Will solar panels allow me to increase rent to tenants?
Real Estate Agent · Newport Beach, CA · Member since 2017 · 259 posts · 293 votes
Hi all,
I know the upfront cost of solar panels is significant. However, I'm wondering if I can pass the extra $50-$100/month to the tenant with the expectation to increase the demand for my property. Does anyone have any experience with this?
I definitely believe that tenants are looking for more amenities or a smoking deal. Being a fairly green millennial myself and if the rent is pretty comparable to the neighboring properties (Southern California pricing), I'm pretty sure that I would pick a green building that had free electricity with all else being equal, but maybe I'm a weird millennial. Any feedback would be much appreciated thx!!!
Not sure of the dollar amount you'll be able to increase the rent, but we found this. We have a green rental with solar panels, efficient furnaces, good insulation, and garden space. We keep increasing the rent between tenants and still find we have a great applicant pool, multiple good applicants. I might argue that green features might increase the pool of interest if you're priced right. And the type of tenants who value these kinds of features are ones who will take good care of the property! (at least so far that's true for us)
Of course, location is critical, too. Are you on public transportation, near bike paths, in a walkable neighborhood? All of this stuff goes together.
PS. That of Course includes electric stove and range top as well. Bottom line it's all Electric.
That's right Tom. Plus the water heater. Everything. My plan is to, upon closing, (I'm renting/living in the house I'm buying) contract a PURCHASE, not a lease from one of the 6 quotes I've received and have done a great deal of homework on and save EVERY bill, each month adding data to the spreadsheet of Kwh produced by Solar and Each electric bill and the associated costs, compare it from the year prior to clearly justify the rent when I decide to do so in a few years. And still receive my SREC's.
I've already begun to make the house more energy efficient and will go further once I close. First Energy will, online, analyze your bill and break down where you can save and what %. I've crunched the heck out of the numbers, did deep research on every solar product offered down to the flashing. It's a no brainer for me now and will be when I decide to rent.
And don't forget, inflation and interest rates are about to rocket and I have little doubt we'll be going into a very deep recession if not worse then you have the solar panels and inverter tariffs coming.
It is a nice thing to have. As a tenant they appreciate the lower electricity but it is still intangible. It is like HOA due the pool, gym is great. But most landlord foot the bill as tenants will be late, fine, liens coming your way.
In CA you get a tax rebate. That will be your incentive as landlady.
Sam Shueh
Cupertino, CA
I work in solar and invest in real estate. What I've noticed is that it seems to be dependent on usage. In Bakersfield for instance, tenants can have an average bill of $400 with peak bills of $1200 per month in the summer. In those cases, dropping the bill by $50 and pocketing the difference between that and what the utilities charge is being used by some landlords.
Someone with a 400 sqft bungalow isn't going to see a lot of savings, especially on the coast.
For us, PGE is increasing rates at 11.5% for the third year in a row. Saving a pre-solar bill and showing prospective renters that the per kilowathour price is $.18 instead of $.28 on average and saves them money is a good idea.
Additionally, if you're a qualified real estate professional, you can depreciate the solar, as well as take the tax credit.
@Lucas Weismann @Jim D. I am think about adding a solar system on my rental property. However my CPA told me that since it is a rental property, I may not be able to get federal for state tax credit. She seems not really sure about that. Do you know where can I find that information?
Thank you,
Peter
@Lucas Weismann @Jim D. I am think about adding a solar system on my rental property. However my CPA told me that since it is a rental property, I may not be able to get federal for state tax credit. She seems not really sure about that. Do you know where can I find that information?
Thank you,
Peter
Hi Peter,
The Federal Tax Credit is for primary residences. It would depend then if your "primary residence" is your rental property. If it is set up as a rental then you do get a 5 year depreciation rather than the 30% tax credit, so considering others are paying for the system then it could well be a really good deal for you too.
I only pay $35-45 a month for electricity except for deep winter. Paying an extra $100 for solar panels just doesn't make financial sense for a lot of people.
Tenants can be eco-friendly by just using LED light bulbs, turning water heater down to lowest setting, etc.
I’m a huge proponent of solar but I’m questioning whether it would be financially beneficial for me, as the landlord, to add solar to my residential property.
If the rent were increased to account for the tenant’s non-existing electric bill, wouldn’t that increase taxable income? The tenant would be paying me, rather than the electric company, and I’d rather stay out of that equation.
Five-year depreciation sounds pretty great though... and the 30% tax credit on the system price.
@Kristina Heimstaedt
Here’s a good video on the subject
https://youtu.be/hYq0YHsbB9o
In my experience, I’ve seen direct benefits for solar on rental properties for both the landlord and the tenant in CA as long as the panels don’t cost anything to install. There are programs that actually pay the landlord to install solar for no cost.
Traditionally, buying solar panels (outright, loan, lease) doesn’t make sense unless the owners are comfortable with a very long payback period. IF you can get the payback period down to 4 years or less, then it’s a great idea. If you have a payback longer than 4 years, most people can get better returns on their money with outside investments. Owners who just want a green property, or who drive at least 25K miles/year with a fully electric car, and have high electric bills ARE good candidates to purchase solar. If you don’t fit into these categories, I recommend a better option. A PPA (Power Purchase Agreement).
Using a PPA (Purchase Power Agreement) on rentals (& primary homes) does make a lot of sense for owners, especially on rental houses, townhomes, duplex, 4-plex, etc. Here’s why.
Pro’s:
Cons:
I hope this helps!
@Kristina Heimstaedt this old thread just popped back up in my feed, so I thought I'd update it. I commissioned an 8.4kW system on my 4 plex roughly a year ago, and am installing a second 8kW on another meter.
The tenants LOVE it, and I LOVE the returns. I opted to just include AC/Heat from mini-spit units in each apartment, and let the tenants keep their meters for anything that plugs into the walls and the lights, but it has been a great call.
In regards to the billing, I did learn that tenants want simple, so I just did the math on power, divided it up per bedroom and added it to the rent. So the "for rent" ad just says "apartment with AC/Heat/Hot/Cold water included for $XX" and it's worked really well. I'm the highest rent on my street and people ask me weekly if I have openings.
Granted, i am on a commercial net metered account, and did most of the install myself, total installed cost per watt for me is about $1.40, wheras market rate is probably $3.50-$4 for same equipment, but you can scrounge and make it work.
The other nice part is that I raise the rent just a bit each year and nobody complains, they know its a good deal and don't want to lose it. Anyway, i know its been forever but i did want to chime in with some historical data.
Oh, and my power bill for the ENTIRE BUILDING is about $41.25 each month. 11 ac units running and 3 electric hot water heaters. Shabam.
For what it's worth I've been evaluating putting solar on my primary home knowing it's likely I'll be turning it into a rental at some point in the future. Buying through Costco I can get 1.5% financing, they will roll the cost of a new roof into the financing, and I get a 26% cash rebate from the gov. The end result is either a $8K loan at 1.5% (by not applying the rebate to my balance) or $10K out of pocket for a new roof. The $18K swing in cash in vs cash out and what how I can invest that money is actually more important from a profitability perspective then if I can charge the future tenants anything.
If you want to charge tenants for solar energy, I'd look for a service that reads the SolarEdge meter and the local utility meter to recreate the local utility bill. That way, neither the tenant or the landowner feels like they have been treated unfairly.