Saving $20,000-$50,000 on your rental property

13 Replies

Hi all, 

I've recently discovered that the benefits of solar energy on a rental property are growing and increasing over time, saving most homeowners anywhere from $20,000-$50,000 and up! I actually quoted a cash buyer this morning on a system in which he would save $102,800 over the lifetime of his array. (That's the equivalent of an additional investment property!) 

This is a huge savings and results in an incredible ROI on rentals. I'm wondering what your reservations may be as property owner, what questions or concerns you may have, etc. There is a bit of misinformation out there, so I'd be happy to address any myths or issues you may think of.

My hope is to be a resource to you all and start a discussion about the topic so that there is more knowledge out there about solar! 

I look forward to your replies.

You are forgetting about the opportunity cost of the money used for buy and install. I guarantee that I can make better returns using that money as a down-payment or rehab funds on another property than I save in energy costs.

I have found they actually make selling a property more difficult, can lower the resale, and that shingle/roof replacement at end of their life is quite expensive. Having tenants that pay all utilities makes solar a non starter. 

Dakota,

Are you aware it is illegal to charge a tenant for electric service unless you are the electric company in Florida?  You cannot legally resell your electric generated from a solar system to a tenant.  You also do not get the tax benefits the federal government offers for home owners.  Then if you try to put it under as a business using solar, read the fine print that rentals are excluded.

Hope the sales people tell others you sale those products!

the wear and tear on the chickens *** is not worth the price of the egg for a rental you dont plan on keeping the rest of your life.

Hi Dillon, 

In my experience most solar loans are zero money down, or only have optional down payments. They also don't effect your DTI. Have you explored the option as opposed to cash?

Hi Thomas, 

That's interesting! There was a study done by UC Berkely that has actually found the opposite to be the case here in the states, adding about $3.00 per watt as far as value. I encourage you to see for yourself! I've also seen studies that show they prolong the lifetime of the roof as they're helping shield from the elements, and that the only thing you have to do (at least with a seamless snap and rack system) is simply take off the panels and put them back on. You typically don't have to remove the actual mounting system, so I'm not sure if that's from your experience or another industry myth. 

Bob, 

From what I have seen, rental owners have typically rolled the price into the rent and do not charge for electricity since the electric bill is essentially obsolete. I believe this to be the norm for rental situations with solar energy but do correct me if I am wrong. That is not illegal by any means. Also, though you don't qualify for the residential credit, you do usually qualify for the Investment Credit, which allows you to depreciate the cost of the system over a five-year span, if you read the fine print. 

Aaron, 

Since solar arrays typically pay for themselves in 6-10 years, I believe then the egg would be worth it! Ha, If you're looking to hold on to the home for that amount of time, that is. If longer, then even better!

I hope that addresses your concerns guys. I'm happy to answer any additional questions you may have. 

@Dakota Lowe ,  I'm glad to see you promoting solar in Orlando, where I really wish that more people chose solar for their homes. Solar PV together with some good attic insulation will really dramatically reduce cooling costs for many in the hot Floridian summer.

We have solar panels on our rental in Wisconsin, and have found that to be a good investment. Plus, here it helps us to attract great tenants.

Dakota,

Sure you can roll it into the cost of the rental, but how do you advertise that?

Most of my lower end rentals are at $800 a month.  If I was providing a solar system to cover all their electric I would need to up the rent on average to $975 a month.  So since most people search for what they afford (let's say a cap of $800) my rental is too expensive for them and it will not show up in their search results.  How many people are going to read all the fine print and say, well, I have electric included?  If you do have electric included....will you include all of it?  How will you write the lease?  How do you add in a fluctuating amount of electric monthly?  Do you guarantee the tenant a certain amount or you refund them?  What if they don't use it all one month but they use extra the next month?  Can you imagine if I tell a tenant they have free electric what their AC will be set to? Probably 65 in the summer.  What about when they tell you that they did not use "that" much electricity and they are not paying the overage?  What leverage do you have to shut off the service for non-payment?  None.  Whereas the electric company plays by different rules and they can.  

Who wants the monthly headache of trying to figure out the electric costs?

Furthermore, for most of my low end rentals that are block homes at 1100 sq feet, they will need an 11.7KWh system that will run let's say $30K to as you say to make the cost of electric essentially obsolete.  I would be much better off taking that capital I have or that line of credit and buying more houses.  There is also the issue of liquidity of the investment.

I also agree with Thomas.  I have multiple solar installs on my personal houses.  But when I have a roof issue, it is a huge pain in the rear.  It is not just taking off the panels (as you alluded to speaking about snap-in systems which I am sure are not 150 mph wind zone rated and even if they were who in their right mind would not want something secured better for their $35K investment that can get blown away in a hurricane), it is removing the mounting system that goes through the shingles and roof sheathing.  Without removing the racking system and electrical runs, how do you replace the roof underlayment and shingles?  And when it does happen, how many people want to take panels off the 3rd floor of a stilt house with the wind and a super steep roof?  In fact, I had companies who refused to install the solar system due to the roof pitch, height and excessive wind on two of my houses.  

It seems this board is not as strict as most discussion groups in that it is allowing you to promote a product/business which you have an interest in. Most boards would ban posts such as this.  It is fine to try to sell people on things you have no personal interest or gain in....but when you are trying to do it for your own benefit, the post is suspect and not 100% unbiased.  Couple that with this is the only post you have ever made on the boards...well, it just seems you are just looking to drum up business.

Bob

Originally posted by @Dillon Leider :

You are forgetting about the opportunity cost of the money used for buy and install. I guarantee that I can make better returns using that money as a down-payment or rehab funds on another property than I save in energy costs.

   I am with Dillon. The cost spent on this hardware can easily be made several times over through the real estate investment cycle.

Regards,

Austin

My biggest problem has been in the resale of properties.  As an agent, I have found several of the owners signed for plans that increase in cost over time, so a tiny little house ends up with a $220 electric bill when the average could be $75. Another problem is that the new buyer needs to qualify for the lease in addition to the mortgage.

Also, in 10 years, the technology may be so updated that the current solar may be obsolete. CAN you imagine using a flip phone today?

i have heard some positives, but the negatives have so far impeded me from getting solar on any of my rental properties.  Enlighten me!

Cost of solar is still a huge premium and the tenant is going to get the savings. I can't bump my tenants rent past market price so they can pay for my solar investment, that's not how economics works.

I love solar, but early adopters pay a premium, they don't' get a DEAL on new tech. There is little way to then make a spread on it, though I would love to be proven wrong.

you're also not counting the depreciation cost of solar panels. The costs for new panels is going to drop dramatically in the future, the near future, and those who pay now eat that cost.

Actually, the price may be going up for solar.  Trump just passed in some of the recent legislation a 30% tariff on imported solar panels.  Since a majority of them are not US made (some are and Trump is trying to help those companies), the consumer will end up paying more for those panels.  The panels for the most part are about 1/3 of the cost.  The second thirds being installation and then the third third the racking/wiring and inverters.  As mentioned before, I have solar panels on my three primary homes, but none of my rentals as I have a decent rental portfolio.  If it made sense, I would consider it.  But when you factor in all the things I stated earlier in the thread, there are just too many issues with solar on rental properties that it does not make sense.

@Christine Kankowski ,

It does sound like you've seen some terrible deals if they are hiking in price with time. In California especially, solar should be at a fixed contracted cost either leased or purchased and the savings over utility should grow exponentially with time.

As far as technology, the panels themselves aren't going to show dramatic improvements with time. You have to factor in the savings of going solar versus the cost of waiting to do so to see if it makes sense to wait for improvement over time. I'm typing this on a 4 year old laptop for example that is doing the job well for me. It wouldn't have made sense to wait 4 years to get one for the relatively inconsequential memory improvements.


The improvements that are very much worth waiting for are batteries. The next 12-24 months will see a dramatic increase in batteries sold with solar systems. The technology v cost is not quite there yet for any other than committed early adopters, but its clear the future of solar systems sales will include daily use batteries - it already is there in Hawaii and Puerto Rico. Any solar system purchased should for sure be purchased as "battery ready" - some solar companies will try to convince otherwise for their own interests.

The cost benefits for homeowners going solar in CA are huge. Literally tens of thousands or more in savings over time plus an increase in property value. Fannie Mae now have solar appraisals as part of their documents which means qualifying that appraisal is much easier.

As far as for rentals, it's a mixed response. As @Bob Bello said it may or may not ROI and/or cashflow depending on circumstances. Depending how it is set up though you actually do have the option of switching a tenant off. It can be set up in the lease that the cost is covered up to "reasonable use". The utility will send monthly statements rather than bills showing over/under consumption from the utility. If the tenants start growing herbal products for example then you have the data from the utility and can have them "true up" if their use is excessive.

As far as the capital expense part goes, zero down loans are literally that. Usually at around 4-6%. No capital outlay unless it's a flip. It then comes down to the monthly cost v what you can charge tenants. Certainly there is also a market for environmentally conscious renters too. It would depend where it was to offer a viable option versus mass market renting.

Any reputable solar company would be willing to accommodate roof repairs. Many are fully licensed contractors and can do both. In Southern CA there are 1500 registered solar companies, so defining who will be around for the 25 year warranty servicing and roof work is definitely something to consider. I would also suggest that a well installed solar system would only come off in a hurricane if the roof came off. We saw that first hand in Puerto Rico. The systems added a structural integrity.

The cost of a solar system is part panels and part humans. The human part will always mitigate as those costs rise any smaller decrease in panel manufacturing costs. Leaving aside the politics of a Republican leader engaging in protectionism for two failed US manufacturers, the tariff will perhaps create a small increase in the price of systems but it wont be dramatic. The tariffs (if they get past lawsuits and the WTO) diminish significantly year on year and the first 2.5 mw ( a crap load) imported annually are exempt. Couple that with foreign manufacturers already manufacturing in the USA and it wont be so significant. 

Longer term, the bigger issues are that the ITC credit - currently at 30% is also on a schedule to diminish year on year. Local incentives like the amazing ones in DC, MD and MA will also diminish. California has made it mandatory to be 100% renewable by 2045. Any time something becomes mandatory then plainly the need to incentivize diminishes. That means that solar right now is literally "as good as it gets". It will likely be a great deal for some time to come but "great" will certainly diminish from now.

The rental/flip conversation is something I've loved seeing on here as it sometimes makes sense and sometimes does not. Best thought I have on that is get a reputable provider to run the numbers so you can plug it in to your numbers to see if it fits your goals. 

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