Using Rooftop Solar Panel Systems to Increase Cash Flow

68 Replies

Hello BP, has anyone had any experience installing rooftop solar panel systems to their rentals and charging tenants for the energy usage in order to increase cash flow? How did this work out for you? If you have not done this before, then what are your thoughts on this idea? 

Hey @Taylor Stamm and welcome to BiggerPockets!

This is a topic that interests me as well. You should check out this thread from a year ago:

https://www.biggerpockets.com/forums/84/topics/499630-scaling-an-operation-for-going-solar

I was mildly intrigued by rooftop solar while I lived in Georgia, but now that I'm spending time in New Mexico I am fully convinced there is an opportunity here for solar!

Did you have a specific project in mind for yourself?

Originally posted by @Mitch Messer :

Hey @Taylor Stamm and welcome to BiggerPockets!

This is a topic that interests me as well. You should check out this thread from a year ago:

https://www.biggerpockets.com/forums/84/topics/499630-scaling-an-operation-for-going-solar

I was mildly intrigued by rooftop solar while I lived in Georgia, but now that I'm spending time in New Mexico I am fully convinced there is an opportunity here for solar!

Did you have a specific project in mind for yourself?

Thanks Mitch, I am still in college and do not own any properties yet, but I believe that with the costs drastically coming down annually on solar panels, the efficiency of solar technology going up, and the tax advantages (at least Florida has these advantages) that there is a great long-term potential of utilizing solar energy at rented out homes, especially in large multi-unit apartment complexes.

I plan on starting with buying small multifamily homes and eventually moving my way up to large commercial multifamily homes. My plan is to calculate how much energy I would need to produce with solar panels so that most, if not all, of the energy consumed by the rental home could be supplied directly from my solar panels. I would put in the lease that the tenant pays utilities to me for energy consumed by these solar panels, and have them set up conventional power grid utilities in their own name just in case the panels do not supply sufficient enough energy for the day. Obviously the tenant would only pay for what he uses, and I would charge the same price, if not slightly less, than what the utility company charges. I eventually could buy rooftop pv (solar panel) systems in bulk, and by the time I can afford this for commercial multifamily complexes, I assume that the solar panel prices will have drastically decreased.

@Taylor Stamm it sounds like you want to spend $1 in order to make $.25. The tenant would then have two electric bills. One for the grid  and one for your solar panels. I foresee the tenants moving out soon after you implement this. Good luck with that.

@Anthony Dooley

That may not be the case, I'm currently house hacking in SLC UT and getting solar connected today. Based on the numbers we will be making money on the solar. They will cost less than $80/month in financing which can be half of the home's electric bill during the summer. And as long as the power usage does not exceed what id generated I will never pay for anything except to be connected to the grid ($10/month).

@Anthony Dooley

I appreciate your opinion Anthony, I will definitely consider that.

The plan is essentially that the entire house’s energy would be completely supplied by solar energy for MOST of the time. Of course though, there are times when the sun does not shine and the home battery could run out stored energy, so the conventional utility plan is there for more of a backup so that the house is not blacked out at any given time. When the system realizes that the panels are not supplying energy and that the battery is low, the system would turn over to utilizing energy from the power grid.

In other words, the tenant would have an extremely low monthly conventional utility bill and even possibly not have to pay anything for that month’s conventional utility bill.

The rooftop solar energy bill would likely be implemented directly into the monthly rent price and would go directly into the rental agreement; therefore only having one utility bill (if conventional power is even used that month).

This would not be imposed on an existing tenant: this is a potential plan for the future when solar panels are cheaper and this is priced out to be financially feasible.

Being in Florida, another potential advantage of this is that the solar panels could still be used post-hurricane, when the conventional grid is blacked out, to continue supplying power to the house. I know of people in Florida who had their solar panels survive Hurricane Irma and could continue supplying energy to their homes after the storm.

Of course, home solar energy is a location game; so the average profitability and return of using solar panels drastically changes depending on the exact state/city/location they are being used at.

@Taylor Stamm , and @Anthony Dooley ,    Taylor if you install Solar on a rental, the solar install should become another revenue source for you.  I suggest that you install a WiFi enabled electric meter and immediately start billing the renter yourself for the electricity they use -plus a small surcharge to cover your solar system maintenance and to cover your time for billing.  

In essence, installing a solar system gives you the opportunity to be the electric provider for your renter, and the solar system should become an additional source of revenue for you.  The extra revenue is negligible at first as the electricity used by the tenants generally covers little more than the payments due on the Solar PV System.   However, after the system is paid off, typically in 5 to 10 years, the revenue from your tenants becomes significant.  After pay off, look for an extra $200/mo on each rental, plus you can use the existence of your onsite solar electrical production as a selling point, plus you get immediate extra depreciation for the cost of the system, plus you can count about a third to half the cost of installing solar as increased value (equity) in the building.   

Originally posted by @Davido Davido :

@Taylor Stamm, and @Anthony Dooley ,    Taylor if you install Solar on a rental, the solar install should become another revenue source for you.  I suggest that you install a WiFi enabled electric meter and immediately start billing the renter yourself for the electricity they use -plus a small surcharge to cover your solar system maintenance and to cover your time for billing.  

In essence, installing a solar system gives you the opportunity to be the electric provider for your renter, and the solar system should become an additional source of revenue for you.  The extra revenue is negligible at first as the electricity used by the tenants generally covers little more than the payments due on the Solar PV System.   However, after the system is paid off, typically in 5 to 10 years, the revenue from your tenants becomes significant.  After pay off, look for an extra $200/mo on each rental, plus you can use the existence of your onsite solar electrical production as a selling point, plus you get immediate extra depreciation for the cost of the system, plus you can count about a third to half the cost of installing solar as increased value (equity) in the building.   

Interesting, thank you for the information! If I had an appraisal done on a house with solar panels, would they take those into account for determining the value of the home?

@Davido Davido

Great info Davido, thank you! This makes me feel much better about the idea.

@Taylor Stamm

I rented large roofs and put Solarpanels on them in Germany German governments gave very interesting subsidies guaranteeing the income for 20 year.

As far as I checked the us solar market your installment costs are very high and your electricity quite cheap...

It would have to be calculated if you end up making money with it....

But I can recomend solar you install it one time and than enjoy cash flowing in... once installed you don't have to do much it's like earning money while sleeping

Just my 2 cents

I might have to agree with @Anthony Dooley here. It's just a shiny object that may not really provide anything more than to say you have it. The actual cost of them plus the headache the tenants likely will give plus the potential increased insurance cost per month is likely to make you very little ROI with exception of the long game maybe. I do not know if this would really be worth the move.

I think it could work if you are in a property where you have to pay for electricity.  Also if you generate tons of income, I can see the advantage of being able to take section 179 on it and write off everything up front and get a decent tax benefit out of it along with the 30% tax credit.  This should qualify as the capital improvement for Opportunity Zone too.

Also better for environment is a plus.  Solar system should pay you back, the question is how long will it take.  

Great topic - I was reading that installing panels on the roof also reduces the amount of heat that the property absorbs through direct sunlight. This could be a great thing down in a coastal spot like Melbourne! Lower costs on electric, cooling, and offering a greener option all sound like great things to me!

That being said, I get the impression that this is one of those things that as an investor, the squeeze might not yield that much juice (electricity pun?) for you as the landlord...Maybe a nice benefit that you can use to raise the rent, but if a renter has a choice between two units that are equal in every way, but one is $150 more a month because of the solar panels, I bet they'll go for the less expensive property...They'll think they're comparing apples to apples, when in fact you're offering apple plus a little extra.....I know that in theory they'll save more on utilities, but it's a variable saving and it might not translate well when they are looking at rent only.

This also might have to raise your percentage when considering cap ex when trying to determine if its a good deal or not. Just another point to consider.

Still, I LOVE the idea, but I am a little bit of a hippie when it comes to the environment. Maybe try it on your primary residence, see what kind of savings you experience, and decide from there.

T.

Originally posted by @Thomas J. Clifford :

Great topic - I was reading that installing panels on the roof also reduces the amount of heat that the property absorbs through direct sunlight. This could be a great thing down in a coastal spot like Melbourne! Lower costs on electric, cooling, and offering a greener option all sound like great things to me!

That being said, I get the impression that this is one of those things that as an investor, the squeeze might not yield that much juice (electricity pun?) for you as the landlord...Maybe a nice benefit that you can use to raise the rent, but if a renter has a choice between two units that are equal in every way, but one is $150 more a month because of the solar panels, I bet they'll go for the less expensive property...They'll think they're comparing apples to apples, when in fact you're offering apple plus a little extra.....I know that in theory they'll save more on utilities, but it's a variable saving and it might not translate well when they are looking at rent only.

This also might have to raise your percentage when considering cap ex when trying to determine if its a good deal or not. Just another point to consider.

Still, I LOVE the idea, but I am a little bit of a hippie when it comes to the environment. Maybe try it on your primary residence, see what kind of savings you experience, and decide from there.

T.

That makes sense. I understand that this is something that I definitely need to carefully run my numbers on and talk to people who have had success with this. I will continue my research on this.

What about renting the units with electricity included? Hopefully you could get more than the electric bill costs w/o solar, and the tenants would not have a variable electric bill. Could be a selling point. Also tenants would not see you are making extra money just off the solar.

I consider solar every couple of years and have not been satisfied with the life of the panels. The material used to laminate the panel gets hairline cracks over time much like a headlight fogging up in a car which causes significant decrease in electricity production around 12-15 years old. Usually when you ask the salesperson about this, they will respond with, "wow, you really did your homework". The only panels that I can find different are Tesla's solar roof and uses tempered glass. This might just be true for what's available in my area. I just don't want to pay the money to have a solar roof working at 70% or less then it was new by the time it gets paid off.

Interesting idea, we have a small solar water heater and a solar pool heater.  They are about 10 years old but still work pretty well.  The water heater saves us quite a bit. I am just wondering what the numbers would look like, it would probably be better to crunch the numbers and add in the flat rate for the power averaged out over the entire year.  Just a thought.

@Joshua Johnson @Davido Davido The monthly payment isn't what I use to calculate the return. How much does it cost to install and maintain versus the revenue stream it provides? Also not mentioned here is the life span of the solar panels. If the average lifespan is 10 years (for example) then once they are paid off, you will have to start replacing them. If it costs $10,000 to install and the average electric bill is $160 per month, then you have essentially pre-paid your electric bill for 63  months or 5 years. If the panels last 5 more years, then you break even with the cost of just paying $160 to the electric company. 

Originally posted by @Anthony Dooley :

@Joshua Johnson @Davido Davido The monthly payment isn't what I use to calculate the return. How much does it cost to install and maintain versus the revenue stream it provides? Also not mentioned here is the life span of the solar panels. If the average lifespan is 10 years (for example) then once they are paid off, you will have to start replacing them. If it costs $10,000 to install and the average electric bill is $160 per month, then you have essentially pre-paid your electric bill for 63  months or 5 years. If the panels last 5 more years, then you break even with the cost of just paying $160 to the electric company. 

 in 2019 every solar panel manufacturer offers at least a 20 year warranty, and premium panels are 25. Maintenance is zero, solar panels do not "break" but they do degrade slightly over time (<1%/year).  Average payback period is 5-8 years in good solar markets, depending on a lot of variables of course but mostly the cost of electricity that they're offsetting. Not a get rich quick scheme by any means but a fairly decent return on something that you'd otherwise be paying anyway. There are low interest, $0 down loan programs where the loan payment is often less than the previous electric bill, so cashflow positive day one. Instead of paying the electric bill you just pay less to have solar, and pay down principle on an investment instead of just paying the utility.  

Originally posted by @David Stumpf :

I consider solar every couple of years and have not been satisfied with the life of the panels. The material used to laminate the panel gets hairline cracks over time much like a headlight fogging up in a car which causes significant decrease in electricity production around 12-15 years old. Usually when you ask the salesperson about this, they will respond with, "wow, you really did your homework". The only panels that I can find different are Tesla's solar roof and uses tempered glass. This might just be true for what's available in my area. I just don't want to pay the money to have a solar roof working at 70% or less then it was new by the time it gets paid off.

 I've never seen what you described, except very old panels from the 70's and 80's. Solar technology has come a long way since then. They are now almost all aluminum framed with tempered AR glass that does not crack or fog. Degradation is less than 1%/yr. on modern panels, with high quality ones achieving less than 1/2 percent/yr. It doesn't always pencil out for everyone financially, but the technology is very robust and reliable at this point. 

@Anthony Dooley ,  Well said.   The monthly payment is not what I use to calculate return either.  I assume a 25 year panel life and inverter replacement every 12 years.  Most companies provide a 20 year warranty on Solar PV Panels.  However, panels often maintain 90% of their output for 30 or more years.   I'm only familiar with costs in WA  State.  Here we have State incentives as well as the Fed Tax Credit.  Assuming 100% of the cost is financed with good credit, it takes consistently close to 7.5 years to pay off a solar system together with interest on the loan.  Add in the minimal cost of maintenance (annual cleaning, system service every 5 years, and a new inverter every 12 years, then the system payoff is extended just over a year longer.  

The bottom line is that installing a properly sized solar PV system on a long term rental can be financed 100% and paid 100% by our renters.  In addition, installing a solar system creates immediate tax advantages for the owner, along with an immediate increase in equity and it increases the desirability of the rental.  I recognize that payments on the system can only be made 100% by renters, if you can maintain 100% occupancy.  But when the system is paid off, the electricity it produces becomes an additional source of  revenue for as long as you can keep the system running, and the expected life of a solar system is over 20 years.

It is hard to beat improvements to your property that are paid for by renters, and eventually become extra revenue. 

@Anthony Dooley the cost for me (with all the companies I looked into) was $0 down and the financing replaces the power bill, which lowers the monthly cost of power for more than half of the year, and lower than the monthly average Electric bill. Installing here in the sunny Salt Lake Valley means I've got plenty of power coming in every day.

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