Solar Homes as Investment Properties: What You Should Know
As with any investment, the key is knowing whether or not it is a smart choice. Investing in solar properties may seem risky to those who don’t know much about it. But rest-assured, solar properties are one of the best investments you can make.
Solar home buyers are not just limited to homeowners. Many investors see real estate as a great place to park their money and watch it grow. There has been a large shift in many of the investment dollars going from the stock market into the real estate market and, with millions of solar homes, some of those properties will have solar on them. Buying a home with solar on it can be a great way to maximize your return on investment.
A home with solar on it presents a second way to generate revenue and increase profit margins and the overall return on investment (ROI) of the property. It gives the property investor a way to collect the funds as part of their investment that would have otherwise gone to the utility company. A tenant is going to use electricity, so why not collect money from the tenant for not only renting them the home but also renting them power from your own solar system. The big question is: how much is that? How much would the renter be paying otherwise to the utility company for that cost of electricity? To know that, you need to understand how much energy the solar is going to produce, what the cost is from the local utility company for electricity, and what the demand is for electricity from that particular home.
The easiest way to obtain all of this information is to get a real estate transaction assistance service report or RETAS report from Spark. This will provide you with all the information you need to know so you can accurately charge a renter for electricity in addition to how much you're going to charge them for their rent payments. The ROI on a property can be slim, especially if the property is financed. This ROI can be increased by adding to those funds with this increased dollar amount coming from the solar. In order to make this property attractive for you – not only as the landlord but also for a tenant – it's a good idea to find a price between what they would have paid to the utility company and what that system value would have cost you.
Again, this information can be derived from a report from Spark. The current industry best practice is to charge 80% of what the local utility cost would have been for the offset value for what that solar production is generating for that tenant. If a tenant uses more power than what the system produces, the tenant will have the utility in their name and any extra consumption will come from the local utility without presenting a liability to the property owner.
Say you are buying a home that would have used $240 worth of electricity per month. Now, the solar offsets this cost from the utility company, and you’re financing this system into the mortgage of the home. Your cost on that is going to be somewhere around $140 a month. If you are charging $200 a month, in addition to the electricity cost, then the tenant is enjoying $40 worth of savings and you're keeping that $60 a month as profit. This number could also increase over time at the same rate that you increase rent, depending on how you decide to run your property.
The reason that buying a solar home is a good idea for a real estate investor is that the federal tax credit is not available for homes that are not occupied by homeowners. Buying a solar home that is being sold by a homeowner now allows you to be able to take advantage of the benefits of solar that would otherwise not be available to you as an investor.
And one of the best things about solar is that it requires very little upkeep. Most landlords love properties that require little ongoing costs. It is recommended to have the panels cleaned once a year and, like most things for property investors, there are many service companies out there that offer this cleaning service for a minimal charge.
Solar homes also generally sell for more. Interested in learning more about this investment opportunity? Spark utilizes key data points set forth by industry professionals to calculate values for both homeowners and home buyers. Reach out today to learn more.
