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Will Mejia
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Solar panels for 3-unit rental property??

Will Mejia
Posted
I had 2 rental properties in Chicago. I sold 1 early this year and did not buy another property because I didn't want to. Hence I will probably pay a good chunk of change to uncle Sam when I file my 2024 taxes. I still have the other property left and I think I will keep it at least for several more years.

I have been doing necessary repairs and upgrades on the property that I still owe including some that I foresee I would've had to do in the near future. I'm hoping some of these EXPENSES will reduce my taxable income for 2024.

I know there are rebates and TAX CREDITS for investing in Solar Panels. I wanted to ask your opinion or if you have any stories about this you might want to share regarding if it'd be worth it or not.
My building has 2 electric meters. One is paid by the tenant whose apartment uses that meter. The other electric meter I pay for because it feeds 2 units (the first floor and basement).

1)Would this be a good investment with worthwhile tax benefits? If not, any obvious alternate investment that I could do on the property to raise it's value, get more rent, or save money that I may be missing?

2)Would this save me money in the long-haul? I pay $135 a month for the first floor and basement. This is "included" in the rent.


Thoughts?

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Nathan Gesner
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Nathan Gesner
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ModeratorReplied

You are currently paying $135 a month. If a solar system cost you $20,000 to install, it would take 148 months (12 years) for you to break even ($20,000 / $135). That doesn't include any maintenance costs or other variables.

I regularly argue that solar energy is rarely worth the investment. It offers a low return on investment and takes a long time to get there.

Here’s a general breakdown of how you might estimate your return:

1. Installation Costs and Incentives

  • Average Cost: Residential solar systems typically cost between $15,000 to $25,000 before incentives for a 6kW system (suitable for an average home).
  • Incentives: Illinois offers substantial incentives, including:
    • Federal Tax Credit: A 30% federal tax credit applies to system costs.
    • Illinois Shines Program: Provides Solar Renewable Energy Credits (SRECs) that homeowners can sell for additional income.
    • Net Metering: You’ll receive credits for any excess energy your system produces, reducing your utility bill.

2. Energy Savings and Cash Flow

  • Annual Savings: Chicago’s electricity rates average around $0.14 per kWh. A typical 6kW system could generate around 7,000-8,000 kWh annually, potentially saving you about $1,000–$1,200 per year on energy costs.
  • Increased Property Value: Solar panels can increase your property value, potentially adding 4-5% to your property’s sale price.

3. Break-Even Point and Profit Timeline

  • After Incentives: With incentives, your net cost could be reduced to around $10,000-$15,000.
  • Break-Even Estimate: If you save $1,000–$1,200 per year, it would take approximately 8-12 years to reach the break-even point.
  • Profit Point: Once you pass the break-even, you’ll start generating a net profit in the form of ongoing energy savings. Typical warranties last 20-25 years, allowing you to enjoy several years of savings.

In summary, a solar system in Chicago could start yielding a profit within 8-12 years after installation, depending on incentives and system efficiency. However, this timeline might accelerate with further increases in electricity rates or additional state incentives.


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John Underwood
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John Underwood
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Replied

Aren't these tax credits only available to owner occupants?

  • John Underwood
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    Alecia Loveless
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    @Will Mejia I agree with @Nathan Gesner that the cost of solar likely does not outweigh the benefits.

    Another cheaper option would be to just separate the meter and have the two tenants pay for their own electric.

    I just divided a 5 unit building and it was about $18,000. If you look into this option my electrician told me the specific panels and meters I needed and recommended I buy them on EBay where there is at least one electrical supply company that sells brand new electrical equipment at a significantly discounted rate. They can do this because of the volume they do. This saved me about $10,000 from the cost my local electrical supply company was going to charge.

    The $18,000 also included moving the main panel from an illegal position in a first floor bathroom into the basement.

    I now have 6 panels and 6 meters, 5 for tenants and an owners.

    The cost for the electrical for the 5 units during the summer months was about $350/month. Now my bill is about $24.

    I’d get a couple of estimates if you do this option and definitely try to order your own meters and panels if possible.

    I bet it’s less than 1/2 the cost of solar to go this route.

  • Alecia Loveless
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    Jonathan Klemm
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    Jonathan Klemm
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    ModeratorReplied

    Hey @Will Mejia - I am super familiar with the tax benefits or the cost, but I would connect with some of the local Chicago Solar panel contractors because they will obviously know the cost and have good connections for the tax rebates.

    You can probably get a higher ROI elsewhere, but if you have an eco-friend itch, I can see why that makes sense.

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    Bill B.#3 1031 Exchanges Contributor
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    Bill B.#3 1031 Exchanges Contributor
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    Replied

    Pay for itself. Or break even isn’t “winning”  you’ve lost $1,000/yr the $20k investment could have made you even sitting in a bank CD.  Imagine giving me $20k and I give you $1,000/year back and in 10 years it “paid for itself”   You don’t use it for an investment  you use it to punish oil producing countries that hate us or to show your neighbors you’re better than them  :-)  

    Usually it’s a horrible plan for rentals because you either have to charge higher rent and include the electricity or charge a flat rate discouraging them from saving power. But it sounds like you’re already doing that on the 2 units you’re paying out of pocket. 

    Don’t forget it. It won’t help you with your tax bill this year as it will probably be 2025 by the time you install them. 

    Maybe look at energy saving survey by power company of the 2 units your paying the bills for. 

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    Andy Nathan
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    Andy Nathan
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    Replied

    Beyond the tax advantages, installing solar panels can be a great way to market higher-end rental properties. Eco-conscious renters are drawn to sustainable living options, and promoting the long-term energy savings and reduced carbon footprint can set your rental apart, making it more appealing to premium tenants.

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    Adam Bartomeo
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    Adam Bartomeo
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    Replied

    1. The tax credit is for primary residences and commercial. Unless you are living in the triplex your property will not qualify for the credit.

    2. The breakeven point for solar is normally 10 - 15 years. From my calculations it is similar to a 5% return IF rates do not increase.