Using Rooftop Solar Panel Systems to Increase Cash Flow
Rental Property Investor · Melbourne, FL · Member since 2019 · 25 posts · 25 votes
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!
@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.
This still doesn't answer the question. How much does it cost? How do you know if it is a good value? Zero down and make payments indefinitely doesn't appeal to me. Interest rate? I wouldn't buy based on the information presented thus far.
@Anthony Dooley for my home initial cost was 20k for instal with 3.75% interest on a 20 year loan I don't expect to last 10.
I'm planning on holding on to the property for a while, living in it for ther first few years. The cost savings will benefit me while I'm living here, and the reduced emissions from renewable energy will make hazy inversion days less toxic.
@Taylor Stamm the trick is marketing your property at a higher rent, but showing the savings on the back end with electricity. This can be difficult because when tenants are shopping, they often don't think about utilities as part of their expense. I am not saying it can't be done, just making you aware of the challenges.
On the plus side, younger renters are much more environmentally aware than older renters. People in their 20's today grew up from a young age being taught about climate change and learning about renewable energy. They are more likely to care than someone in their 40's or 50's.
My point is there is increasing value in marketing green properties. They key is you need to push the messaging hard, so they don't dismiss you as too expensive.
I am not a solar expert, but @Steve K. is an expert so his advice is credible. He is also common sense about the subject, so he is not going to oversell the reality of what solar is.
@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.
This still doesn't answer the question. How much does it cost? How do you know if it is a good value? Zero down and make payments indefinitely doesn't appeal to me. Interest rate? I wouldn't buy based on the information presented thus far.
There are many financing options available from 5-20 year loans, rates vary from 1-4% depending on credit score and loan term. Optimally it will be cash positive day one, which is often possible with $0 down but if not people can put a small down payment in order to achieve this, or others just prefer to pay cash of course and see it as a very low risk investment, basically prepaying 25 years worth of electricity at an extremely low rate. $0 down financing has been the most popular option for about 7 years now though, replacing the lease which was popular in 2012. With $0 down financing you're not adding a new payment, but rather replacing your existing electric bill with an (often lower) loan payment. This doesn't work in every market but this is how it works in established solar markets which is about maybe half the country at this point. Some areas like the northeast and CA have great net metering programs and high electricity prices so solar makes a lot of sense, "switching to solar" saves people money immediately with a reduced monthly bill, while other areas like Alabama don't offer net metering (or charge a high monthly fee for net metering) and have inexpensive electricity so it's hard to make the economics work and very few people have solar. The variables include the net metering agreement available from the utility, the cost of electricity from the grid in the area, the amount of electricity consumption by the inhabitants (annual usage), and of course the physical characteristics of the property (size/orientation/roof pitch/ type of roof/annual irradiance/shading/existing electrical panel). Total system prices sans financing range from $10-20k with a 30% tax credit, payback period for a cash purchase is usually 4-10 years (mine was paid off in the first year due to timing of incentives, buying panels in bulk through my company and installing myself). The thing to remember is your return on investment just paying the grid for electricity every month is non-existent, it's an expense most buildings already have that a financed solar system replaces with a payment that goes towards an asset on the roof instead of just enriching the utility. For many people there is a lot of "soft value" in going solar as well and the return is not that important just like anything people buy because they want to, and the fact that it actually pays for itself is an added bonus. Other people are very shrewd and calculate the IRR to determine the value which many find is a very nice return (over time) for an investment that is extremely low risk due to robust technology backed up by 25 year bumper to bumper warranty and 20 year net metering agreement. Again this is only true in about half the country, for example CA has over a million rooftop solar arrays and other states have only a handful due the factors described above. Each situation is different so only a personalized estimate can determine whether it makes sense for that particular building. Being able to add batteries and have backup power is also a selling point for some although battery backup systems are uncommon.
@Taylor Stamm be sure and account for when you'll need to roof it. You'd be surprised how many people buy a system for a 25 year old roof and then have to tear it down. Or so I'm told. To bad Elon's solar shingles didn't take off.
@Taylor Stamm you'll need a lot of batteries or maybe the ability to sell back to the grid. Daylight hours aren't the same as solar hours. Most places will do good getting 100% sun for 4 hours. Then you'd have to do the legwork of figuring 2 bills or having the tennant pay 2 electric bills.
@Taylor Stamm here's a good overview of the state of the solar industry in Florida: https://www.solarpowerrocks.com
Counter-intuitively, the "Sunshine State" has not been kind to solar historically, but that is has changed in the past few years and the solar market is rapidly developing there now. The state as a whole was late to the game in establishing net metering policies and statewide interconnection agreements with a few exceptions in certain areas. However net metering is now available in most of the state so things are looking up for solar in Florida. Electricity prices are on the high side there too so the economics are good in certain scenarios. The best way to proceed would be to get a quote for your property(s) to see how the numbers work for you specifically, as mentioned above each property will be different.
@Taylor Stamm here's a good overview of the state of the solar industry in Florida: https://www.solarpowerrocks.com
Counter-intuitively, the "Sunshine State" has not been kind to solar historically, but that is has changed in the past few years and the solar market is rapidly developing there now. The state as a whole was late to the game in establishing net metering policies and statewide interconnection agreements with a few exceptions in certain areas. However net metering is now available in most of the state so things are looking up for solar in Florida. Electricity prices are on the high side there too so the economics are good in certain scenarios. The best way to proceed would be to get a quote for your property(s) to see how the numbers work for you specifically, as mentioned above each property will be different.
Absolutely, I agree. Fortunately, Florida power companies such as FPL and Duke Energy (who I used to work for) are becoming more accommodating for home-solar. Also, Florida passed a law that requires net metering customers to be compensated at the retail power rate.
It's kind of like recycling. It doesn't really make a difference to the planet, but it makes you feel better, so I guess you can rationalize it that way.
I am a real estate investor who also happens to run a solar business. I think putting solar on rentals has a lot of potential. Is it great for the planet? Maybe. Does it make financial sense? Maybe. Just like buying a home, each deal has to be analyzed. Just running out and buying a home does not mean you will make money. Just throwing solar on a roof does not mean you will save/make money either.
The idea of solar can be considered like the debate on renting vs buying a home. If you rent a home, every month you pay an amount to the owner who is making money off that payment. He is also earning the appreciation on the house. He is also getting all the tax benefits.
But if you buy that house, you may end up paying the same amount every month as renting but you are earning the appreciation, tax benefits, and equity. If you are on this forum then you already know this.
Right now most of us are renting our energy from our utility. Every month we pay money to the utility company and never see it again. Getting solar is you owning your own energy like you own your own home. You immediately get great tax benefits, add value to your home, and lower or almost completely remove your utility bill. Check out the links that @Davido Davido shared earlier. They are accurate.
This is a very simplified look at it. But if we can stop our renters from renting their energy from the utility company and start renting it from us along with renting our house, that is great. They are renting two things from us!
Leave the home electricity in your name and you pay it. The renter should never see that bill. Then, as has already been said in this thread, you bill them from your company. You charge them the same rate as the utility. They have nothing to complain about that way. But you pocket the difference. If the numbers have worked out correctly, this should generate extra cash flow for you anywhere from $1K to $5K a year.
But of course, run the numbers and make sure it works. And make sure it works while leaving yourself a conservative safety margin in case your solar generation under performs for some reason (say weather) and their usage suddenly increases (say they buy a hot tub).
I've had solar panels on my personal home for 6 years. Just a warning that there seems to be an assumption going on that electricity bills are zero or a small amount, once a property has solar panels. I suppose that could depend on how many someone puts on. But we absolutely have an electricity bill and it still isn't anything to sneeze at. The panels only save us about half our electric cost. I'm sure battery backups would help with that at night. But they were crazy expensive and nowhere near worth it, when we looked at the cost. Albeit, that was 6 years ago.
And we don't have power when the electricity is down. Of course, we're still tied to the grid. And, for worker safety (at least that's what I was told), they can't allow electricity to stay running, even for people who are producing it themselves with panels.
I think the addition of solar panels and marketing the properties at a higher rental rate to absorb the costs seems like a great strategy. Depending on the market, I believe there are environmentally conscience tenants who would be willing to pay a bit more and save on their electric bill. I would stay away from certain areas where the undisputed facts of climate change are still up for debate and places that haven't figured out that renewable energy is good for the planet.
I've had solar panels on my personal home for 6 years. Just a warning that there seems to be an assumption going on that electricity bills are zero or a small amount, once a property has solar panels. I suppose that could depend on how many someone puts on. But we absolutely have an electricity bill and it still isn't anything to sneeze at. The panels only save us about half our electric cost. I'm sure battery backups would help with that at night. But they were crazy expensive and nowhere near worth it, when we looked at the cost. Albeit, that was 6 years ago.
And we don't have power when the electricity is down. Of course, we're still tied to the grid. And, for worker safety (at least that's what I was told), they can't allow electricity to stay running, even for people who are producing it themselves with panels.
Of course, and that is why I would have to design the solar panel system to produce enough energy and include that in my numbers for the idea.
It is understandable that home-solar could cause serious dangers with line workers during times of fixing a downed power grid, and that is a common issue being faced by the modern-day distributed generation power grid (known as unintentional islanding). Technology is currently in development for protecting line workers from such dangers, and also I believe that home-solar could potentially be used during these situations if the system is properly isolated from the grid (but if doing so, please check first with your local utility company).
@Joshua Johnson if solar made money then almost everyone would have solar, very few do. Those that do have it often only installed it due to subsidies. I realize there are many businesses that sell solar telling folks how profitable it is. Without being pessimistic can I suggest that they may be biased? Let’s not place idealism over reality.
@Joshua Johnson if solar made money then almost everyone would have solar, very few do. Those that do have it often only installed it due to subsidies. I realize there are many businesses that sell solar telling folks how profitable it is. Without being pessimistic can I suggest that they may be biased? Let’s not place idealism over reality.
I did the math, and based on what is available between tax breaks and current net metering these guys were honest in what they have offered. I know several people in the area who put in solar a while ago who say their electric bill became a fraction of what it was before. In my market it makes sense to me, and I think that is why Solar is taking off in Utah. I don't think it will make sense all areas.
To speak to the idealism side of it: I am excited to know that my AC will not be contributing to Utah's summer inversions.
@Taylor Stamm just install another meter and run all your solar through that meter. This meter would act as the “public” meter where you could run a common light in the hallway or something. The power company would see this as a separate account and depending on FL’s net metering laws you could be paid direct by the power company.
In Florida, it is illegal to sell electric unless you are the electric company. So you can bump up your rent and include it in the rent, but you will run into legal issues if you try to charge based on consumption. That creates another issue....let's say you will include $200 worth of electric per month on average...you will have to advertise it well above the normal going rate and most people will not even consider it thinking your rental rate is high. Most renters are looking to keep their costs low. So you will in effect more than likely discourage people from even considering your property since it is priced $200 higher than the comps to get your investment back.
I have 3 solar systems on my personal houses. I have considered putting it on my rentals, but knowing that they do lose their effectiveness over time, you have expenses in taking them on and off when you have to do a roof replacement and that it gets tricky to market how much electric you are including with the property....the hassle is not worth it in my opinion.
Your comment about the tax benefits is also 100% wrong. You cannot exercise the 30% federal tax credit on rental units. Trust me, I have checked with multiple accountants.
In regards to using the "electric" when there is a power outage...well, that sounds good in theory.
Here is how it really works....you have a net meter...you do not use your own electric you produce. The electric company meters what you use from them (let's say 100 kWh) and how much you produce (let's say 90 for now). You send your 90 back to the electric company when you generate it. It does not sit there and hope to be used by your refrigerator. You use the 100 kWh from the electric company and are billed the 10 kWh difference.
If you make more, the same thing happens except you have a credit that accumulates in the physical year and is paid out in most cases 50 cents on the dollar at the end of the year on any electric you overproduce.
Now if you want the ability to use some of the "extra" electric you produce, you can pay thousands of dollars extra for batteries that you will more than likely never use killing your return on investment (or buy a generator for a lot less).
There are other minor points I can point out such as efficiency loss and maintenance, but I think just the info above is more than enough to persuade most from considering it on a rental unit.
I am sorry, but much of the logic in the post was faulty.
@Taylor Stamm I did this on my primary residence with the 30% tax credit and a year or 2 later I moved and it became a rental. You won’t get the tax credit if it isn’t your primary residence.
A far as renting and being up to $700 higher than comparable SFH in the area I've never had a problem. I'm priced on the high end even though my house isn't new and I make it clear that my solar covers about $500 worth of electricity. Renters that know their monthly electrical cost can do the math and decide for themselves. My tenants are families or working professionals that want HVAC. If they were students or just out of school I doubt they'd know the value and probably looking for cheaper rent.
Here is how it really works....you have a net meter...you do not use your own electric you produce. The electric company meters what you use from them (let's say 100 kWh) and how much you produce (let's say 90 for now). You send your 90 back to the electric company when you generate it. It does not sit there and hope to be used by your refrigerator. You use the 100 kWh from the electric company and are billed the 10 kWh difference.
If you make more, the same thing happens except you have a credit that accumulates in the physical year and is paid out in most cases 50 cents on the dollar at the end of the year on any electric you overproduce.
No, that's not how it works. At least not here. We make more than we use many days every month, and for every month, we get a credit on our bill for whatever gets sent back to the grid. That's applied to that month's bill. (Our system provides about half of the usage of the rental.) Not at the end of the year. The credit is at 0.14 per kWh, which is the standard rate. The only rule is that the total amount produced can't be more than the total amount consumed over the whole year. You need to size your systems appropriately.
If that's the way it works in Florida, well, that sucks.
Here is how it really works....you have a net meter...you do not use your own electric you produce. The electric company meters what you use from them (let's say 100 kWh) and how much you produce (let's say 90 for now). You send your 90 back to the electric company when you generate it. It does not sit there and hope to be used by your refrigerator. You use the 100 kWh from the electric company and are billed the 10 kWh difference.
If you make more, the same thing happens except you have a credit that accumulates in the physical year and is paid out in most cases 50 cents on the dollar at the end of the year on any electric you overproduce.
No, that's not how it works. At least not here. We make more than we use many days every month, and for every month, we get a credit on our bill for whatever gets sent back to the grid. That's applied to that month's bill. (Our system provides about half of the usage of the rental.) Not at the end of the year. The credit is at 0.14 per kWh, which is the standard rate. The only rule is that the total amount produced can't be more than the total amount consumed over the whole year. You need to size your systems appropriately.
If that's the way it works in Florida, well, that sucks.
I think you may have misunderstood me. Here in Florida if you create 100 kWh in March and only use 90, you have a credit of 10 that rolls to April. Then come Decemeber 31st, you make up the shortage for that month if your production was low (as December is usually a low production month) by paying for the difference or if you have a credit, you get paid out at 50 cents on the dollar for that year ending in December. It then starts all over Jan. 1. It is the same for Duke, Progressive and Withlacoochee Electric here in Florida. There may be another provider I don't use, but I can speak to what I experience here. The rates also seem cheaper here in Florida than in WI. For instance, Withlacoochee is 10 cents a kWh and The other two are roughly 12.5 cents.
A far as renting and being up to $700 higher than comparable SFH in the area I've never had a problem. I'm priced on the high end even though my house isn't new and I make it clear that my solar covers about $500 worth of electricity. Renters that know their monthly electrical cost can do the math and decide for themselves. My tenants are families or working professionals that want HVAC. If they were students or just out of school I doubt they'd know the value and probably looking for cheaper rent.
John, I would guess you are in CA. As a maxed out residential system is 11.3 k. So your rates have to be roughly 16-45 cents per kWh depending on month and time which is what my financial adviser's is in San Diego with the on-demand pricing is for SDG&E. Keep in mind, different markets such as FL as much cheaper (my one house is 10 cent a kWh) and thus we are maxed at generating $200 of electric per month on the same sized system that you have in CA that generates $500 per month due to the electric rate out there being so high.
This is actually a wonderful topic. I installed wind turbines and solar panels on investment properties when I lived in Alaska. I also heard from appraisers here in Florida that the value of solar panels is better than even installing a pool on your property.
I would suggest renting the property with electricity included, after adjusting your rental for a normal electric bill. Then when you save on your electric bill, you begin to receive the return on investment from your panels while also increasing your equity in your property.
People just seem to be drawn to these renewable energies. Although this way would not impact your tenant positively or negatively, your property may seem more attractive to them.
Hope this helps!:)
@Steve K. Please correct me if I'm wrong in any of this.
@Taylor Stamm
Something else you could consider a benefit is depending on your area, you could sell power back to the grid. I believe 40+ states allow this and you would just have to check with the utility companies that currently provide to your rentals. There will almost certainly be times when your rentals sit vacant and while no or very minimal power is being used the extra power being generated by the panels and sold back to the grid would be a small relief to the vacancy expense. I've always loved the idea of solar so I'll be following this thread as well. Best of luck with your research and please update us if you do decide to get solar in the future. I'm sure we'd all love to hear about how it turns out.
@Joshua Johnson Putting solar panels on a house has no affect whatsoever on emissions or the weather. The planet has been much hotter in the past and much colder in the past long before we had fossil fuels.