@Will F. and others:
This is a topic I've thoroughly analyzed and researched over the past year. I'm a landlord and have worked in the solar energy industry on and off since 2010 in Oregon. I recently had two solar PV systems installed on the roof of one of my duplexes. I would not have done this had the numbers not worked out in my favor.
Disclosure: I DON'T work in the solar industry right now. And I only read the first page of this thread before getting frustrated at so many ill-informed answers that I decided to chime in.
To everyone who says that solar is a bad investment for rental properties--it's not that "you're wrong," but rather, "it depends."
The fact is, every building is different. You can't generalize about whether solar (PV or thermal) would "pay off" for rental properties or even owner-occupied properties. Each state and each utility district has its own incentives and rebates, and even then, all other things being equal, properties in one zip code may qualify for certain programs that others don't.
1. Do the research and find out whether solar may provide a ROI for you (http://www.dsireusa.org/ is one place to start, then visit your state's website for state tax credits, then your local utility company's website for other incentives. This is on top of a 30% federal tax credit off the net price after state credits). The incentives and tax credits also vary if the property/electric meter is considered residential or commercial.
2. Contact at least 3 solar installers for bids. Ask them about all the available financing options and plans. Some companies, like SolarCity, have lease or power purchase options, which may prove to be more cost-effective than purchasing a system, depending on where you live and how big your system is. You may find, however, that purchasing a system from one company doesn't make financial sense, but another company might provide you a much lower bid. When purchasing a system, size matters, as there's sometimes a sweet spot where you maximize the available incentives but don't offset your energy consumption 100% (e.g. in Oregon, the state tax credit maxes out at $6,000, so systems larger than 3.5kW can cost more per watt, if you're buying the system yourself).
It depends on which state you're in, the direction your roof faces, the pitch of your roof, the age of your roof, shading, the average amount of annual sunlight in your area, your electricity company's available incentives, your electricity rate, your electricity rate plan, how long you plan to own the property, how much electricity you currently pay for (if any), how new/energy-efficient the building already is, and available financing options.
3. While the price of panels may fall, so will the available tax credits and incentives. As one person pointed out, most of the cost is in labor, so if you're going to go solar, you will reap the most benefit from your decision if you act sooner rather than later. To those who say, "just install it yourself," no. You can't get many of the incentives if you're not licensed or otherwise professionally affiliated with the state and/or utility district and/or don't tie your system to the grid.
4. There are multiple ways to pass the cost on to your tenants. If you are leasing a system or have an agreement to purchase the power (PPA), you could simply pass the bill onto your tenants. No matter your financing, you could also include the cost of solar in the rent, and advertise this in your rental listing. Thirdly, you could have a separate "solar electricity fee" each month, so the rent listed on your ad is competitive with neighboring listings. Make it clear that the solar system offsets what they'd pay to the electric company and their overall electricity costs will be lower than other area rentals (and make sure that's so).
5. INCOME AND PROPERTY TAX BENEFITS:
- If you purchase the system, you can depreciate the cost. Talk to your accountant as you may be able to cost segregate and depreciate over fewer than 27.5 years. (There might also be an expedited "green upgrade" depreciation rate for all I know, but idk.).
- Many if not most municipalities have statutes that prevent your property taxes from increasing when you add solar or other green upgrades.
- If you borrow to finance the system for a rental, you can also deduct the interest. And if you have a lease/PPA, you can deduct your entire monthly payment.
- There's another benefit, but I'm putting it in #10 below.
I'm not an accountant so do your own due diligence regarding all the points above.
6. Yes, there's a hip factor that will make your solar-powered property more desirable to certain tenants. If you rent to many younger people, or people who are left of center politically, your vacancy rate will likely decrease as now you have a competitive advantage over non-solar units.
7. When you sell your property, if you purchased your system, solar will increase the value of your investment. If you have a lease/PPA, those can be easily transferred to the next owner. Most leases and PPAs will have some sort of rate lock, so if electricity rates continue to rise as they have, in 2021, the per kW/h rate you locked in in 2016 will look very attractive compared to whatever the utility company is charging at that time. There is no reason you should have to "buy out the system" just because you're selling the property. But in theory, you could buy it out if, for whatever reason, your buyer didn't want solar electricity?
8. Solar doesn't cost me anything. Yes. I installed two solar PV systems on a lease. I maximized the system size so 100% of the annual electricity consumption should be offset by solar. I didn't pay for any materials or labor, and the installer maintains the system and insures my roof beneath the panels.
9. Solar saves me money from Day 1. What I will pay for is the monthly lease at ~$40 per system. The electricity pre-solar bills solar averaged about $60 per unit. Subtract the electric utility's base charge of $10/month and that's a savings of about $10/month per unit = $240 (for two systems) in year 1.
My particular lease has a 1% escalator built into it. Assuming electricity rates will continue to increase at about 4% per year, this is how one of my two solar systems pencils out over 5 years (the lease is longer than 5 years because I intend to hold this property indefinitely):
| . | solar | electric utility |
| # months | 60 | 60 |
| IR | 1.00% | 4.00% |
| payment year 1 | 40 | 60 |
| Payment year 5 | $41.02 | $66.30 |
| with electric utility base charge | $51.02 | $66.30 |
| savings per month in year 5 | $15.27 | 0 |
| savings per year in year 5 | $183.29 | 0 |
| total solar savings years 1-5: | $790.05 | 0 |
| total solar savings years 1-20: | $5,201.76 | 0 |
| total solar savings including RETC | $7,601.76 | 0 |
10. I paid nothing for my two systems, but I get to keep $4800 in Residential Energy Tax Credits from Oregon ($2400 per system). This is a portion of the whole credit ($6000 per system); the installer keeps the rest. But since I didn't buy the system or pay for installation, for me, it's like free money.
Granted, I worked in the solar industry so I know the ins and outs of the incentives, tax credits, and financing options, and I leveraged that knowledge to make solar return on its investment (which was $0) from day 1.
I've put a lot time into researching solar for landlords and have a couple more strategies that I didn't mention here. One of the beautiful things about solar at a rental property is, even if you include the cost of solar in the tenant's rent, they are still incentivized to not waste electricity. That's because if they use more energy than the panels can make, they then still have to buy it from the electric utility. So that's just one tidbit up my sleeve.
If you'd like help deciding whether solar could benefit you as an investor or homeowner, or if you want to know a couple other ways you can make money from solar as a landlord, you're welcome to PM me. I don't work in solar anymore; I'm offering up my experience because I do believe in renewables and know that it can be a good investment for some people.
Ryan:
You should be careful with that brush, lest you paint yourself the same as those you disparage.
As @Luc Boiron posted above there are incentives in Ontario - one of only three provinces in Canada providing any significant incentives. While those incentives and subsidies are fine on a personal residence, deploying them on a small rental property produces a rather anemic return. There would be many better uses for the capital.
If you undertake a photovoltaic installation on a large scale - as @Claude Boiron's article describes - you have a much different business case.
For those of us living in locations with no government incentives or purchase subsidies (the local utility will only reverse meter to the point your consumption reaches zero, they will not purchase surplus production from residential or small commercial customers), there's not a viable business case to be made - you would get far greater payback improving your building envelope to reduce your heating and cooling loads.
Agree with you, @Roy N.!
Ryan:
You should be careful with that brush, lest you paint yourself the same as those you disparage.
For those of us living in locations with no government incentives or purchase subsidies (the local utility will only reverse meter to the point your consumption reaches zero, they will not purchase surplus production from residential or small commercial customers), there's not a viable business case to be made - you would get far greater payback improving your building envelope to reduce your heating and cooling loads.
I would not post such specific information unless I know I am correct about what I am talking about. That is why I get really annoyed when people post what is obviously false information. In the United States, as I limited my post to previously, there are no locations without government purchase incentives. Every utility in North America will purchase excess power above what you used, but, they may not give you as good of rate for what you sell above what you use.
Is there anybody else replying here that actually has solar panels installed on rental property, like I do? Or am I the ONLY person here with first hand experience?
Again, whether this is a worth while investment for YOU is only something YOU can decide. The fact remains, solar panels produce income, that is why they exist. Some people like the ROI, some don't. Just like any other investment.
My business model is investing in, hopefully, appreciating assets. Solar panels are a depreciating asset and not part of my business model. Fine for someone to think they will get higher rents for having solar but I believe they are deluding themselves. The whole green movement is not cost efficient and not what I have any interest in investing in as long as my tenants pay for utilities. I don't install low flush toilets either because they also do not increase my profits. The majority of the tenant pool do not consider the environment in selecting accommodations and it is therefor not business wise to spend capitol dollars to target a tiny portion of the market if it prices out the majority.
I would not post such specific information unless I know I am correct about what I am talking about. That is why I get really annoyed when people post what is obviously false information. In the United States, as I limited my post to previously, there are no locations without government purchase incentives. Every utility in North America will purchase excess power above what you used, but, they may not give you as good of rate for what you sell above what you use.
Is there anybody else replying here that actually has solar panels installed on rental property, like I do? Or am I the ONLY person here with first hand experience?
Again, whether this is a worth while investment for YOU is only something YOU can decide. The fact remains, solar panels produce income, that is why they exist. Some people like the ROI, some don't. Just like any other investment.
Ryan:
Firstly, not every utility in North America purchases excess power generation. As mentioned above, our local utility is among that list. They would gladly accept any net power we generate above our consumption, but it would be a poor business decision to install a photovoltaic array for that purpose. Our tenants would gladly accept free accommodations as well, but are not likely to do that either.
We have placed "solar panels" on properties: solar thermal (which paid for itself in roughly 5-years) - there is a small photovoltaic panel on that installation to run the circulatory pump and control system.
I've been involved with two small commercial photovoltaic installations - the control systems side - so am not oblivious to capabilities and costs.
We have signed-up/volunteered for an experimental installation of a new photovoltaic system which claims increased surface area, lower operating temperatures, no need for tracking, and more output per sq ft. Once it's deployed and we are out from under the NDA, I plan to write about it.
My business model is investing in, hopefully, appreciating assets. Solar panels are a depreciating asset and not part of my business model. Fine for someone to think they will get higher rents for having solar but I believe they are deluding themselves.
Again, you're totally ignoring the profit they generate on a daily basis known as electricity. You can sell it for more than what you would normally pay for power, from two to ten times as much.
The profit from solar panels does not come from higher rents, that is only a potential bonus.
100% false! It all depends on how you set it up, how much you generate, and what kind of agreement you have with the utility. EVERY part of the North American grid will accept and pay for excess solar power generation. They will only pay a fraction of what they pay for your avoided usage, but they WILL buy it, it is required by law.
I will exclude Mexico from this discussion because I have no idea nor care what goes on there. In the US and Canada you can sell surplus power to the utility no matter where you are at. You might only get half the retail rate above your own consumption, but they are still required to buy it from you.
If you want to you can open a solar farm on land that does not consume any of it's own power, selling 100% of what you generate back to the grid. They will not pay as much for this as the avoided consumption on a SFH, but they pay for it none the less. Big solar farms are popular investments right now, and it isn't because they lose money.
Ryan:
Well, perhaps you should call the president of the local utility and explain to them they are purchasing electricity generation from residential and small business customers and that their published policy and contracts to the contrary are 100% false.
For the third time, our local utility will net meter only to the point at which your consumption reaches zero. Any electricity you send onto the grid after that point, is goodwill on your part. There is a difference between supplying the grid and actually getting paid for it. It is only very recently that residential customers have been able to even net meter into the grid.
There have been statements for years that this was going to change - and, I'm sure eventually it will - but at this time that is not the case.
Like I sad, it depends on the agreement you have with the utility. "Net metering" means turning the meter back to zero and then stopping. You are correct there.
That is not the only purchase option your utility offers. Different agreements result in different quantities of power being purchased at different prices. Net metering gets the highest price per kilowatt, but, only up to what you use. As a commercial power producer, you can sell as much solar power as you want, but they will only pay roughly half of what they sell power for.
What this means is that you can profit more from solar by having a building that uses a lot of power, but again, there are solar farms installed all over North America that don't even consume any local power.
Ryan:
Let's end the back and forth and hijacking of this thread as it has become obvious your certainty in your opinion is immune to any facts not supporting that position.
You have not posted any facts. I am not hijacking this thread, it is about solar investments and that is what I am talking about.
Thus far, it looks like I am the only one that actually has a large PV panel installed on a rental property. I can say from experience, it's profitable.
Ryan you are a tiny bit overinvested in making your point. Although it may work for you this does not necessarily translate into a good investment idea for everyone. For example I believe that investors in SFHs are crazy. Very poor business practice compared to all the other better options on the market. Does that stop them from doing it , of course not. There are plenty of SFH investors that believe they are making good returns. Does that make it a good investment for me, no way in h**l.
Same difference with solar. You may be into solar but you have no reason to sell that investment vehicle to others. Yours works and thats good for you. For me I want no part of it for many more reasons than I have stated.
Hypothetical: - zero research done fyi
Install a solar system on each rooftop of every rental property you own. Assuming lifetime buy and hold, and (I'm not sure of this) it can be connected to only sell generated energy back, and not cover the usage of the house.
Keep tenants paying their regular rent + hydro, and start selling the energy produced by the panels back to the government. Effectively creating a solar farm on the rooftops of your properties.
Cashflow ++? Pretty greedy? Tenants be upset? Justify to them its another type of investment?
If you hold these houses for 20-30 years, and you are paying back the initial cost between 5-10, the rest is gravy no?
For me I want no part of it for many more reasons than I have stated.
Unfortunately your reasons are not accurate, you do not know very much about solar. I have quite a lot of knowledge on the subject.
Like I said, not everybody likes the same ROI, but solar panels do in fact pay for themselves, and then some. This is an absolute fact.
Cashflow ++? Pretty greedy? Tenants be upset? Justify to them its another type of investment?
I very much agree with your post. It is not greedy, your tenants have no right to be upset. They should pay the same price for power as any other house, even if there are solar panels on top. Any profit is yours. You very much can create cash flow out of this if you actually do your research. This is why so many solar farms and solar leasing companies exist without having anything to do with the rental market.
Maybe but you if you do not hold long enough, for what ever reason, or your roof does not last that long all of a sudden you are in the red. You have no idea if the next buyer is willing to pay for your investment and have no control over future returns.
Solar is a separate business model and not for every investor. For myself I have zero confidence in it being long term a good investment.
The idea seems fool proof, that's a problem for me but bottom line the payback is too slow and not guaranteed on a deprieciating investment.
Ryan:
Let's end the back and forth and hijacking of this thread as it has become obvious your certainty in your opinion is immune to any facts not supporting that position.
You have not posted any facts. I am not hijacking this thread, it is about solar investments and that is what I am talking about.
Thus far, it looks like I am the only one that actually has a large PV panel installed on a rental property. I can say from experience, it's profitable.
Ryan:
I provided you with a link to the Utility's policy - not sure what further facts or evidence are required. I just checked to verify I did provide the link to the English version of the policy, so you should have little difficulty reading it.
Is anyone experienced enough in the solar business to give numbers on the resale value of a 10 year old solar instillation. Are their any comps in the field at all. Is it valued on a cap rate or simply at a dollar value.
Any agents selling homes with home owner panels have any input on value added on resale.
Aloha All,
As in all investments you have to understand your market. Solar on rentals can be a great idea if your market calls for it, but electricity does not cost the same in every state.
We here in Hawaii pay the most for electricity, 33.5 cents per kilowatt hour (kwh), which is twice as much as #2 Alaska. The national average is around 11 cents/ kwh. (Most SFH bills are around $350/ month, though I've seen electric bills as high as 1700/ month!)
Just as electricity costs vary from market to market as do photovoltaic systems (PV). Different areas get different amounts of sun each year, which means you may require more or less panels depending on where you live- and this can vary from neighborhood to neighborhood, not just state to state.
For example say a family uses 700kwh a month, in order to build a PV system that will produce that much, it may take ~12 panels in an area like Ewa Beach here on Oahu (the highest sun zone in the country) but it may take ~30 of the same type panels in a place like Seattle. You've more than doubled the cost of the system and, depending on your electric bill, may have lost the value of seeing a ROI for a quite a while.
There are several other factors when pricing a PV system like the size/pitch of your roof, how many stories your home is, what type of roof you have, the quality of PV panels you use, any trees/ buildings that may block the sun etc.
When considering installing PV in a rental unit, you have to understand your market. Personally I love having PV on my rental because now I can hike up the rent ~$250/month and include electricity at no cost to me.
It's all about running your numbers and making sure you come out in the green.
Like I said, you need to do your own homework. I'm not going to bother researching Canadian electricity rates for you, I really don't care. I can assure you your local grid will buy any amount of solar power you can produce, even above what you use at the same property. The only part that will vary is what rate you might get paid. If you actually want to do the research the tariff is there somewhere for you to find.
I'm not trying to convert you, I could not care less whether you decide to buy solar panels or not. I'm simply pointing out that it can be done as an investment in almost every market, there are many, many, many different ways to go about doing it. Only you can decide if the investment is good enough for you. Anybody who says it is impossible to make money at this doesn't know what they are talking about.
I'm pro-solar, I don't think it is a good investment for everyone, but I also think there is a good about of misunderstood, old and outdated, or just plain misinformation out there, and it is often a much better investment for many people than they realize.
My business model is investing in, hopefully, appreciating assets. Solar panels are a depreciating asset and not part of my business model. Fine for someone to think they will get higher rents for having solar but I believe they are deluding themselves. The whole green movement is not cost efficient and not what I have any interest in investing in as long as my tenants pay for utilities. I don't install low flush toilets either because they also do not increase my profits. The majority of the tenant pool do not consider the environment in selecting accommodations and it is therefor not business wise to spend capitol dollars to target a tiny portion of the market if it prices out the majority.
Greg, setting aside any opinions we might have on the "green" movement, there are a lot of aspects that knowledgeable investors, particularly those who work with high-end tenants or very large multifamily properties, can take advantage of.
A simple example is the industry that I work in: LED lighting. Screw in a set of LEDs in the hallways of a large multifamily and they will pay for themselves, without any government incentives, in about 15 months. Add in the government incentives? 4 month payback. Obviously the answer changes a bit depending on what types of fixtures we're talking about, but I have seen thousands of lighting retrofit bids and they average about a 2-yr. ROI from everything from a 15-unit condo building to a 750+ unit apartment tower complex.
Who cares about the environmental implications or whether the tenants really consider "going green" a factor when you can generate a quick and easy 300% ROI? That's not even accounting for the multiplication effect it has on the value of the building as you lower operating expenses. You don't have to be some tree-hugger to appreciate efficiency at work.
I'm kinda surprised at the lack of imagination regarding solar and rentals. Namely "the tenants pay the utilities so there's no ROI". Really?? Tenants pay to do laundry at laundromats too. Does that mean it's pointless to install coin-ops in your rentals?
Why not run the numbers:
Yes there will be maintenance (simple enough for the landscaper to perform), just like laundry machines. With the cost of solar coming down, this type of analysis will begin to make sense for landlords, if not already.
We've got a small PV array on a rental, and solar thermal, too. Neither one is making a LOT of money for us, but certainly we're making modest returns. It's all about your location and your risk tolerance. Sure, we might be able to make more with another property (can't buy another property around here for the cash we put into our PV array), or into stocks (we don't like stocks, and we're old enough -nearing retirement- to want a more conservative portfolio), but the return is not everything. We promote green apartment living, and here in Madison, that sells. But I maintain it's the garden beds we provide more than the solar panels that makes the sale. It's all part of the package. Even if it turns out to be just a 4% return, that's fine. We pay the electric and the tenants pay us separately for the electric each month.