The renovation of residential buildings usually involves a variety of measures aiming at reducing energy and building maintenance bills, increasing safety and market value, and improving comfort and aesthetics. A significant number of project appraisal methods in current use-such as calculations of payback time, net present value, internal rate of return or cost of conserved energy (CCE)-only quantify energy efficiency gains. These approaches are relatively easy to use, but offer a distorted view of complex modernization projects. On the other hand, various methods using multiple criteria take a much wider perspective but are usually time-consuming, based on sometimes uncertain assumptions and require sophisticated tools. A 'two-factor' appraisal method offers a compromise between these two approaches. The main idea of the method is to separate investments into those related to energy efficiency improvements, and those related to building renovation. Costs and benefits of complex measures, which both influence energy consumption and improve building constructions, are separated by using a building rehabilitation coefficient. The CCE is used for the appraisal of energy efficiency investments, while investments in building renovation are appraised using standard tools for the assessment of investments in maintenance, repair and rehabilitation. (c) 2005 Elsevier Ltd. All rights reserved.