In recent years, there has been a growing interest in sustainable and eco-friendly rental property practices. Now, one of the most popular solutions for landlords is to install solar panels in their rental properties. But what does renting out a house with solar panels mean for landlords exactly? On the plus side, it can appeal to sustainability-oriented renters, give you lower electricity bills, potentially boost your property value, and make you eligible for huge financial incentives.
To help you decide whether to add solar panels to your rental or not, here’s a review of the potential benefits and drawbacks for landlords. Let’s begin!
Key Takeaways
- Homes powered by solar energy appeal to renters who particularly value sustainability, while the lower electricity bills can vastly improve tenant satisfaction and encourage long-term stays.
- Landlords can also benefit from higher property market value and various business and local tax incentives from the solar investment, even if they miss the primary federal residential deadline.
- While solar energy offers long-term benefits, landlords should prepare for installation expenses, ongoing maintenance, and the risk of tenant misuse.
Pros of Renting a Home with Solar Panels
As most of us know, solar panels are an alternative source of energy. By harnessing solar energy from the sun, landlords can use the power generated to power lights, appliances, and other electrical systems, which can help you save on electricity bills and reduce your carbon footprint. But what does this mean for landlords specifically? Property management companies like us have the answers.
Attracting Eco-Conscious Tenants
First and foremost, one of the primary reasons landlords install solar panels in their rental properties is to attract eco-conscious tenants. With more and more people concerned about the climate, many renters are drawn to rentals that align with their sustainability-centered values. Therefore, having solar panels as a feature in your rental can make it stand out among the rest, especially if you combine it with other green amenities.
Lower Utility Bills = Selling Point for Tenants
Given that solar panels are an alternative power source, tenants who pay the utility bills get to enjoy lower costs, which can be a major selling point during hot summer conditions. The happier your tenants are with the cost-efficiency and value the solar panels bring, the more likely they are to extend their stay.
Higher Property Value and More Financial Incentives
Aside from appeasing tenants’ wants and needs, landlords can also benefit from solar panels through property value increase and powerful federal business tax deductions, and state/local programs. In our experience, buyers highly value and appraise renewable energy systems. So, if you decide to sell your property along the way, you can use the solar panels as a feature for a higher property valuation.
On top of this, while the primary federal residential 30% Investment Tax Credit (ITC) for outright purchase of a system is expiring at the end of 2025, landlords can still benefit from key financial advantages:
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Bonus Depreciation: Landlords who own the solar system can claim accelerated depreciation (Section 179 or 168(k) Bonus Depreciation) on the total cost. This allows you to deduct a significant portion of the asset’s cost in the first year it’s placed in service, offering a substantial reduction in your taxable income.
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Commercial ITC Eligibility: Solar projects owned by a third party (like a leasing company) or certain large-scale commercial projects are still eligible for the commercial ITC (Section 48E), potentially until 2027 or later. This can translate to lower lease rates for you or lower Power Purchase Agreement (PPA) prices for the tenant.
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State and Local Incentives: Many states and municipalities offer their own tax credits, rebates, or performance-based incentives (PBIs) for solar installations. These programs are often technology-neutral or focused on local grid goals and are unaffected by the recent federal residential change. You should always research incentives available in your specific market.
Cons of Renting Out a Home with Solar Panels
While renting a house with solar panels sounds promising, it still comes with some risks and challenges that landlords also need to consider. This ranges from the financial demands of solar panel installations to the risk of poor tenant use and management. Let’s discuss these a little further.
Upfront Costs
Even if you want to install solar panels in your rental property, one of the biggest hurdles that you will face is the upfront cost needed to do so. The process of installing solar panels is not as simple as placing the panels on your property. In order to utilize the power it generates, you also need to rig your property to be able to connect with the solar-powered system. Overall, the process includes hardware, equipment, as well as direct and indirect labor, which adds up to the total upfront cost you need to be solar-friendly.
That said, it is worth noting that third-party ownership options like a solar lease or PPA can eliminate or significantly reduce this upfront cost–and they typically save you financially in the long run, too.
Maintenance and Repairs
On top of that, you also need to think about the long-term maintenance and repairs required to keep a cost-effective home solar system if you own it or lease it under the PPA. Periodic cleaning and even occasional repairs are necessary to ensure that the solar panels are working properly and that you’re not putting them at risk of any major performance issues later on.
Speaking of performance issues and problems, you also need to think about how your tenants are going to handle and maintain the solar panel system. Not everyone is familiar with operating a home solar system, so it’s possible for tenants to misuse the system unintentionally. Unfortunately, such risks can damage the equipment to varying degrees, leading to additional costly repairs. To minimize this risk, we highly recommend you explicitly lay out what tenants can and can’t do with the system in your lease.
Lastly, there is still the question of what tenants value more – sustainability or lower costs? Since solar panels are an extra feature, some landlords consider this a premium amenity that warrants a couple of hundred dollars added to the rent price. However, the trade-off between higher rent and lower utility costs may not be enough for tenants to choose a sustainable rental over a cheaper alternative. So, you would have to ensure your rental rate balances your needs and the needs of the market.
Partner with BMG for Your Rental Property Management Needs
Renting a house with solar panels can be beneficial for landlords. It can draw eco-conscious tenants, have financial incentives, and even improve your property’s valuation. However, some risks and challenges, such as the high upfront cost and tenant misuse, can hinder you from realizing the utmost potential of a solar-powered rental property.
Still unsure if solar fits your rental property strategy? That’s where rental home companies, like us at Bay Property Management Group, step in. As experts in the rental market and local housing trends, we can help you decide by providing expert guidance and advice. From cost analysis, competitor and market research, and even return on investment projection, we can help you make the best decision to enhance your rental property business. What are you waiting for? Contact us today!