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Market Updates

California Beats the Heat by Requiring Solar Panels on Newly Built Homes

Editor’s Note: Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Cranmer provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out our other super-helpful Market News Updates. For now, enjoy...

From Hal Cranmer…

California regulators are now requiring all newly built homes across the state to put up solar panels. This is one way for the government to remedy the problem of climate-warming carbon emissions.

But, it also puts a burden on real estate investors.

See, many tenants pay the utility bills. So some landlords like to advertise that their property has solar capabilities. But in looking at a cost-benefit analysis, results showed that tenants typically don’t care…

So landlords/owners will have to put the panels in and incur the expense without any real gain.

And remember that as California goes, so goes the nation in many ways…

According to Bernadette Del Chiaro, the executive director of an industry group called the California Solar & Storage Association, this move is historic for the state of California and for the United States. She said that California is putting the ‘grand vision’ into action.

spillThis policy was voted unanimously, 5-0, by the California Energy Commission. They recommended that energy efficiency standards should be added to state building regulations by the end of 2018. It is expected to take effect on all construction by January 1, 2020.

This made the state of California the first state in the United States to require solar panels in ALL new homes.

But as with any rule, there are some exceptions…

Solar panels are only required for single-family homes, as well as all apartment and condominiums with 3 stories or less. Larger apartment owners can avoid this mandate.

Solar Panels Are Cost-Effective

Solar panels were being installed in over 15,000 new homes in California every year—even before the state required them to. But this isn’t just an issue of what’s popular...

It’s another infringement into real estate investor’s rights to do what they want with their property.

It’s difficult to measure the total costs and benefits of the mandate. Normally, the free market can decide what is the best use for a good or service, and right now the market determined that 15% of California homes have solar capabilities…

With 113,000 new homes being built in California every year, that percentage should shoot up considerably.

Initial Costs Look Promising for Homeowners

It’s estimated that the average cost of a solar system is around $9,500 or $40 per month if it is amortized over a mortgage of 30 years. But, it has also been predicted that consumers will save up to $80 every month in utility bills.

Those utility bills are usually paid by the tenants. Although that makes your rental more attractive, the total bills for installation may not make it as attractive.

Solar power also accumulates at the same time for every home—when the sun is out. Trying to store all that power will put a big load on California’s electric grid. It will be interesting to see how they handle it.

holyConcerns Over New Solar Panel Rules

The building industry organization and other real estate investors did not block these new policies. But, they voiced their concern about the increase of home prices due to the extra cost to include solar systems. They prefer a slower phase-in of the solar panel policy.

Businesses within the building industry appreciated that the rules allow them to do smaller installations when space is limited or when there are shaded rooftops.

The California Building Industry Association praised another part of this new regulation... they give credit to homes that have battery storage technology.

This technology enables homeowners to ‘collect’ cheaper electricity given off by the solar panels on the roof when the sun is the hottest. According to Bob Raymer, technical director of the building association, the battery storage technology stores the power so you can use is early in the evening—when the electric bill is the highest.

This new rule will soon come before the California Building Standards Commission in October of November 2018—and it generally follows the recommendations of the energy commission.

It’ll definitely be interesting to see how this plays out in California and then seeing what the rest of the country.

Should Your State Do the Same?

As a real estate investor, how can you benefit from this? Let us know in the comments section below. 

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