What do you use for your general algorithm for capital improvements
that save money (such as solar energy & buying your own tanks)?
- wood-fired heating
- owning your own propane tanks
For example, in another thread, I found out the propane company
changed their prices such that the break-even point between buying
my own propane tank versus renting it changed.
For example, for a 500 gallon tank, they charge $95/year and for
a 1,000 gallon tank, they charge $120/year.
If both tanks cost $1,000 to own (there really is no maintenance to
speak of for these things), then the break-even point is 10-1/2 years
for the small tank, and 8-1/3 years for the bigger tank.
My general algorithm is roughly that anything around 5 years is a
no brainer, and anything under about 10 years is a worthwhile deal
(since I plan in dying in this house).
But, anything that has a payback of 15 to 20 years may not be a
good deal, since I'm not gonna live much longer than that.
What's your payback algorithm for capital improvements such as
solar energy (which costs about $50K but which starts saving money
on day one, especially at high-tier rates of 50 cents per kWh).
Is it 5 years? 10? 20?
You are not making any sense.
You specifically asked...
What's your payback algorithm for capital improvements...is it 5 years? 10?
What are you really looking for? A number, like you asked for, or the
specific steps that one would go through to find a break even point for a
capital improvement, i.e. an algorithm?
there are intangibles as well as a $ cost. for instance, one might want
to go solar 'for the good of the planet', and what is that cost or
savings to that person comes into play. there's also other inducements:
not having to pay for a resource, or rebates, for example, that might
it might also be what the opportunity loss of investments costs you. an
example, a few years ago, i put in a solar array. payback time was 4.5
years, which gave me almost a 20% roi. no brainer, as a safe investment
was earning far less.
On Friday, September 27, 2013 3:42:20 PM UTC-4, chaniarts wrote:
Excellent point. The Return On Investment is 1 divided by the years it take
s to pay back the original investment. If you have enough available to pay
cash, you'd consider in investing in anything paying more than what you cou
ld get by investing the money, which is around 1% these days. If you're pay
ing off a big credit card debt at 18%, you'd be better off paying off the c
redit card unless your investment pays back a lot more. And if you have to
borrow to make the improvement, you'd deduct the annual interest costs of t
he loan from the return to compute your payback.
I work in financial analysis at a hospital and our management likes capital
investments to pay back in two years, i.e., a 50% ROI. Not always possible
, but that's sort of the benchmark. Of course, they have dozens of requests
each week and have to decide which they can afford.
On Fri, 27 Sep 2013 12:59:56 -0700, Pavel314 wrote:
THIS is the kind of real-world example that I was looking for!
I'm surprised the payback is so short though.
I would have considered 5 years as a no brainer.
In your case above, 5 years would be too long and you're rent instead.
On Fri, 27 Sep 2013 18:23:53 +0000 (UTC), Alex Gunderson
It is fairly easy to do on something like a propane tank if you ignore
the possibility of maintenance but when it is something like Solar,
you are just guessing since the panels degrade, electric rates
fluctuate and maintenance is a wild card. One good hail storm or
hurricane might simply wipe you out.
Collectors are getting cheap enough to make it attractive now tho.
I think the simpler the system the better.
One that usually does have a fairly quick payback is heating water,
either for domestic use or pool/spa heating. Heating my spa with solar
got me whole in a couple years or less. It is hard to compare since I
did not heat it all the time and now it stays hot virtually for free.
Generally speaking things like renovations beyond cleaning and
painting seldom make economic sense. You do it for you.
On Fri, 27 Sep 2013 15:48:46 -0400, email@example.com wrote:
Yep. Some things might be exceptions. Insulation and the like.
I replaced all my old windows with thermopanes. Pretty sure the ROI
was good, because I got it done cheap and it made a big difference in
heating/cooling costs. Not to mention maintenance costs.
But I mainly did it for me. Didn't have to paint the old ones, and
the new ones look much better to me and my wife.
On Fri, 27 Sep 2013 18:23:53 +0000 (UTC), Alex Gunderson
Forget it, unless you want the ambiance or backup heat. ...or need a
constant source of painful exercise, I suppose.
If the "present value" of the "rent" exceeds the rent over your
desired payback time, buy. If not, rent. You decide what interest
rate and payback time is of interest to you.
Enter your interest rate, the number of periods (months or years), and
the total paid over that time (payment times periods) and the result
is the current value of that money. For example, if you paid $200 per
year for five years ($1000 total) at 6% interest, it would be the same
as paying $747.26 today.
If you want to go the other way:
Enter the current price of the gas tank, interest rate, and number of
months, and this will tell you the payments over that time. If the
payments are less than this, don't buy.
That's entirely your decision. Obviously, this can't be longer than
you're likely to own the widget unless there will be a residual value
that someone else will pay you for.
This is pretty much what I use.
I'm guessing anything within the life of the thing or the life of how
long you'll actually be living in that house is fair game.
For example, if you only plan on living at that house for, oh, say,
5 years, then it would seem to me that the payback has to be
shorter (say, a year or two) for you to go for it.
Likewise, if you're planning on living there for 20 years, then
you might go with a 10 year payback period for some things.
On Sat, 28 Sep 2013 02:33:42 +0000 (UTC), Alex Gunderson
Remember maintenance and insurance costs, too. Some things like solar
panels may or may not be covered under a normal homeowners policy (or
may require additional coverage or a rider). One hail storm can ruin
your whole day.
That's the real decision, once you get past "I wanna have it". ;-)
There ain't one. You do the math based on ALL the factors for each
The wild card in everything is your ability to predict the future.
In 1998, would you have predicted the current economic climate?
If you have extra cash lying around, that may affect your decision.
People often fail to consider all the factors.
If the company owns the tank, who pays for the required inspections?
Does that limit your choice of vendors?
Who is liable if it explodes?
Even if it looks favorable, there may be other better alternative uses for
your cash than to invest in a tank.
If you can't decide, it probably doesn't need fixing.
Some decisions are trivial.
If you have access to the "grid", there's only one way to make solar
electricity pencil out. Get someone else to pay for it.
Diminishing returns on weatherization comes early.
If you've got no insulation, you should get some.
Otherwise, do the math carefully.
I know a guy who fell into the sweet spot of stimulus money.
They paid $14K to weatherize his house. Saves him money, but
less than the interest on $14K he would have borrowed to install it
himself...assuming anybody would have loaned him $14K...
True. But some things are very predictable.
For example, how much will solar panels cost to put in is
And, how much energy will they generate is also very predictable
(since you're not the first person to do it, they have the tables).
The maintenance, I agree, might not be predictable, but, if everyone
really made decisions that way, we'd all leave California the
day before an earthquake, and then come back the next day.
For example, I just found out the "real" price for a 1000-gallon tank
given that I'm in this propane-buyer's cooperative is listed here:
A 1,000-gallon tank would cost $1,600 to have delivered to my doorstep.
Figure the concrete pad, trenching, conduit, risers, regulator & pigtail
add another what? I don't know, maybe $400 at DIY prices? That's $2000.
So, my costs are $2000 and the setup is inspected & good to go.
Currently my coop has a contract for wholesale + 56 cents:
If I saved, say, 20 cents per gallon by being able to switch suppliers,
it would take me 10,000 gallons to break even.
At 2,000 gallons of propane a year, that would be in about 5 years.
Five years to break even seems like a decent deal, to me.
I missed the part where you took the cost of money into account.
You can borrow the $2000 and pay interest.
You can take it out of savings and lose interest.
Or you can take it out of savings and use it to pay off higher interest
loans instead of buying a tank.
The cost of money is the lowest interest rate to borrow it
or the highest rate you're paying on current loans minus what it's
earning now...whichever is greater. That can really skew your analysis.
And if you already have a tank, you can just buy it from the current
owner...or pay to have it decommissioned and hauled away so you can
replace the current system.
My mother had this discussion with her bridge group (3 other women)
about 45 years ago, about comparing the cost of renting versus buying.
She told me they just couldn't understand where the cost of money came
into the picture. My mother did.
Heh heh. I think actually these kinds of basic misconceptions
are why we're not able to instantly come to a concerted agreement
on the legal status of propane tanks sold with the house.
For example, I just found out why the bulk of the confusion is in
the definition of REAL property versus PERSONAL property.
In California, it's pretty clear propane tanks are taxed as
REAL PROPERTY, e.g., http://www.calproptax.com/1proprty.html
In other states, propane tanks are considered PERSONAL PROPERTY.
For example, in NJ:
We find that the propane industry argues vehemently that they feel
propane tanks, in California, should NOT be classified as REAL PROPERTY:
"Industry, the Western Propane Gas Association, disagrees with staff's
recommendation. Industry believes butane and propane tanks should be
classified as personal property."
[versus historically being classified as "improvements" by the state]
Yet, clearly, California classifies (and taxes) above-ground propane
tanks as REAL PROPERTY (same paper as above).
Also, we find a huge amount of the confusion on the status of propane
tanks is directly related to the fact that they are UNIQUE.
Even the industry argues they are unique - and that they should be
treated as an entity upon themselves, for a variety of reasons,
as explained here:
So, in summary, a HUGE amount of the confusion here is that California
treats above-ground propane tanks as REAL PROPERTY and that all examples
that are *not* about propane tanks fail to adequately explain the
unique treatment of propane tanks in California.
I don't know about the USA, but here in Canada, all cylinders designed
to store gas under pressure have to be pressure certified every 5
This is the primary reason that most companies that use compressed
gasses in their business prefer to buy the gas but simply pay a damage
deposit on the cylinder so that ownership of the cylinder stays with the
company supplying the compressed gas. That's cuz whomever owns the
cylinder is responsible for paying to have it pressure certified
I make my own beer, and I use beer gas in a cast steel cylinder to drive
it out of a spigot on my beer fridge. That's how I know about the
pressure certification requirement.
So, as regards the cylinder itself, be sure you have all the numbers
before you start doing the math. Maybe contact your propane utility and
find out if there are any costs associated with ownership of the
equipment you rent.
Diy'ers don't really figure out the pay out time on a project. Your
example where you figure that if you're only going to live in a house
for 10 years, you want the projects you do to pay out in less time than
that really doesn't work in real life. For example, suppose you needed
to put new shingles on your roof. The labor involved in installing more
expensive 30 year shingles is no different than the labor involved in
installing much less expensive 15 year shingles. So, who would say I'm
going to work my butt off installing these cheap shingles and then have
to do it all again in 15 years, whereas if I paid 50 percent more for
the shingles, I won't have to do it again for 30 years? It just makes
economic horse sense to pay more for the materials if the labor costs
are the same regardless of what kind of quality you install.
Similarily, when it comes to installing carpet, who's going to install
the cheapest rubber backed carpet they can find because they don't plan
to live in the house for more than another 5 years? That would be a BAD
economic decision because any prospective purchaser of the house would
lower their offer by the cost to replace the carpet. Installing a good
quality carpet up front costs more, but it also doesn't diminish the
value of the house when it comes time to sell.
So, this DIY business doesn't lend itself well to payout times and rates
Propane is a little different than compressed gas. LP (the 'L' stands
for LIQUID) is only under 200PSI, not the 3,000+ PSI used for gasses.
It makes a huge difference. That's the reason LP is preferred over
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