket, a tax deduction of $100 reduces your tax by only $25.
Suze Orman's most recent book is her 2009 Action Plan: Keeping Your Money Safe & Sound (Spiegel & Grau).