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I'm looking at selling a rental home to buy solar.
Old 01-16-2019, 05:58 PM   #1
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I'm looking at selling a rental home to buy solar.

I'm looking at selling my rental home and buying solar to offset the lost income.

Quick numbers: The sale should net $60k, the rental is/was netting about $400 per month.

The solar will/should cost about $26k upfront but after the tax credit my out of pocket cost should be around $17,500 this should save me around $175 per month.

I'm not terribly concerned about losing the $17,500 and I understand that the appreciation to my home will be minimal, on the flip side I pay about 40% in taxes, tithe and offering so in order for me to spend $175 I need to earn nearly $245.

Does this sound reasonable? Any other out of the box "investments" that that can earn $5k annually on a $60k investment (that are reasonably safe)?
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Old 01-16-2019, 06:09 PM   #2
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I edited your title as it looked a bit wonky, if I got it wrong lemme know I can re-fix or undo.
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Old 01-16-2019, 06:38 PM   #3
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I edited your title as it looked a bit wonky, if I got it wrong lemme know I can re-fix or undo.

Perfect!
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Old 01-17-2019, 12:46 AM   #4
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Should you sell your personal residence home in the next few years, you might be surprised at how much the solar system adds. A $175 a month cut in utilities would be quite valuable to many buyers.

the $175 a month is a pretty good return on $17,500 (net) invested. Many landlords don't make that on rentals.
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Old 01-17-2019, 09:18 AM   #5
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Solar adds little to no value in the Phoenix area. It makes the house very difficult to sell if it's a leased system because the lease payment is subtracted from the total payment for which the buyer qualifies. It's less clear in California. Electric rates are high in the areas served by the big utilities, and all those "forward thinking" people that buy Teslas like solar.
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Old 01-17-2019, 03:27 PM   #6
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Solar adds little to no value in the Phoenix area. It makes the house very difficult to sell if it's a leased system because the lease payment is subtracted from the total payment for which the buyer qualifies. It's less clear in California. Electric rates are high in the areas served by the big utilities, and all those "forward thinking" people that buy Teslas like solar.
It's very location-dependent. If you can buy it outright, it's an asset, not a liability. If you can sell excess power back to the utility company, it's a win. If you can get a tax write-off, this helps offset the cost. The break-even point is much shorter in areas with a lot of sun, and with high electricity costs. In Hawaii, a system will pay for itself in less than 15 years, typically.
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Old 01-17-2019, 03:41 PM   #7
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You would think Arizona would be ideal for solar, but adoption is very low. Electricity is relatively cheap and the terms from the utilities are not favorable.
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Old 01-17-2019, 04:11 PM   #8
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Solar adds little to no value in the Phoenix area. It makes the house very difficult to sell if it's a leased system because the lease payment is subtracted from the total payment for which the buyer qualifies. It's less clear in California. Electric rates are high in the areas served by the big utilities, and all those "forward thinking" people that buy Teslas like solar.

"Forward thinker" here (minus the Tesla). Depending upon local utility rates, suitability of the location, and state and local tax rebates, solar can be a very good investment with surprisingly short pay back periods.



We collected local, state and federal rebates and were able to purchase our system outright. We send power to the grid six months out of the year and our break even will be under 10 years. I don't think that I would lease a system, but depending upon your location and situation, buying one can make sense and adds value.



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Old 01-17-2019, 05:46 PM   #9
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"Forward thinker" here (minus the Tesla). Depending upon local utility rates, suitability of the location, and state and local tax rebates, solar can be a very good investment with surprisingly short pay back periods.



We collected local, state and federal rebates and were able to purchase our system outright. We send power to the grid six months out of the year and our break even will be under 10 years. I don't think that I would lease a system, but depending upon your location and situation, buying one can make sense and adds value.



BR
How much value did your system add to your property? Do you have paired sales of similar houses with and without solar power systems that support the added value? Has your real estate agent shown you comparable sales that support the increase in value or did you have before and after appraisals done?

Lots of people think these systems add value. However, that does not mean that buyers will pay much if anything for your system. My guess is here in Silly Valley these systems do add some value, but it's a guess, based on local electric rates and the level of technical and financial sophistication among buyers in this market. It's just a guess, though.
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Old 01-17-2019, 07:45 PM   #10
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How much value did your system add to your property? Do you have paired sales of similar houses with and without solar power systems that support the added value? Has your real estate agent shown you comparable sales that support the increase in value or did you have before and after appraisals done?

Lots of people think these systems add value. However, that does not mean that buyers will pay much if anything for your system. My guess is here in Silly Valley these systems do add some value, but it's a guess, based on local electric rates and the level of technical and financial sophistication among buyers in this market. It's just a guess, though.

I doubt I could tie any appreciation in my home value to the solar system since the cost of the system was a rounding error as compared to the market value of the house. What I can calculate is the avoided cost of electricity based upon my historical spending, which does not account for rate increases. After two years, that amount is more than 20% of the cost of the system. I expect that this would be attractive to a buyer, but I am not in the market so cannot provide information regarding whether a broker thinks I will recapture this rather minor cost.

My point is simple. Don't dismiss this out of hand. Depending upon your location, local electricity rates and tax incentives, solar can be attractive and worth investigating.
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Old 01-17-2019, 08:24 PM   #11
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I don't disagree that it's useful and worth investigating. Six of the thirteen houses on my street have solar. The guy around the corner has a Tesla roof, courtesy of his employer. The OP acknowledges that the solar may not add to the market value of his house and that's my point.

I started seriously looking at solar in 2016. No one could tell me how much electricity I would generate and when with most of the roof facing west and how much of my bill would be offset. I have not been able to get a reasonable estimate of the financial benefit of the capital expenditure.

Now, with PG&E filing bankruptcy, I am concerned about the future of the net metering agreements. I'm not sure that PG&E is in a position even to sign one now.

As a result, when someone mentions "adding value," I ask for the basis of the statement. Any buyer is going to want to see numbers before they decide whether to pay more for your property. I don't have any, other than the cost.
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Old 01-17-2019, 10:41 PM   #12
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It all comes down to the cost of electricity and how sunny any given area is. Our area is medium-low on electricity rates and we're pretty sunny 75% of the time. I don't think solar would have too fast payback period here.

Other alternatives are switching to mini-split HVAC systems that are twice as efficient since they don't have to heat or cool ductwork. And to go to LED lighting or even 12 volt lighting on new house construction.

I have a lake house and utilities including garbage run $93 a month except in Summer. It's the minimum water rates and refuge collection that eats us alive--even though we seldom use any water or put out garbage from September to May.
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Old 01-18-2019, 07:10 AM   #13
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Utility companies in AZ and probably other states are starting to fight back against solar installs by decreasing the rates that they pay to buy back electricity and charging a month infrastructure maintenance fee (~$50) to solar customers. There are grandfather clauses protecting existing solar customers but it is putting the brakes on new installs.
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Old 01-18-2019, 08:57 AM   #14
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Live in central valley in California. Purchased solar for a net cost of 15.5K for 6.120kW DC (STC)/ 5.398 kW AC (CEC) solar system, I think it was 24 panels @ 260Watts. Paid off.

Payback will be about 9 - 91/2 yrs.
Our net electric bill was about $800 for all of 2018.



I would think there would be some analytical data on homes sold with solar.


If we sell we would definitely use the above figures for negotiations.


Our house is about 2200 sq ft, with a 400 sq.ft. room above the garage (detached) with heat/ac and we run a hot tub year round.


If we drop the hot tub we could save another $100 - $200 annually.
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Old 01-18-2019, 10:14 AM   #15
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Keep the rental. Take out equity loan on rental if you have too.
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Old 01-18-2019, 10:30 AM   #16
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Live in central valley in California. Purchased solar for a net cost of 15.5K for 6.120kW DC (STC)/ 5.398 kW AC (CEC) solar system, I think it was 24 panels @ 260Watts. Paid off.

Payback will be about 9 - 91/2 yrs.
Our net electric bill was about $800 for all of 2018.



I would think there would be some analytical data on homes sold with solar.


If we sell we would definitely use the above figures for negotiations.


Our house is about 2200 sq ft, with a 400 sq.ft. room above the garage (detached) with heat/ac and we run a hot tub year round.


If we drop the hot tub we could save another $100 - $200 annually.
Ask your real estate agent what buyers will pay for solar. Swimming pools cost upwards of $30k and in most areas add little or no value to the property. An experienced real estate agent will probably be your best source for the added value of solar in your location.
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Old 01-18-2019, 10:46 AM   #17
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Ask your real estate agent what buyers will pay for solar. Swimming pools cost upwards of $30k and in most areas add little or no value to the property. An experienced real estate agent will probably be your best source for the added value of solar in your location.



I see this comparison and have to say a pool is a liability, it costs money to run and maintain it. A solar system is an asset, it produces income and offsets liabilities. Just my 2 cents.....
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Old 01-18-2019, 11:01 AM   #18
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I see this comparison and have to say a pool is a liability, it costs money to run and maintain it. A solar system is an asset, it produces income and offsets liabilities. Just my 2 cents.....
A new roof or AC unit is pretty much the same. Buyers like them but don't pay extra.

How your market treats solar can only be determined by looking at market evidence. Hence the suggestion of talking to a knowledgeable experienced real estate agent or two.
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Old 01-18-2019, 02:28 PM   #19
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A new roof or AC unit is pretty much the same. Buyers like them but don't pay extra.

How your market treats solar can only be determined by looking at market evidence. Hence the suggestion of talking to a knowledgeable experienced real estate agent or two.

Agreed. The buyer pays what the market dictates. All about location. I bought my home after someone dropped a ton of dough remodeling everything. They bought it for $425k and sold it ten years later for $375k.


My only guess is they tried to sell it prior to the updates, but couldn't attract a buyer.



The question is, which provides the ROI goal you are looking for? For me the RE equity of the long game would be better than getting paid for solar but not having the equity. I'd rather have a roof over my head than solar to decrease my energy costs but that's me. Of course if I could have both, that would be my choice!
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Old 01-18-2019, 07:35 PM   #20
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....Now, with PG&E filing bankruptcy, I am concerned about the future of the net metering agreements. I'm not sure that PG&E is in a position even to sign one now.
I live in Northern CA, SF Bay Area/East Bay hills. The long side of our roof faces south, uninterrupted (no shade, no taller houses allowed). We put 14 panels on our roof in Fall 2015; system went operational Nov 2015.

There was a federal tax rebate of $3K, but no state rebate. Panel cost is about $300/panel, installation brings that up to about $925 (2015 dollars). If you do solar, DO NOT skimp on install costs, per a contractor friend who did his own solar. There are two kinds of mounts and one (sturdier, slightly taller) is much better than the other.

We get high winds in the hills, you really don't want a panel yanked off the roof! And you definitely don't want leaks, either.

According to everyone I talked to, best time to do solar is when you are putting a new roof on. Second best time is within 5-yrs of new roof install.

Every state has a different approach to Net Zero Metering. Be sure you understand what the current and near-future political situation is in your state. Without NZM there is probably very little payback value in solar.

Our utility is PG&E. The total # of NZM systems was divided up between CA's 3 utilities. PG&E was more aggressive in selling/permitting solar, so they reached their Net Metering limit in 2016.

The new system is called NEM 2.0 and applies to all CA solar customers who bought their systems after the original cap per utility was exceeded. Details are here for those CA residents: https://news.energysage.com/net-mete...-need-to-know/.

It's important you understand the difference between systems under cap #1 and newer systems under NEM 2. NEM 2 owners are charged "time of use" credit and rates for electricity. Thus, in CA, putting panels on the west side to catch afternoon sun, is actually very useful.

(Excerpted) "...Time-of-use (TOU) rates:
TOU rates are designed to align your electricity costs with demand across the electric grid. Electricity is most expensive at times of high demand, like late afternoon and early evening, which means that your utility will charge you more per kWh during those “peak hours.” It also means that net metering credits will be worth more for electricity you send back to the grid during peak hours. "

Now, I believe* that the downside for NEM2 owners is you are credited with wholesale rates for the KW you send to the utility.
* I'm not 100% sure on this, since I'm under cap#1 I wasn't paying really close attention to the NEM2 changes.

Under cap #1, our system is credited the retail charge per KW which is substantially greater than the wholesale cost. Last figures I heard were 26 cents retail per KW (there have been two increases since and more to come due to the wildfire liabilities) versus 3 cents wholesale per KW.

I may be wrong on these figures so I apologize in advance if so! But all the research I did in 2015, when the CA utilities were already complaining about how much systems under cap #1 was costing them, indicated the basic changes meant that if you could get a system installed under the cap #1, you were financially much better off in terms of break-even costs.

So that's what we did. PG&E does a "true-up" annually. Every month my bill shows a $10 charge for connecting to the grid (which is reasonable since we have no batteries; without the grid we have no electricity). The utility tallies up how much energy the system has generated that month and keeps a running total.

In the winter we run a deficit - obviously, when it rains we're a negative user - and in the summer we run a nice surplus. Note the Net Metering under cap #1 is transferable to a new homeowner, should we sell the house before 2035 when cap #1 is terminated and we are forced over to NEM2 rates. Thus, it is considered a valuable selling point.

Before we installed solar, our electricity cost $125+/mo. We use natural gas for furnace, WH, and range.

Year 1 (Nov 2016): total electric bill at true-up $120
Year 2 (Nov 2017): total electric bill $132
Year 3 (Nov 2018): total electric bill $49

Looks like we'll break-even in 8-9 yrs, but that's based on current rates. PG&E's bankruptcy may throw everything into the wind, so who knows what will happen? We can only wait and see.

But for now, it worked for us. Again, note that this is ONLY for Northern CA solar systems, altho SoCA owners can use their bills to figure out their own #s.
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