Using Rooftop Solar Panel Systems to Increase Cash Flow

68 Replies

@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.

@Anthony Dooley I didn't say anything about the changing the weather.

I live in a mountain valley where we can go weeks without a strong breeze and that's normal. When that happens the smog is then trapped in the valley surrounded by tall mountains and gets so thick that you can't see a half mile as opposed to the dozens I can see today. When I was a kid that would mean we had recess indoors because taking a breath of outside air could be as bad as smoking a cigarette, or standing downwind of a fire. This is called an inversion. It's normal here.

Without assuming my effort has an impact on weather I can still say my effort has an impact on my health (Though it is small).

As I said before: it makes sense in my market.

@Taylor Stamm I have a SFR in Westchester, NY where I had solar installed on the roof. I estimated a 90% offset of electric based on previous year utilities. Having made some efficiency upgrades to the windows, my actual offset is almost always 100%. This leaves me with the $17 monthly delivery fee from the utility company and the $80 loan to pay off the solar loan.

I incorporated an extra $125 into the monthly rent and advertised my property as free electric. I believe this is a large and attractive perk for renters as nobody else in my area (when I posted my rental) had any similar utility advantages.

I am now in a duplex and with the NY state tax benefits am seriously considering doing the same thing on the new place.

At least in Texas, since you would be the one generating the electricty and then selling it to end users I think you would have to register as a utility which would be cost prohibitive.  

There is a lot of great information here, and a lot of well-intentioned misinformation here. I do solar in 4 states and am getting into more markets every year. I am in two markets for real estate and will be getting into more markets in the future.

The first thing to realize is that EVERY market is different. In real estate each state has different laws that you must know and follow. With solar, net metering and tax rebates and what is and is not legal varies in each and every state and even between utility providers. Saying that solar doesn't work in X state and therefore is a terrible idea does not mean that it won't work in Y state. In Utah laws and net metering often varies by city!

Also different markets in different states are at different points in the Market Cycle. Depending on where your market is, how jobs are doing, what growth is going on, greatly determines what real estate deals will make money. Along that same idea, the utility costs and political outlay of  your market will greatly determine if solar is a viable option. And whether it will continue to be over the life of your system. Do NOT buy solar thinking you are going to make great money only to then find out all net metering is going away in four months and you are out of luck. I'm looking at you Connecticut! PS, if you've done your due diligence then I bet even with net metering going away, in the correct markets (like Utah) you will still at a minimum break even. And likely still make a little money.

Know your market. Do your research!

Again, every state and every utility provider treat solar differently. Don't just listen to a sales rep and believe him. As Joshua Johnson said above, run the numbers yourself! I encourage you to talk to at least 3 sales reps from 3 different companies. Read on sites like www.energysage.com and www.solarreviews.com. Search your city name and "solar". Do that same search again with your state. And again with your utility provider. You will find long winded, dull documents that will explain EVERY aspect of how solar works, what the rates are, what the install requirements are, what tax rebates apply, etc. Kick up your feet, grab your favorite caffeinated beverage, and get reading!

As Steve B. pointed out above, if solar ALWAYS made money, everyone would be doing it. In real estate investing, buying some homes just doesn't make financial sense. In the stock exchange certain stocks are a terrible investment. And solar sometimes will just not make any money and is a terrible idea. Sorry.

How much does solar cost? Well, how much does a house cost? Can't answer that without more info, can you? What size of house? How many rooms? What location? When was it built? What condition is it in? etc...

So it is with solar. Residential solar in my personal experience has cost $5K to $60K to buy and install. Each system is designed specifically for the electrical usage of the home it is put on. And similar to financial advisors when setting up investment plans, the system is designed to meet the home owner's goals. I've had people request to only offset their energy by 25%. I've had people request 100%. I've had people ask for their bill to be $0 (or as close as we can get it due to utility connection fees, taxes, green energy charges, etc. As Jennifer T. above mentioned, I have never actually seen it be $0). I've had people who don't care about saving money or investing and just want to go as green as possible no matter the cost.

And yes, creating panels, batteries, wires, the shipping and eventual disposal still takes a toll on the planet. I am not here to debate the greenness of solar. This is a discussion on investing, not saving the planet.

And just like real estate, you make money during the buy. If you overpay, you may never get that money back. If you buy solar at or over market value, your money is gone! Do your research. Prices often have a span of over $3 per watt. This means that one company may quote you $40,000 for a standard sized system. But it you call around it is not unheard of to find someone willing to design and install the same system for $21,000. (these numbers are just examples but that price difference is realistic. I see it every week).

Quickly on the long term financial viability of solar: as has been mentioned there are many factors to consider:

Net metering

Tax credits

Panel and system degradation

Soiling

Snow

Weather patterns (rain and clouds)

Daily solar radiation (how much sunlight is there really during the day)

Shading (current and future like trees that are growing)

Rate hikes from utility companies (in Utah this is around 4% per year, averaged)

Power disruptions (outages, maintenance, etc)

System maintenance costs (cleaning, repairing and replacing components)

If you take out a loan, interest costs

And there are more....

In real estate there are plenty of people willing to sell you a house and not disclose the issues if you don't think to ask or inspect. People will tell you the units in an apartment complex rent for $650 and costs are only $500. You buy the complex and then find out that the units are all leased for $600 and the costs are $575. Oops! You should have verified the sellers information!

Same with solar. Many companies do not factor in that above list, or do just a few key metrics. I do all and more with every house we install. Why? Because I did that same analysis for my own house, and a similar detailed analysis on every property I buy. I want to know as well as I can how good the deal really is.

Obviously due diligence is just as important with investing in solar as it is with real estate. If you foolishly buy solar above market, or with huge trees that weren't factored in, and then wonder why you aren't making the money off it you thought you could, well sorry...


This has become an essay. I hope if you've made it to the end this has been helpful. Please don't take my word on any of this. Go out and study and learn your market before making any decisions on solar. Make sure the numbers check out! If they do, awesome. Do it. If they don't, then look for another way to invest that will make money.

@Taylor Stamm

Scott Adams, Dilbert creator, has some interesting insights into solar & how it actually costs more money to get them in the present than in the future due to the quickly declining costs.

More of a cost of technology issue for something like that.

Same could be said for the solar panel shingles.

If i were a tenant of yours would you expect me to pay solar and grid electric?  If my bills (usage as normally would) cost more or you're trying to upcharge me for your solar panels we would have an issue. 

The issue with solar panels comes into play when the panels are financed and the property is being sold.  

-While the typical owner states  "we plan on holding the property long term", the reality is that the vast majority of home owners as well as investors do not.  Therefore they attempt to recoup their solar investment when they go to sell.  The $20-40k investment will more than likely(being generous) be recouped.  Buyers are just not willing to pay a premium nor investors appraise the value significantly higher than the same property down the street without

-"The buyer can assume the loan on the solar"  This is not always possible or even desired by the buyer.  The typical credit score to assume is +-650/675.  Keep in mind that there are loan products out there where a buyer can qualify with a credit score barely north of 500

So, the reality is that the seller may have to eat the cost of the solar to sell their property or at the least limit their pool of potential buyers.  Just not a situation I would want to be in

Originally posted by @Trevor Parker :

This has become an essay. I hope if you've made it to the end this has been helpful. Please don't take my word on any of this. Go out and study and learn your market before making any decisions on solar. Make sure the numbers check out! If they do, awesome. Do it. If they don't, then look for another way to invest that will make money.

 That was one of the best essays I have in a while! Almost long enough you could make a blog post about it.

@Bob B. , There are ways to have a rental property and still qualify for the 30% Federal Tax Credit when installing a new solar PV system. (There is always a way, there is always another way, and there is always a better way).   Doubtless there are better ways, and no way will apply to everyone, but here is a way.

1.  Members of condominium management associations and tenant stockholders of cooperative housing associations are allowed to claim a proportionate share of the total system expense towards the tax credit.

 2. Living in part of a duplex, triplex, or four-plex while you rent out the remaining living unit(s) will qualify you for a proportional tax credit (1/2, 1/3 or 1/4th).  You can also live in each unit one year at a time and install independent systems serially for each unit.  Of course, this does not apply to everyone, but getting the Federal Solar Tax Credit is possible for many house hackers.  

3. Getting a Federal Tax Credit for a Solar installation on a SFR while you are renting it can also be done. Again, this applies to house hackers, and is not a probable option for the sophisticated investor.

a. Live in an ADU and rent out the main house.

b.  Partial rental -Rent rooms. Live in one room and rent out the rest.

c.  For the adventurous, live in an RV, Garage, or improved Shed, and rent out the main house. (Note it is often possible to get temporary permits to live in an RV for multiple months to a year or more while building or remodeling (adding solar?).   In addition, I know of a local property on acreage where for years tenants have been paying rent to use an RV, Garage, & Shed as living spaces even though they are unpermitted and do not conform with local zoning.  Though this is not a recommendation, the owner of a house with acreage or a large yard could do the same in order to  renting out their investment house -and by living anywhere on the property they would not be likely to suffer adverse actions by claiming the Solar Tax Credit. 

In addition, as mentioned by @John Blackrock , it is certainly possible to live in a home for a while, install solar, get the tax credit, then move and turn the Solar Home into a rental.

Originally posted by @Davido Davido :

@Bob Bello, There are ways to have a rental property and still qualify for the 30% Federal Tax Credit when installing a new solar PV system. (There is always a way, there is always another way, and there is always a better way).   Doubtless there are better ways, and no way will apply to everyone, but here is a way.

1.  Members of condominium management associations and tenant stockholders of cooperative housing associations are allowed to claim a proportionate share of the total system expense towards the tax credit.

 2. Living in part of a duplex, triplex, or four-plex while you rent out the remaining living unit(s) will qualify you for a proportional tax credit (1/2, 1/3 or 1/4th).  You can also live in each unit one year at a time and install independent systems serially for each unit.  Of course, this does not apply to everyone, but getting the Federal Solar Tax Credit is possible for many house hackers.  

3. Getting a Federal Tax Credit for a Solar installation on a SFR while you are renting it can also be done. Again, this applies to house hackers, and is not a probable option for the sophisticated investor.

a. Live in an ADU and rent out the main house.

b.  Partial rental -Rent rooms. Live in one room and rent out the rest.

c.  For the adventurous, live in an RV, Garage, or improved Shed, and rent out the main house. (Note it is often possible to get temporary permits to live in an RV for multiple months to a year or more while building or remodeling (adding solar?).   In addition, I know of a local property on acreage where for years tenants have been paying rent to use an RV, Garage, & Shed as living spaces even though they are unpermitted and do not conform with local zoning.  Though this is not a recommendation, the owner of a house with acreage or a large yard could do the same in order to  renting out their investment house -and by living anywhere on the property they would not be likely to suffer adverse actions by claiming the Solar Tax Credit. 

In addition, as mentioned by @John Blackrock , it is certainly possible to live in a home for a while, install solar, get the tax credit, then move and turn the Solar Home into a rental.

 LOL...I have to laugh (not at you, but at what people will go through and the possibility of tax fraud which will make this thread murky).  I think your verbiage can be debated.  A true investor is generally not a house hacker as you mention.  So that is an important part of the discussion.

I would check on item #1.  I would guess that if it was not your primary residence, you will not be able to make that claim for item #1 (but I could be wrong, but I doubt it).   #2 you are saying you would move every year to get the tax credit, but are agreeing that it must be your primary residence at time of installation as I stated and thus at that time it is not a rental.  #3, I may beg to differ.  I bet you the IRS will apply the same rules that you stated in the duplex, triplex scenario #2.  So again, you are claiming it is your primary residence.  Supplying electric to another metered unit from your system would have multiple issues.  First the electric company would have an issue with that and so would the local municipality when it was inspected.  So you would have to do that sort of change to the system after the fact.  But from an IRS perspective, again, just as my home office allows me to depreciate 10% of my solar system as a business expense, I can't double dip and say I want the 30% tax credit on the whole value of the installation.  You have to carve that out and only take the 30% tax credit on 90% of the install value if I claim my home office (or in your scenario rent out a portion of the property) or not claim my home office (or in your scenario the portion of the property; otherwise tax fraud).  So building on that logic.  

Are you also aware that if you are renting the property in your example #3, then you must claim depreciation?  If you don't, the IRS does not care as it benefits them.  But when you sell, they add the depreciation back in whether you took the write-off or not.  Now how would the IRS know?  Well, you did claim the rental income, right? So since you claimed rental income, at time of sale you have to add back in the depreciation whether you took it or not.  Additionally, how you claim the income (or don't by fraud) then limits on how much you can claim as a loss against your rental, business or personal income based on if this is truly a rental or not.  When you have a lot of capital expenses, you want to be able to claim that depreciation and have it apply to that year and potentially create a loss to minimize taxes.  If you don't properly claim it, your losses are capped at $3K and can only be rolled to next year and can't be applied against your other rentals or personal income. So the depth of the implications goes quite deep and by trying to circumvent an IRS regulation, you may be leaving a lot of money on the table.

So you basically agree (outside of a life hack), that you can't do it for a rental as the start of the thread mentioned.  I mean sure you can do it on your primary house.  But you are going to move to a new house every year just to get a few thousand dollar tax credit????  Won't it cost more than that to move unless you are moving from your RV or tent?  :)

Unless you are living in the sticks, most people will not get away with living in a RV or shed.  As you mentioned, there are zoning regulations against it.

But hats off to those who are being super creative.  But me personally, I am not moving every year for the next 50 years to save a few thousand in tax credits per year.  

It also seems like a lot of work for something in which you can spend your time in a more productive manner.

But at the end of the day, even the tax credit does not really make it worthwhile in most cases.

Forget about all the expenses that solar has that are hidden, $25K a system here in Florida can get you $160-$200 a month in electric. So for arguments sake let's say it saves you $2,000 in electric costs (in CA their rates are higher and it can be more attractive).  Let's say you can pass that full amount in increased rent to your customer....In 13 years if you don't have one issue you will recoup your money if you have no vacancy during that time period.  So realistically it will be longer.  You have also lost the ability to gain interest on that money that entire time...compound interest is a powerful thing.   So let's keep the thought process.  You now have a system that is 70% EOL.  Let's say it has a residual value of $8K.

Do that on 3 houses.  You have a residual value of the four solar systems of $24K and now you got your money back and broke even.

Now take that $75K and buy 3 bedroom block house in Pasco, FL at $75K.  Rent it for $1,000- $1,100 a month all day long.  Net $10K a year.  After 13 years you have $130K.  So the reality is you paid yourself back after 7 years and 8 months (much quicker than the 13 years).  Then if you go out to the full 13 years as in the solar example, you will have an extra $55K in cash sitting there (we still have not added in the compounded interest we could get).  

So to compare the two scenarios with a $75K solar investment.  You could have 3 houses with solar on them that paid you back your initial investment and that are probably worth an extra $8K each for a total return of $24K over 13 years.

Now with the $75K invested in a rental house, you have your money back and an asset worth $75K (let's say it did not appreciate one penny), plus you will have $55K cash sitting in your bank account.  Finally, if you put the net $800 in rent in a safe investment generating 3%, you will increase the $55K to $79K.

So where is the money better invested and to address the original poster's question...is solar a good way to increase cash flow?  I would say no.  But also as mentioned, I have 11.3 kWh systems on 3 of my personal houses for personal reasons, so I am not against solar.  I am just saying I don't think it works well in Florida to increase cash flow and don't count on the 30% tax credit per se on rental properties.  

@Kelly Wright Kelly , "in Texas, since you would be the one generating the electricty and then selling it to end users I think you would have to register as a utility"  @Bob B. , "In Florida, it is illegal to sell electric unless you are the electric company."  

It is commonly perceived to be illegal for a landlord to charge his/her tenant for electricity in Florida and couple other states. There are news articles which seem to say so. https://www.miaminewtimes.com/news/bill-would-help-break-floridas-solar-panel-stranglehold-10971356  

While I am admittedly not a lawyer, I can find no record of any landlord in the US ever having been sued or prosecuted for charging a tenant for the electricity produced by solar panels that the landlord owns on his/her own property, when the  tenant living in that property has used the electricity.  All cases where these laws are applied are the result of a third party owning the Solar equipment and selling electricity.  

Florida Statute 366.02, by its own definitions applies only to persons who are "supplying electricity ... to the public".  I disagree that installing your own panels, and then charging your tenant, according to a lease agreement, for the actual amount of electricity that they use, would be found to violate the "supplying electricity ... to the public" portion of the statute. 

In some states legally selling electricity to tenants doe require a revenue grade meter on the tenant's consumption (accurate WiFi enabled meters are $300).  And some states require that the tenant be billed no more than the utility rates for the electricity that the tenant has consumed.

David, 

The Texas statute does not reference the “public”.  Our statute defines it as “generating electricity for compensation”. We’re also a freedom of choice state where you have a statutory right to choose your provider.  So you could sink a lot of money into getting set up and licensed and have a tenant say “nah I’m buying from the regular utility”

@Bob B. , your statements regarding the inefficiencies of trying to get the Federal Solar Tax Credit while house hacking for are well reasoned. I agree. Nicely said. I also agree that it will seldom be as beneficial to put ones own money (and possibly ones Debt to Income Ratio) into a Solar install as it would be to invest in RE. However, those with good credit can have solar installed with 0 down, and where a zero down system pays for itself (taking in to account the hidden costs, risks, vacancy etc), they offer very high (infinite) ROI.

Thank you for your valuable additions to this thread.

I do wonder about your comment, "Unless you are living in the sticks, most people will not get away with living in a RV or shed."   It is true that the example I gave was indeed in a rural setting.  However, all up and down the West Coast living in sheds and tents is becoming common place.  See the photos below.  Really, though a glance at Craigslist housing wanted adds in my city, Seattle/Olympia, shows that dozens, if not hundreds of people in our Region are actively looking for, -and regularly getting away with- living in RV's, Garages, Sheds and Tents.  Code enforcement is surprisingly limited.

https://www.youtube.com/watch?v=bpAi70WWBlw

@Kelly Wright Kelly"The Texas statute does not reference the “public”. Our statute defines it as “generating electricity for compensation”.   Thank you Kelly.   

Still, the Texas Statute specifically states:  "The term (Electric Utility) does not apply to:  

  J) a person not otherwise an electric utility who:

"furnishes an electric service ... only to ... tenants as an incident of ...tenancy, if that service .. is not resold to or used by others."

So the Texas Statute 31.002 (6) Definition of "Electric Utility, and 39.105 "Limitation on the Sale of Electricity" do not limit or infringe on a landlord's right to sell the electricity produced by solar installed on their building.  

The fact that Texas is a Freedom of Choice state -where electricity consumer's have the right to choose their provider, is one of the wonderful things about Texas.

If a Landlord can't provide electricity in a manner more attractive to his tenant than a public utility can, then the Landlord should not be providing solar.   Yes, tenants have a choice, but if I were the landlord, the tenant's ability to choose their provider would be more of a marketing consideration than a problem.   If my service is not obviously better than the competition, I'm in the wrong business.

Originally posted by @Davido Davido :

@Bob Bello, your statements regarding the inefficiencies of trying to get the Federal Solar Tax Credit while house hacking for are well reasoned. I agree. Nicely said. I also agree that it will seldom be as beneficial to put ones own money (and possibly ones Debt to Income Ratio) into a Solar install as it would be to invest in RE. However, those with good credit can have solar installed with 0 down, and where a zero down system pays for itself (taking in to account the hidden costs, risks, vacancy etc), they offer very high (infinite) ROI.

Thank you for your valuable additions to this thread.

I do wonder about your comment, "Unless you are living in the sticks, most people will not get away with living in a RV or shed."   It is true that the example I gave was indeed in a rural setting.  However, all up and down the West Coast living in sheds and tents is becoming common place.  See the photos below.  Really, though a glance at Craigslist housing wanted adds in my city, Seattle/Olympia, shows that dozens, if not hundreds of people in our Region are actively looking for, -and regularly getting away with- living in RV's, Garages, Sheds and Tents.  Code enforcement is surprisingly limited.

https://www.youtube.com/watch?v=bpAi70WWBlw

LOL  I almost spit out my dinner!

I am sure they have the $19.99 solar panel from Harbor Freight so they can have their phones charged and some electric.  But I guess they will not get the 30% tax credit on that since they do not own that part of Skid Row.  

Actually, it is a shame.  I feel bad as most of them have either mental or substance abuse issues.  The family fabric of the US has seemed to go down the tubes in the past 50 to 70 years.  Everyone has to have their own house and live above their means.  Versus in the 50s and 60s when you had multiple generations living under one roof.  You had 2 aunts (who could discipline you too) and 4 cousins all lived within 5 blocks of you and everyone in the family supported each other through hard times.

In regard to code enforcement on another note, it really is area specific.  In most places I lived in NJ, it was very tight as every 2 square miles is self contained city which has it's own city government.  Hence why they have the highest taxes in the country.  Here in Florida, I have lived in 2 coastal towns.  One in Pasco county which is governed at the county level.   I see people getting away with a lot.  Next county over (more affluent with much higher tax rates), every city in the county has its own city government and they actually send people to drive every street, every day looking for violations (there is good and bad for that).  I am scared to litter as I might get fined before the litter would even hit the ground.  But in the coastal towns, they are very diligent about addressing stuff like RV living, garage living and people even doing VRBO, AirBnB rentals.  They have the staff to search for them online and fine you for violating local ordinances (but that is a whole other topic off of solar panels). 

The one other consideration on the 0% down...you have to be careful. Many of the companies that do that, they actually lease you the panels and you don't own them until the end of the lease for a nominal buyout. The homeowner cannot claim the 30% tax credit in that case. I agree with your statement about the infinite ROI, but as I am sure you are aware, you can get a loan you on them. But my concern from someone looking to scale their rental portfolio is this...that will show up as a liability when they may need that credit to purchase more rentals and being as liquid as possible when good deals come up. You make your money on the buy side. With most of my rentals, I bought at a steep discount because people were in distress and it had to happen quick and now I have 20% cap rates. Having access to liquid cash, I can make much more money on those deals than tying it up. But I will also admit, it is blended. I have my rental portfolio for my passive income stream; my wholesaling for stuff I don't feel like getting involved in but I can make a few bucks; my flips for when I see enough profit to make it worth my while to get into a rehab. Sometimes I buy stuff that could be a flip, but I put into my rental portfolio because it makes sense. But I have to be liquid enough to buy it cash or have access to money quickly. So there is a balance there. I just mention these things so people who are new, really think things through on getting the best return for their money.

@Anthony Dooley

Wow!folks have drank the punch! all this do gooder environmental talk...Reminds me of George Carlin’s bit “saving the planet”

Folks, study up on how things are made. (Batteries for example)

If it can’t be grown it’s gotta be mined.

@Taylor Stamm net metering laws from Florida Power and Light let you get credited or paid up to a 115% of your homes energy needs.

I think trying to build a solar system and then charge your tenants for solar created power sounds like a monthly billing nightmare, not worth it and they could probably just say screw it and tell you they don’t want it anyway.

Using a public meter for the property you could at least handle all the payments of energy created straight from the utility, but you would have to see if they would let you consider the energy usage of all 4 units in the 115% calculation.

@Taylor Stamm

And now here comes Tesla with lower costs for the solar tiles

https://electrek.co/2019/06/12/tesla-solar-roof-v3-shingle-price/

Great discussion here folks. I live in Boston, where we're lucky if we get 5 months of sunshine per year, but I love the idea of solar energy efficiency for rentals, personal property, and for the Planet (not necessarily in that order, lol).

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