Thoughts on solar panels?
Rental Property Investor · Winona, MN · Member since 2018 · 87 posts · 90 votes
Thoughts on solar panels?
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Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes
7yJust to clarify the tax credits.
This year (2019) the tax credits are scheduled to decline annually not expire. They will decline from 30% to 26% at the end of 2019.
The Federal tax credits are for primary residences and do not apply to rental properties/second homes. However, you can depreciate the cost of a system on a 5 year depreciation which is definitely a big deal.
The numbers vary from property to property for a number of factors, so run the numbers specific to each property. There are some "global" trends but literally each home has different numbers.
Leasing solar does not allow you to appraise that system as part of the property value. Ownership does and Fannie Mae explicitly allow appraisal of systems IF owned (cash or financed).
You are investing in the property with other's money if the tenants are paying for the system instead of their paying a utility. Depreciation is a big advantage if tax conditions make that so.
21 Replies
- Rental Property Investor · Member since 2019 · 407 posts · 267 votes7y
Not sure what other people have done, but I've not added any solar panels to my properties. I thought about it, but decided the money I'd be putting into the panels, even if financed, would be better spent acquiring another property.
Solar panels have even caused some issues at closing with contract assumptions and terms etc.
- Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes7y
I once was one signature away from buying solar panels for my own property, however the price at the time was too high for me.
There is a national tax credit which is expiring in 2020, that will give you back 30% on the costs of installation and materials, but only if you already owe money to the IRS, if you do not then you wont see any of this benefit.
Also many states have their own tax deductions, visit https://www.solarpowerrocks.com/ to get a better idea of what these are, and how long your ROI will take.
Also, system prices are getting cheaper and cheaper, so maybe waiting a few years could save you a ton of money and get even more power savings. Solar panels are rated for 30 years so likely once you buy, they will be there for life.
Last, I think you could get away with the rent increase if you find the right tenant, some people love the idea of going green and would pay more to do so, others simply don't see the point.
- Charleston, SC · Member since 2018 · 182 posts · 73 votes7y
Solar panels are getting cheaper as mentioned, but the tax credit mentioned is going away too. It starts a slow decline over three years starting in 2019 not 2020. It's hard to see the prices going down 30% (the value i of the tax credit) by waiting until after it expires for a price decrease. I would suggest paying cash or a loan on them, if you lease them they will not be calculated as a part of the home value but owning them will increase home values no matter where you live. I have seen a lot of places advertised as green or as powered by clean energy and that fetches a higher rent.
- Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes7y
Just to clarify the tax credits.
This year (2019) the tax credits are scheduled to decline annually not expire. They will decline from 30% to 26% at the end of 2019.
The Federal tax credits are for primary residences and do not apply to rental properties/second homes. However, you can depreciate the cost of a system on a 5 year depreciation which is definitely a big deal.
The numbers vary from property to property for a number of factors, so run the numbers specific to each property. There are some "global" trends but literally each home has different numbers.
Leasing solar does not allow you to appraise that system as part of the property value. Ownership does and Fannie Mae explicitly allow appraisal of systems IF owned (cash or financed).
You are investing in the property with other's money if the tenants are paying for the system instead of their paying a utility. Depreciation is a big advantage if tax conditions make that so. - 7yMike ReynoldsPro Memberconstruction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
Originally posted by @Heather Schmidtknecht:
I’m intrigued by solar panels and if this is an opportunity to add value to my property as well as increase monthly income. However, I really don’t know anything about them and am relatively new to being a landlord, so I’m seeking your thoughts!
Here are the numbers I have so far:
Solar panel & installation quote: $18k
Average electric bill $100/month (which tenant pays)
Supposedly, there are incentives from electric company as well as potential tax deductions... am waiting to see these things in writing.
I was thinking if the cost of electricity is $100/month and that would go away, I could raise my rent since the tenant would not have to pay electricity. Plus, I’m thinking it would add value for resale someday? Not sure?!?
I have been thinking about solar panels also. Only for my primary residence though. Here is my thinking. I can pay 6-8k for a Generac and use it when I have a power outage or I can spend that much on a solar unit and take away from my monthly bill when I don't have a power outage. I'll let you know what happens when I run the numbers and implement it if I do.
- Rental Property Investor · Winona, MN · Member since 2018 · 87 posts · 90 votes7y
@Andrew Smith thanks for the clarification... I was wondering if the tax credit would apply to a rental and it certainly changes the numbers to know that it will not.
- Member since 2016 · 13k+ posts · 12k+ votes7y
You also need to keep in mind that many buyers may not perceive panels on their roof as a plus. Remember they must be removed to properly re-shingle a roof. That is a additional cost and inconvenience.
In my opinion there is no significant upside if a tenant is paying for the power. Cost is very likly not worth the investment from a true business perspective. Run the numbers.
If I wanted to be in the power business I would not combine it with my rental business. I would choose ground mounted over roof mounted.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes7y
Market specific. In some markets they may raise your properties value. In other markets they will decrease your properties value.
Que the solar salesman now to come in with their distorted statastics saying they never lower a properties value, and act like they are experts in locations theyve never one set foot in, or come within 1000 miles of, responding to my heresy like they do every time lol.
District Invest Group546 Reviews - Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes7y
Consider the added cost to remove panels and reinstalling them again if you need to change the roof relatively soon. Some will loose warranty if not taken down and put them back by the company who install them.
Also, it doesn't mean the energy bill will be $0 for them. They have to pay other costs associated with their bill. It will be greatly reduced thought, depending on the efficiency of the solar panels.
I would do this for my own property, not my rentals if electric bill is paid by tenant.
Interesting... Not sure how tenants feel about paying more rent vs comparable just because the property have solar panels. It will be an additional incentive for sure if the price is about the same vs comps, meaning less vacancy.
- Los Angeles, CA · Member since 2018 · 326 posts · 279 votes7y
@Heather Schmidtknecht there are a few others posts on here about solar and some details on other companies.
https://www.biggerpockets.com/forums/52/topics/668...
You can look up Vivint in the search and you'll find even more. For every market, every investor whether to have solar panels or not is more of a personal decision and not necessarily a financial one.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes7y
@Heather Schmidtknecht I would recommend getting at least 3-4 quotes from different local companies as well as a few from some of the big national companies. If you're looking for an investment property you'll need to look into leasing or PPA options in order to capture the benefits of the tax credit as Andrew mentioned. The companies you get quotes from should be able to assist with ROI/payback analysis for your specific roof orientation, local incentives etc. As far as adding value to the property, the Appraisal Institute has determined that for every $1,000 in annual energy savings achieved from solar, the home value increases by $20,000 (for a purchased system, not a lease/PPA). So in a case where your electric bill was $100/month average, that equals $1,200/year saved which equals $24,000 added resale value to the home. Of course that number is just based on broad data from sales comps nationwide, so it will depend on the actual home buyers in your market whether or not they're willing to pay a premium for free electricity. In my experience 99.9% of home buyers prefer buying a home with no electric bill as opposed to an identical home with an electric bill, so I believe solar differentiates the home from close comps at the very least and increases salability. I've sold several homes with solar and in each case the buyers indicated the solar system was a value add for them personally, and the homes had multiple offers above asking price. Of course not all realtors are equally adept at framing solar in a positive light, and not all buyers are familiar with the benefits, so you'd want to make sure to work with a realtor who is familiar with how solar works and the benefits it provides. I've worked in the solar industry in many capacities both residential and commercial for about 15 years now and also have solar on my personal residence as well as investment properties, so if you have any questions on the quotes you're receiving or anything else solar-related please feel free to reach out.
- Member since 2021 · 9 posts · 3 votes4y
Hello all,
I'm looking to revive this post as I believe much has changed since the initial post was published. I'm looking to purchase a solar panel system for my short term rental property. I ran the numbers and the purchase would reduce my monthly electric bill by $100 per month after financing. The purchase also comes with a 25 year roof warranty. There is still a significant tax credit that can be utilized over three years in addition to state incentive that is paid over fifteen years. I wanted to know if there is anything I should be aware of in terms of the down side of purchasing and installing panels. Thanks!
Rachel
- Warwick, RI · Member since 2016 · 2 posts · 1 vote4y
I have had panels for about 5 years and can say owning them outright has been great for me. The terms I saw on leasing panels (you don't actually own them, a company does and they reduce your electric bill in exchange) are terrible terms. Financing with a loan could make sense.
Only other downside I can think of is that you must realize you will likely have to pay tax on your solar panel income if your state incentive is a performance based incentive (PBI) and not a tax credit.
- Member since 2021 · 9 posts · 3 votes4y
@Tanya F. I don't have the capital to buy it outright. The financing seems to be reasonable with $0 down and the monthly yields still offsetting the cost of what I would typically pay.
@Josh Sisson I also didn't like the leasing options. Thanks for letting me know about the PBI which I think it is (the states pays based on how many kilowatts my system would produce). However, would I still need to pay taxes on that pay-out if I'm not making a profit but rather just reducing my monthly utility costs? TIA!
- Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Rachel Levy:
@Tanya F. I don't have the capital to buy it outright. The financing seems to be reasonable with $0 down and the monthly yields still offsetting the cost of what I would typically pay.
@Josh Sisson I also didn't like the leasing options. Thanks for letting me know about the PBI which I think it is (the states pays based on how many kilowatts my system would produce). However, would I still need to pay taxes on that pay-out if I'm not making a profit but rather just reducing my monthly utility costs? TIA!
If I were in your position here are things I would consider in making my decision:
-Do the panels make my property less attractive or more attractive to prospective tenants? (if this applies)
-If I pay the electric bill, will tenants see solar panels and be encouraged to be more wasteful than they already will be with no electric bill?
-If little Timmy's baseball busts one of my panels how much of a hassle will it be to collect from the tenant?
-If I'm charging tenants for the solar power, how much of a hassle is it going to be if the panels had an issue and didn't produce as much power as they're capable of, leading to a complaining tenant for a higher bill? (If I understood you correctly)
-If your short term rental is for people displaced from their homes and provided housing by insurance, this accelerates the aforementioned concerns
-If I decide to sell, will the solar panels make my property worth more or discourage buyers?
FYI:
I have panels on my primary. They are leased but that was installed by the previous owner. It did require some more paperwork but did not make the purchase "that" complicated. The company that installed them has a guarantee that any new buyer can assume the lease, they guarantee power production and will pay if it doesn't meet certain goals, they monitor the performance, warrantied the roof, and make repairs at no cost to me. Something broke and I didn't even know until they showed up to fix it. I would have likely bought outright rather than lease but that's because I intent to own the property long enough that it would have been justified.
- 4yMaria LlenadoPro MemberRental Property Investor · Oakley, CA · Member since 2018 · 6 posts · 2 votes
@Steve K.
Did you increase the rent on your property when you had the panels installed? About how much increase is reasonable?
- Real Estate Agent · Santa Clarita CA · Member since 2021 · 5 posts · 2 votes4y
I have solar for my primary which I financed at under 2%, that cut my electric bill almost in half so that was good.
For my rental I didn't do it because I would have to finance them which would increase my DTI. I want to qualify for more loans at the best rate I can get.
All though, my solar guy says that I could raise the rent to more then offset the cost and the financial benefits would increase over time.
@Tanya F.@Tanya F. On the rental you bought panels for, how did that work out for you and would you do it again?
- Real Estate Broker · Austin, TX · Member since 2022 · 89 posts · 93 votes4y
Unpopular opinion alert...
I do not recommend solar panels. I love the concept and being green, but for most homes and owners I jsut can't see how the numbers make sense.
For example - home averages $100 electric bill per month as you stated above.
Panels cost $18k
Breakeven point = 15 years (AND that's really only if you increase rent the $100 bill cost, otherwise it's a tenant savings, not yours - and also if you pay the full amount up front without a loan or have 0% interest on the loan.)
That's also only if you don't need a roof in the interim. Roofers will often require you to get the panels removed before they can redo your roof, and then you'll have to pay again to have them reinstalled. That adds up.
Additionally, if you finance them and then sell before the panels are paid off, very few buyers are willing to assume the loan payments and thus you will end up paying the balance off at closing from the proceeds.
Also check in your market to see how your electric company handles solar panels - in many areas any excess electricity your panels generate go to the grid and you get a credit on your bill - which isn't helpful if you owe nothing to begin with.
So when do you truly see 'gains' from the installation of the panels and how long do you plan to hold the property? I have yet to have anyone show me a scenario where I felt the panels would truly save the owner money...
- Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes4y
Quote from @Dennis O'Brien:
I have solar for my primary which I financed at under 2%, that cut my electric bill almost in half so that was good.
For my rental I didn't do it because I would have to finance them which would increase my DTI. I want to qualify for more loans at the best rate I can get.
All though, my solar guy says that I could raise the rent to more then offset the cost and the financial benefits would increase over time.
@Tanya F.@Tanya F. On the rental you bought panels for, how did that work out for you and would you do it again?
We bought our panels outright, in 2011 and 2019 on the same building. We took advantage of many different incentives. We did it in two phases so we could afford to pay cash for the panels.
Our roof was new in 2011. The house is in a trendy very hip neighborhood, where the panels actually attract fantastic tenants who value solar. Rents are high in the whole neighborhood. We earn plenty - enough to live off of the cash flow from our two properties.
If electricity costs in your area are high, it's likely that it'll really be worth it, but you'll have to consider your market. For the neighborhood where our rental is, it was a no-brainer, definite yes. Here electricity is about $0.15 per kWh (actually $0.16 in summer and $0.14 in winter)
I keep lots of data on production and income from the panels. As well as energy usage by all of our tenants, so we can calculate how much to roll into the rent. We are required to have utilities in our name with solar, and we've come up with a good amount, supported by lots of data over many sets of tenants since 2011.
Has the system paid for itself yet? Depends how you calculate it, but yes, almost. We are not selling this house, so it actually doesn't matter to us. From the value of the electricity produced, we're getting something like 8% ROI annually, which is good. A person intending to hold on to a place for a short time might care about different things.
I hope this helps. Everyone's situation is different, but I'd say your decision depends most on neighborhood and price of your electricity, and most importantly if your roof faces south with no shade.
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