Solar Power Use as Renter-Acquisition Strategy

9 Replies

Hey All, I recently just finished reading an article in the Wall Street Journal about the continuing rise of renewable energy sources led by their increase in efficiency and drop in implementation cost. I live and do real estate in Phoenix, AZ, and therefore have no lack of sun every year. I was curious if anyone is currently using solar power as a means to advertise lower rental costs to new renters, or if the strategy of implementing solar to decrease rental costs has been done by anyone else yet? If so, what do your cost breakdowns look like and what do you think having implemented the strategy? Best, Matt Dickens

Hey @Matt Dickens , I don't see how it would work. 

You (the landlord/owner) pays for a solar system, most likely via a long term lease. Let's say your lease payment is $100/month for 20 years. You'd have to be able to convince tenants that the higher rent you're charging (compared to the local competition) is worth it because the tenants will save money on their electricity bill each month. So you bump the rent for the house from $1500/month to $1600/month and you're just breaking even. You raise it to $1625 and you're making an extra $300/ year :( 

The other consideration is that leased solar systems do not add ANY value to a home... in fact, I've talked to appraisers who will actually value a home with a leased solar system LOWER than non-solar comps. (completely different story if you own the entire system free and clear). Keep this in mind for when you eventually have to sell the rental property. 

It's also one more thing to complicate your rental house...it can leak, it can fail, it can get damaged by hail, it can blow off in a wind storm. Even if some of that would be covered under the warranty, are you getting enough of an ROI to justify the extra headache?

I agree with @Ryan Swan in that solar leases are a big pain. It's going to make the resale of your house more difficult in a lot of cases because the new owner has to qualify for the lease. And if you are going to flat out buy the system upfront it won't be worth the high cost.

There are so many times I've been browsing the MLS and saw a house that is priced lower than all the rest and I scroll to the bottom of the listing and you guessed it... solar lease

I have no experience with leases, we own our panels on our rental. We've had a lot of success attracting green-minded tenants, but it's a package deal.  We also offer garden space, good insulation, high efficiency furnace/heatpump minisplits.  In certain cities like ours it can work. Not sure about Tempe compared to other parts of AZ and the sunny southwest.

The more people go solar/renewables the better, as far as I'm concerned.  In our city, there are plenty of tenants who want green apartment living. There are not enough landlords who offer it.

Hey guys - I’m just buying my first rental now so I’m not yet a REI expert, but I am an MBA and experienced business management professional. Every purchase you make should be seen through a lens of ROI, it’s all a Cost/Benefit Analysis. I don’t see why solar panels installed at the right cost, yielding a payback period of less than 2 years, wouldn’t be a good decision. But that’s a lot of boxes to check to get there, and as mentioned before, that’s just what is seen - but what is unseen should also be looked at (insurance cost impacts, maintenance costs, useful life, etc). Good luck in your CBA!

Just to clarify the lease/ownership conversation. By far the most common ownership model is now zero down financed ownership. Any ownership of a solar system - cash purchase or zero down financed means that the solar system is able to be appraised for 100% and is written that way in the Fannie Mae documents.

Depending on local conditions a solar system typically adds value to a home as seen in studies by Lawrence Berkeley and the NAR.

Leased solar systems are not able to be appraised. Fannie Mae explicitly does not allow for appraisal of leased solar systems.

All in all then under most circumstances an ownership of a solar system is the way to go for tax credits, appraised value and ROI. Leases do make sense if the property owner has no tax liability and so cannot benefit from the Federal tax credit. An example would be a Church. No tax liability so no direct Federal tax credit benefit. In that case a solar company can own the system, use the tax credit and lease the system to the Church who would benefit with a lower monthly expense but not benefit from ownership.

@Andrew Smith Thanks for the follow up... that was all very interesting and useful info! 

Are you saying a financed system adds 100% of its purchase price in value to the home? (even if say the owner only has 1% of equity in the system?)

Originally posted by @Ryan Swan :

@Andrew Smith Thanks for the follow up... that was all very interesting and useful info! 

Are you saying a financed system adds 100% of its purchase price in value to the home? (even if say the owner only has 1% of equity in the system?)

 That's not me saying that it's the Fannie Mae appraisal guidelines. It's definitely a variable depending on local conditions. In California for example the savings are typically so high by going solar it could add more than the value of the system or make a home more easily sold in comps with non-solar homes. In other areas it may have less impact or be detrimental if the local market has negativity towards solar. In that latter case, I think that will change in favour of value add as solar adoption continues to increase across the country.

In your case in AZ the value proposition for solar is not as high as local utilities fight net metering. Savings in CA is almost a given. In AZ it is less likely though it enables a rate for power to be locked in for 20 years at today's rate and then become free power. In either case I can't think of a better way to improve a home in terms of ROI as there is zero out of pocket cost, savings and/or locked in power cost and dollar for dollar appraisal of the home improvement at a minimum.

Yeah, the lobbyists really killed solar in AZ. We need a viable battery storage system (Tesla?) to become affordable so it can be used  to offset our peak afternoon costs in lieu of net metering savings. I'm still considering a system for my own primary residence as a way to hedge future cost increases. 

OP was asking whether it's a good addition on a rental property (where the tenants would pay elctricity), and I just can't see how that would generate any ROI for the landlord.

Originally posted by @Ryan Swan :

Yeah, the lobbyists really killed solar in AZ. We need a viable battery storage system (Tesla?) to become affordable so it can be used  to offset our peak afternoon costs in lieu of net metering savings. I'm still considering a system for my own primary residence as a way to hedge future cost increases. 

OP was asking whether it's a good addition on a rental property (where the tenants would pay elctricity), and I just can't see how that would generate any ROI for the landlord.

 Yeah for sure I did not comment on the tenants paying the bill as there are many opinions on that. Offering "free power" with caveats of reasonable use and raising rent to cover the nut of the system seems reasonable and pays for the system with OPM.

As far as net metering goes, there are battles going on right now in AZ to bring net metering back as a mandate. I think the CA solar mandate helps cases like AZ. We have seen public action produce fantastic results already in NV and FL.

For sure batteries are going to be a mainstay in the near future to counter this type of action by utilities as well as other avenues they are using like time of use penalties.

All of our systems are 100% battery-ready but we typically advise against right now because of economics. The Tesla is a backup battery rather than a daily use battery like Sonnen and LG. The latter (or similar) will be the way to go when manufacturing costs fall. This is already happening. Our estimates are 18-24 months for daily use batteries to become mainstream in systems. 

As a hedge, solar now is truly a great idea. It's like you could sign up for a gas card with no out of pocket 20 years ago and buy gas at that rate for 20 years then get free gas for life. The Federal Tax Credits are on a diminishing scale starting in 2019.

I am in the solar industry for full disclosure.