The environmental movement sure has gained steam over the past couple of decades. From the Government offering all kinds of tax incentives and rebates, to Elon Musk the billionaire entrepreneur, it seems like everyone is getting into the act.
What does that mean to the average real estate investor?
Well, like everything else you do for your business, it depends. Let’s talk solar…
There is a pretty big upfront expense involved in installing solar. Then there can be a pretty healthy savings on the backend once you do. Each investor should do their due diligence.
It’s true that most investors don’t pay electric bills – or at least don’t pay a lot of them. For rental properties, investors pass most electric bills on to tenants. Flips require that an investor pay the electric bills while rehabbing the house but obviously stop paying once the house is sold.
Passing on those electric bills to your renter or buyer, however, might mean you are not receiving the maximum amount of value from your property…
For example, if you advertise that your rental includes all utilities, you may be able to charge a higher rent than is needed to cover the bills, thus making you more money.
On a flip, solar panels on the roof may create a higher selling price. According to one study, homes with solar panels command about a $15,000 price premium over homes without solar.
How Solar Works
Solar panels are photovoltaic cells. That’s a fancy word for saying these panels convert sunlight into electricity. Remember that it is the light from the sun being converted, not the heat.
Solar panels are actually more efficient in cold temperatures than warm temperatures.
The sunlight is converted into DC electrical current. Since most of your home runs on AC electrical current, each system will need a device that converts DC to AC current.
Generally, installing solar panels is not a DIY project. There is a lot of wiring involved, along with some assessment of how suitable your property is for solar.
A good contractor will assess which way your house faces, and how many hours a day it will receive sunlight. They combine this assessment with the electrical usage of your property to determine how many panels to install.
When looking for a good contractor, these are some questions you should ask:
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Do they provide a good warranty? Typically, 10 years for inverters and 20-25 years for the panels.
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Are they licensed and bonded? Check on any complaints with the Better Business Bureau and other services like Yelp and Angie’s List.
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Do they use panels manufactured in the U.S.? You want to make sure your warranty extends to the manufacturer in case the installation company goes out of business.
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Can they provide references from past customers?
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Do they do the installation or do they outsource it to someone else? They need to be held accountable for it.
The Costs of Going Green – and How to Pay For It
If you have a very efficient property in a colder region of the country, solar may not save enough money to justify installation. Although the cost of solar installation has dropped significantly since about 2011, the average installation cost is still around $17,000.
You need a decent electrical usage to be able to justify solar.
The Federal and some State Governments are also trying to incentivize you into using solar panels. The federal solar Investment Tax Credit (ITC) is a 30% tax credit for both residential and commercial properties.
On the state level, places like California are offering property tax exemptions and rebates for each kilowatt-hour used that is generated from solar energy.
Electrical companies are also often mandated to buy back any excess electricity generated by your solar panels that you don’t directly use. They ‘buy it back’ by issuing you a credit on your electric bill. This can be pretty significant in the winter.
Your contractor should have a good idea of all the incentives available in your area. It helps him to sell his system. But it doesn’t hurt for you to do your own due diligence as well.
When calculating whether the savings is worth the installation, you should also factor in potential rate increases from the electric companies.
Another place you should check about costs is your insurance company. Your homeowner’s insurance might experience a little bump with solar panels being installed.
Financing solar installations creates more questions...
With interest rates so low, you may be able to get a sweet deal on a home equity loan to pay for it. Many installation companies also allow you to lease the panels for a regular monthly fee for up to 20 years.
The good thing about leasing is that the company will take care of all maintenance issues. They will also guaranty the roof and make any necessary repairs to the roof when they eventually remove the equipment.
The downsides to leasing include the installer receiving the tax credit instead of you. In addition, you need to make sure it is easy to transfer the lease to the new owners in case you want to sell your property. The new owners may not want to make the lease payments unless you can demonstrate some good savings.
Like any other part of your rehab or improvements on your investment properties, you need to weigh the costs and benefits of going solar. For many properties, however, solar can be a very attractive option – both for the buy & hold investor, and the flipper.
Solar Story
Tell us about your experience with solar as an investor in the comments section below.
Do Your Due Diligence – Constantly re-examine your business. What is making you money and what can you get rid of that is not making you money?
Investigate upgrades – What sets your properties apart from everyone else’s? How can you make yours stand out to a buyer or renter?
Use Reputable Contractors – You get what you pay for. Just because someone’s bid is really low, doesn’t mean their final price will be low. Think about all the headaches you might have to endure.
JP Moses
is a real estate investor in Memphis, TN, with experience ranging from land lording to note buying, rehabbing, and wholesaling. However, wholesaling is the area that he enjoys most and where he bring the most experience and expertise to his students.