Generating Cash Flow on Long Term Rentals through Solar Panels

Travis Holmberg · 2019-05-22T10:31:47-07:00

Hey all,I live in sunny Phoenix Arizona and have been throwing around an idea in my head I'm wondering if anyone can validate or invalidate for me.My idea is to install solar panels on my SFH property and rent it out for a long term rental. When you have solar panels on your house, at least in Phoenix, they install a second meter for the energy generated. Then the local power utility allows you to choose different plans revolving around that energy generated. One plan sells the energy generated to them for $.0281 per kWh produced and then you buy back energy for various price points depending on the time of day and year ranging from $.069 to $.24 per kWh consumed.I've called SRP and they said that they do not allow you to have two separate accounts for each meter, but I'm still not sold on if that person fully understood what I was talking about; since multi-family homes have one family per meter. So ideally I would keep the energy creation meter in my name and the energy consumption meter would be in my tenants name.If that doesn't work, my thought is to keep the energy bill in my name and then charge my tenants for the energy consumed every month, while taking the energy produced as cash flow. I'm not sure if that would be creating unforeseen issues though?Running the numbers on the average solar installation in AZ and the average energy consumption i'd be looking at about $200 a month for a $15,000 solar unit. Then with the federal and state rebates it would pay for itself in around 6 years...not including the average of 4% increase in home value that solar panels provide. If I loosely follow BRRR and find a slightly distressed, but nearly turnkey property where I can invest $5kish in fixes then another $15k in the solar installation and then refinance after, I might be able to utilize that 4% home value increase to further decrease the return time on the solar panels.I'm wondering what all your thoughts are and what I'm missing?

Pamela Sandberg

Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes

7y

My husband works in the solar industry. According to him, the SRP purchase rates are so bad that it doesn't really work. They work exclusively with clients in APS territories. Unfortunately, the utility companies set the rates, and the numbers for ROI are bound accordingly.

That said, I'm not the expert, and there may be other solar options worth pursuing. If you like, I can put you in touch with someone who knows more about what makes sense for your particular situation.

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Bevla Reeves

Real Estate Agent · Scottsdale, AZ · Member since 2011 · 471 posts · 296 votes

7y

@Travis Holmberg I like your creative thinking! I'd love to know if it ends up working for you.

Good luck!!!

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Travis Holmberg

OP

Queen Creek, AZ · Member since 2019 · 7 posts · 4 votes

7y

Originally posted by @Pamela Sandberg:

My husband works in the solar industry. According to him, the SRP purchase rates are so bad that it doesn't really work. They work exclusively with clients in APS territories. Unfortunately, the utility companies set the rates, and the numbers for ROI are bound accordingly.

That said, I'm not the expert, and there may be other solar options worth pursuing. If you like, I can put you in touch with someone who knows more about what makes sense for your particular situation.

That is good to know. I would love to learn more about the solar industry in Arizona. We do not have our first property yet but are shooting for a 2019 purchase so focusing on APS specific areas might work for me.

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Wes Blackwell

Real Estate Agent · Phoenix, AZ · Member since 2016 · 738 posts · 1k+ votes

7y

@Travis Holmberg

My advice would be to give this strategy a shot in Phoenix would be to do it on a property you already own where it's practically guaranteed you're going to make money (already high cashflow, etc.). Reduce your risk with the numbers as much as you can because that's what is most important.

Then once it's a proven concept, you could add it to your bag of tricks for a BRRR strategy on subsequent properties.

If the math works, then probably your only main concern is the wording in the contract regarding the payment of the electricity bills. You're going to want make sure the expectation are crystal clear and easily understood by the tenant.

If you use a standard lease agreement, you don't want a rogue tenant claiming they don't owe anything for the electricity bill since the solar panels covered it. Even if you'd win in court, you don't want them calling the city and complaining about you either.

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Ben Zimmerman

Rental Property Investor · Raleigh, NC · Member since 2016 · 396 posts · 995 votes

7y

@Travis Holmberg I don't have the numbers in front of me anymore but I do remember running the calculations at one point and found that it wasn't worth it.

One of the problems is that while a good system can generate a fair amount of power, and thus decrease your monthly bill significantly, that is only useful however if you are actually using the power that you generate. If instead you sell it to the power company they give you next to nothing for it. I think I remember paying an average of about 0.12/KwH of energy from SRP, but if they are quoting you as buying your energy for .028 then they are only paying you 1/4th of what they are going to turn around and sell that energy back to you for. So while a unit might be able to save you 200/month in bills, if you instead sell that to SRP they will probably only give you roughly 50 instead of the 200. You could try to come up with a way to keep the bill in your name as you suggested and rebill the tenant, but that seems extremely complicated since the price varies hourly depending on peak usage rates. You could solve this by charging a flat rate per month, but then risk the tenant keeping the AC at 65 with the doors open all summer.

A solar company website may claim that installation will cause a 4% increase in home value, but the reality is likely very different. Good luck trying to get the appraiser to grant you that 4% increase so you can refinance. If you wanted to sell you also have to find a buyer willing to pay extra for your house due to solar even though its the same bed/bath and sq footage as all the other homes in the area.

Finally 15k is a lot of money upfront, and would go a decent ways towards the down payment of a second rental property instead of trying to complicate things with solar.

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Randy K.

Investor · Casa Grande, AZ · Member since 2017 · 34 posts · 32 votes

7y

Not sure how SRP does things with their solar, but I know APS doesn't really pay you out for your excess kWh, they simply credit your overage toward your bill each January. Throughout the year, you're either buying the kWh they provide (nights, cloudy days), you utilize what the sun gives you, or a mixture of both. If you're generating more than you're using, it just gets added to a "bank" of kWh that appears on your statement. If you're net positive for a month (or all of them), you still pay the minimum charge of around $14 per month to be connected to the grid and have them read your meter, taxes, fees, etc. At the end of the year, whatever you've got banked up gets applied to the future bills at a certain rate. As previously stated, that rate is far lower than what they charge for a kWh.

One thing to note, I had my system installed in 2012, so the rates and rebates may be vastly different than what's offered these days. Also, as far as I know, they'll only approve a system that is able to capture/generate up to 125% of the property's average usage. So don't count on loading the roof with as many panels as possible to create a mini-solar-farm.

All-in-all, I'm a big advocate of going solar, especially here in AZ, however, I'm not certain it'll yield the results you're hoping for when used on rental properties. If you advertised the home touting its energy efficiency and low monthly electric bills, perhaps you could charge a higher monthly rent to recoup some of the investment, but that's a big "perhaps".

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Generating Cash Flow on Long Term Rentals through Solar Panels

Generating Cash Flow on Long Term Rentals through Solar Panels

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