Solar Panels on a rental in TX
Rental Property Investor · Harker Heights, TX · Member since 2020 · 4 posts · 1 vote
Solar Panels on a rental in TX
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Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes
6yI see zero potential ROI on Solar Panels for a rental. I assume the tenant is paying for utilities. Are they going to pay more in rent vs a property without solar? I don't think so, especially in Texas where people are not familiar with the technology.
I seriously looked into solar on my private residence in CA. I’m not as familiar with TX but in CA solar didn’t pay. PGE payed you at the lowest rate for energy you produced during the day. At night when you are not producing you bought back at the highest rate. At end of the year you paid true up charges. Talking to others their true up charges we close to my annual power bill. Then you need to figure in annual maintenance cost and the high probability of a TX hail storm.
23 Replies
- 6yJoseph CacciapagliaBusiness MemberLender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
Typically our tenants are paying their own utilities, so there is no real benefit from adding solar. You may be able to pass along the expense to the tenants, because they're saving on their electricity, but I've found this isn't very appealing to most tenants.
- Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes6y
I see zero potential ROI on Solar Panels for a rental. I assume the tenant is paying for utilities. Are they going to pay more in rent vs a property without solar? I don't think so, especially in Texas where people are not familiar with the technology.
I seriously looked into solar on my private residence in CA. I’m not as familiar with TX but in CA solar didn’t pay. PGE payed you at the lowest rate for energy you produced during the day. At night when you are not producing you bought back at the highest rate. At end of the year you paid true up charges. Talking to others their true up charges we close to my annual power bill. Then you need to figure in annual maintenance cost and the high probability of a TX hail storm. - San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes6y
Originally posted by @Ernest Plasencia:
I am closing on my first SFH that will eventually be rented out in Harker Heights, TX. The neighborhood and surrounding areas have tons of homes with solar panels.
I am about to start running numbers on the possibility on costs/energy savings/ and electrical company potential credit back from
Energy collection. I’ll figure out how to calculate that the hard way.
Has anyone had success with it? Is it even profitable on a rental?
Pros-
no money down, free installation.
Maybe some credit back on utilities
Cons- Additional monthly expense.
I've thought about this, but my thinking as a property manager/landlord is that it is an additional item that requires maintenance, so I wouldn't add them, myself. It would result in more phone calls regarding how to use them, and then dealing with fixing them, etc., etc. So, even if someone might pay more rent to have a place with solar, I doubt it would be enough to offset the additional time and expense in dealing with calls, repairs, etc.
- Rental Property Investor · Harker Heights, TX · Member since 2020 · 4 posts · 1 vote6y
@Pete Harper much appreciated. Thank you.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes6y
Put solar on your own house and save money (maybe) On a rental keep it simple and basic . less is more .
The real downside to these deals are that you as the landlord seller, will be stuck paying this off when you go to sell. The Solar company will tell you that you just have the buyer assume the lease/contract as all that is needed is a +-650 credit score. So what if the buyer does not as recently lenders we doing FHA with as little as 550? You will have to pay it off to sell the property
Since there are many in the neighborhood I would say it could be worth considering. Will your house be one of the only rentals in the area (i.e. are they mostly owner occupied)? What type of neighborhood is it? We have panels on our rental and have found it easy to attract green-minded tenants. We offer garden space, too, and it's in a neighborhood full of green-minded tenants here. If your town has a fair number of green-minded folks (as your neighborhood might suggest) then it'll be a good idea and tenants will actually look for solar panels. Of course, this is not true in most areas.
- Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes6y
Originally posted by @Pete Harper:
I see zero potential ROI on Solar Panels for a rental. I assume the tenant is paying for utilities. Are they going to pay more in rent vs a property without solar? I don't think so, especially in Texas where people are not familiar with the technology.
I seriously looked into solar on my private residence in CA. I’m not as familiar with TX but in CA solar didn’t pay. PGE payed you at the lowest rate for energy you produced during the day. At night when you are not producing you bought back at the highest rate. At end of the year you paid true up charges. Talking to others their true up charges we close to my annual power bill. Then you need to figure in annual maintenance cost and the high probability of a TX hail storm.Did you look into the SGIP rebates on batteries?
I'm pretty surprised that solar didn't pan out numerically for you in PG&E territory? Unless a home is covered with trees or has limited roof space, PG&E has about the best returns on solar in the country. - Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes6y
Originally posted by @Ernest Plasencia:
I am closing on my first SFH that will eventually be rented out in Harker Heights, TX. The neighborhood and surrounding areas have tons of homes with solar panels.
I am about to start running numbers on the possibility on costs/energy savings/ and electrical company potential credit back from
Energy collection. I’ll figure out how to calculate that the hard way.
Has anyone had success with it? Is it even profitable on a rental?
Pros-
no money down, free installation.
Maybe some credit back on utilities
Cons- Additional monthly expense.
I posted this on another thread about solar on rentals. As you said there are pros and cons. ROI is not as good in TX as other States because of low underlying utility rates but still does return - especially as tenants are paying for the system effectively:
"It depends. Is this a SFR or multi-unit? Are the tenants paying the utility directly? Do you live in the property too? There are pros and cons for a rental property with regard to solar. First, other people will be paying for an asset to the building that raises the value of the property. In some areas this is not the case but certainly does in CA (and TX).There is a little complexity in how the tenants pay. You can add to the rent and offer "free" electricity or you can bill them for their usage from the system at up to the same rate as the utility. You have to track that usage, and their is admin involved in that so that would be a negative for most landlords.
The "free" power with increased rent has 2 caveats. First you'd have to add a lease addendum for existing tenants to outline the increased rent in exchange for power. The addendum would also either need to ensure the tenants still took responsibility for any excess power used either by paying the utility for that directly or by paying you if you bill for that.
Bottom line it's attractive to have others pay for an asset that improves home value. Tax credits exist now - they will disappear especially as solar is now mandated in CA. The mandatory solar applies to significant remodels, so at some point you will have no choice but go solar - in the future there will be fewer if any incentives to do so. The down sides are that it will require some admin one way or another - either by lease addendum and/or beginning to bill the tenants directly.
- Rental Property Investor · Harker Heights, TX · Member since 2020 · 4 posts · 1 vote6y
@Andrew Smith I appreciate the insight.
I have received sale pitches from 3 different companies in order to understand their structures and things they are structured.
It seems like a form of “force appreciation” due to how much they add to property value. One company has structured their monthly payment more then half of what my average electrical bill would be.
If I pull the trigger on this I’ll share some of the monthly data on it after having one.
- Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes6y
With PGE tiered pricing you pay almost 2X for the high demand evening energy compared to what you get paid for the energy you generate during the day. You don’t need AC so the usage during the day is extremely low. Especially when you are working. With batteries you need to factor in 15% energy loss every time you convert energy. That’s 15% loss charging batteries and Then another 15% going from batteries through inverter to AC electricity for the home. Annual maintenance of washing the solar panels too.
At our neighborhood pot luck bitching about solar and PGE was a favorite topic. Nobody was happy with their solar. I think the biggest issue was the difference PGE paid vs what they charged. PGE didn’t like the competition.
- Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes6y
Originally posted by @Pete Harper:
With PGE tiered pricing you pay almost 2X for the high demand evening energy compared to what you get paid for the energy you generate during the day. You don’t need AC so the usage during the day is extremely low. Especially when you are working. With batteries you need to factor in 15% energy loss every time you convert energy. That’s 15% loss charging batteries and Then another 15% going from batteries through inverter to AC electricity for the home. Annual maintenance of washing the solar panels too.
At our neighborhood pot luck bitching about solar and PGE was a favorite topic. Nobody was happy with their solar. I think the biggest issue was the difference PGE paid vs what they charged. PGE didn’t like the competition.
So a couple of things on that are that it depends on how you use power. PG&E will definitely have you on a TOU plan. If you switch usage to daytime for things like appliances then that is one huge way to mitigate. Another option is to have a battery set to "TOU Dump". That means you are selling power to PG&E at peak and then buying at a lesser rate. Batteries doing that average $1 to $1.50/day in credit on an average system.
Also - and I'm sure this is not your case - but because of poor education by solar companies, a surprising number of homeowners believe they have "free power" because they have gone solar and use way more than they were before and then get an unexpected "true up". A good solar company factors in TOU also. In other words the system is built to mitigate the differentials in net metering. In other words even without a battery, the system is over-producing enough low rates to offset purchases at high rates. I personally have dozens of customers in PG&E that have true net zero bills or close to it and in some cases negative bills.SGIP means that you can - if the home qualifies - get up to $9300 rebate per battery. That means a battery for net no cost that can TOU dump and of course be a backup. All losses through the inverter are calculated for in sizing a system.
Annual maintenance of washing panels is $0. Don't believe the window washing companies!! One rain cleans the panels, they should never have "special soap" on them and you can turn a hose on them yourself in the morning or at night.
- Investor · Valencia, CA · Member since 2017 · 171 posts · 130 votes6y
Originally posted by @Ernest Plasencia:
@Andrew Smith I appreciate the insight.
I have received sale pitches from 3 different companies in order to understand their structures and things they are structured.
It seems like a form of “force appreciation” due to how much they add to property value. One company has structured their monthly payment more then half of what my average electrical bill would be.
If I pull the trigger on this I’ll share some of the monthly data on it after having one.
Appraisals are always of course subjective. We use studies by Berkeley Labs, Zillow and the NAR as well as DofE and HUD. The average increase is shown at around $4/watt for system size, so a 10kW system adding $40k. We use $3/watt for our numbers. The key consideration though is the Fannie Mae requirements. They allow 100% of the value of an owned/financed system but zero for leased systems or PPAs.
- Rental Property Investor · MN · Member since 2018 · 20 posts · 10 votes6y
@Ernest Plasencia I posted this in another thread but here would be our recommendation.
We've installed a ton of these on short and long term rentals. If you plan on doing this on a long term rental I would recommend coming up with a fixed cost for what you want to charge the tenant for electricity and bill it as a separate line item to not price yourself out of the market. (A side note: one thing a lot of landlords don't think about is how hard it can be for a tenant to swallow a $300+ electric bill in the heat of summer when the AC Doesn't turn off. Flattening that out to a fixed payment has gotten great feedback from tenants.) Then you can either transfer the remaining utility bill over to the new tenants so they pay any overage above the fixed cost (easiest) or charge the tenant an overage to compensate for any difference (makes more money but a little more work).
Let me know if you have any other questions or concerns.
Logan BoeschFreedom Solar Energy
Originally posted by @Logan Boesch:
@Ernest Plasencia I posted this in another thread but here would be our recommendation.
We've installed a ton of these on short and long term rentals. If you plan on doing this on a long term rental I would recommend coming up with a fixed cost for what you want to charge the tenant for electricity and bill it as a separate line item to not price yourself out of the market. (A side note: one thing a lot of landlords don't think about is how hard it can be for a tenant to swallow a $300+ electric bill in the heat of summer when the AC Doesn't turn off. Flattening that out to a fixed payment has gotten great feedback from tenants.) Then you can either transfer the remaining utility bill over to the new tenants so they pay any overage above the fixed cost (easiest) or charge the tenant an overage to compensate for any difference (makes more money but a little more work).
Let me know if you have any other questions or concerns.
Logan BoeschFreedom Solar Energy
Since you have done this several times, what is the upfront cost for you to do so? Personally, I have never seen a scenario where it works out
- Rental Property Investor · MN · Member since 2018 · 20 posts · 10 votes6y
Originally posted by @Greg H.:
Originally posted by @Logan Boesch:
@Ernest Plasencia I posted this in another thread but here would be our recommendation.
We've installed a ton of these on short and long term rentals. If you plan on doing this on a long term rental I would recommend coming up with a fixed cost for what you want to charge the tenant for electricity and bill it as a separate line item to not price yourself out of the market. (A side note: one thing a lot of landlords don't think about is how hard it can be for a tenant to swallow a $300+ electric bill in the heat of summer when the AC Doesn't turn off. Flattening that out to a fixed payment has gotten great feedback from tenants.) Then you can either transfer the remaining utility bill over to the new tenants so they pay any overage above the fixed cost (easiest) or charge the tenant an overage to compensate for any difference (makes more money but a little more work).
Let me know if you have any other questions or concerns.
Logan BoeschFreedom Solar Energy
Since you have done this several times, what is the upfront cost for you to do so? Personally, I have never seen a scenario where it works out
I posted this one another thread. If you finance it there is no upfront cost at all.
Here'san example of an Airbnb we just did in Florida with the no money down method:
Upfront cost: $0
Current Avg. Variable electric bill: $245
New FIXED electric payment: $175
Monthly savings: $ 70
Annual increase to NOI: $840
Return on investment: Infinity
Payback Period: None
I love this because It is like the BRRR investing strategy where you do not have any money in the deal and you just get cash flow.
Now here is what it would have looked like if we did that deal for cash:
Upfront cost: $25,750
Tax credit: -$ 6,695
Net cost: =$18,025
Current avg variable electric bill: $245
New electric Bill with solar payment: $12
Monthly savings: $233
Annual increase to NOI: $2,796
Return on investment: 15.5%
Payback Period: 6.5 years
A couple of final notes and factors to consider:
1. If your area is a good area for solar. Personally I’ve done systems all over the country and it’s just a fact that some are much better than others.
2. If your utility provider is solar friendly
3. None of these numbers include rate hikes by the utility company which have been anywhere from 3%-11% per year over the last 10 years depending on your area. At a minimum the rate of inflation in the US for the last 10 years has been about 2%!
4. What rate you are currently paying for electricity
5. What incentives your state has
6. All systems that we (I cannot speak for all other providers) install come with a 25-year warranty on the inverters and panels so as far as maintenance you will be covered for 25 years.
7. Someone above mentioned degradation, yes, the panels do have a slight degradation factor of around 0.5% per year making them still work above 85% efficiency even after the 25-year warranty
- Accountant · Corte Madera, CA · Member since 2018 · 73 posts · 88 votes6y
@Logan Boesch
I just wanted to clarify, in your first scenario you are still claiming a tax credit, correct? It’s only leasing that does not qualify for the tax credit?
- Member since 2019 · 16 posts · 14 votes6y
Good info here, much insight from running the numbers. On 1 project we over built in order to capture more net metering, incentives were there, all vendors came back in 2018 stating their estimates are increase by 12% due to China trade war, plus we were anticipating building an ADU/granny flat. One small vendor didn't get much business and had inventory so he kept this prices the same. So we went with him. So far it's producing only 80-85% of claim and we've had him out 6x. Checking on solar forums, low performance is being reported by 30% of residents. In California, the incentives were good, they are expiring.
Some other post said a landlord added some utilities and or internet. The lower apartment renters enjoyed it because they have terrible history or credit that the utilities won't turn on for them. This may seem like a red flag but the poster said it worked for him.
- Rental Property Investor · MN · Member since 2018 · 20 posts · 10 votes6y
@Will Dixon Yes thank you for clarifying. You're receiving the tax credit and putting it back into the deal to buy down the rate. Otherwise they payment would be about the same as you're paying now but you got a big chunk of money to spend on something else which some people prefer to do!
- Rental Property Investor · Albuquerque, NM · Member since 2016 · 9 posts · 5 votes6y
We added solar on our air BnB to off set our 300 to 400 monthly elec bill and paid the complete cost up front. The cost will be recovered in 5 years or less if the rates go up.
- Rental Property Investor · Albuquerque, NM · Member since 2016 · 9 posts · 5 votes6y
I forgot to add that the air BnB is in central Florida where the rates are much higher.
- Investor · Fresno, CA · Member since 2015 · 4 posts · 2 votes6y
Solar can pencil out in the right situation, but there are many variables and doesn't work on every property. I have one property with two houses on it that I installed a 20Kw ground mount system on it years ago. The system is oversized because it also offsets my pumping costs for an almond orchard on the property. I charge the tenants based on their monthly usage at the lowest PGE rate ($.21 at the time that their lease began). Billing is aggregated using the PGE net meter aggregation program. Between both houses, I collect roughly $5000 per year (CA gets hot in the summer!). After the 30% federal tax credit (26% now) and the modified accelerated depreciation tax savings, the system cost me roughly $14,000 out of pocket (I bought the system wholesale and installed myself...I'm handy). Annual maintenance costs have so far been $0. $5,000 in additional income (minus minimal PGE service charges) on a $14,000 investment works for me. I'm in the process of installing a system on another similar property.
- Garland, TX · Member since 2019 · 15 posts · 1 vote5y
@Ernest Plasencia
Hello Ernest. I’m a solar consultant and it really depends on how much you’re spending for electricity.
In most cases it is worth it. The panels require little to no maintenance once they’re installed.
Usually the payment for the solar panels are going to be much lower then the utility bill. But the only way of knowing is by doing a quote which we do for free.
Like you mentioned before some benefits are $0 installation, no down payment required, 22% tax credit, property value increases. Utility company pays you for electricity you don’t use. The panels have a 25 year warranty.
Side note: Another benefit is that our company offers a referral system. So for every referral we get from you and they install you get $1,000
This is a game changer because your ROI can increase drastically
If you have more questions just send me a message I’ll be glad to help
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