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Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow ( DCF ) Approach of Appraisal

Author

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  • Giuseppe Bonazzi

    (Department of Civil Engineering, Environment, Territory and Architecture (DICATeA), University of Parma, 43124 Parma, Italy)

  • Mattia Iotti

    (Department of Civil Engineering, Environment, Territory and Architecture (DICATeA), University of Parma, 43124 Parma, Italy)

Abstract

The objective of this article is to develop and apply a specific discounting cash flow ( DCF ) approach to evaluate investment in renovation to improve building quality, thus increasing energy efficiency. In this article, we develop and apply a specific net present value (NPV) and an internal rate of return (IRR) approach to quantify the value created for the owners of the building by the investment in renovation via energy-saving investments that produce positive externalities. The model has an applied interest because, in recent years, a lot of investments in real estate were made by owners in order to increase the green quality of the buildings, and several funds of public aid were provided by the government to stimulate these energy-saving investments. The model proposed here is applied to a case study of a 16-apartment building located in northern Italy considers the model attempts to quantify the initial investment value, the energy savings, the tax deduction of the initial investment and the terminal value of the investment as the increase in building value. The analysis shows that the model is consistent in evaluating investments to improve building quality, and investments within the context of the specific case study considered in the research have IRRs ranging from a minimum of 4.907% to a maximum of 12.980%. It could even be useful to consider a sample of cases to verify whether our results are representative of this specific case study. The model could represent a useful tool for consumers in evaluating their own investments in building renovation, from a stand-alone perspective and even by comparing them with other types of investment. The research could be developed in the future to quantify the social welfare generated by public spending via tax deductions to reduce the costs of investment in energy savings for buildings and could even be applied to new real estate projects in comparing different construction technologies and even comparing the return of renovation investment with other investments not even in the real estate sector.

Suggested Citation

  • Giuseppe Bonazzi & Mattia Iotti, 2016. "Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow ( DCF ) Approach of Appraisal," Sustainability, MDPI, vol. 8(3), pages 1-17, March.
    • Handle: RePEc:gam:jsusta:v:8:y:2016:i:3:p:268-:d:65781
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    1. Paolo Maria Congedo & Delia D’Agostino & Cristina Baglivo & Giuliano Tornese & Ilaria Zacà, 2016. "Efficient Solutions and Cost-Optimal Analysis for Existing School Buildings," Energies, MDPI, vol. 9(10), pages 1-24, October.
    2. Qu, Ke & Chen, Xiangjie & Wang, Yixin & Calautit, John & Riffat, Saffa & Cui, Xin, 2021. "Comprehensive energy, economic and thermal comfort assessments for the passive energy retrofit of historical buildings - A case study of a late nineteenth-century Victorian house renovation in the UK," Energy, Elsevier, vol. 220(C).
    3. Faustino Patiño-Cambeiro & Julia Armesto & Faustino Patiño-Barbeito & Guillermo Bastos, 2016. "Perspectives on Near ZEB Renovation Projects for Residential Buildings: The Spanish Case," Energies, MDPI, vol. 9(8), pages 1-16, August.

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