Landlord Strategy: Become the Utility

[Peter Johnson]

With rapidly falling solar costs and the 30% tax credit, has anyone discussed the idea of "becoming the utility" for their tenants?

Most landlords can have solar installed at no up-front cost & finance it over 25  years and come very close to matching their current power costs. What does this mean?

Let's say you have a 4-plex. Your tenants are paying $150/mo ea for power now. You can buy a whole-house solar system to replace their power usage for around $125,000 (increasing the value of the property by almost that much at the same time). Including a never-a-penny-out-of-pocket-for-25-years-warranty.  Payments will be around $600-650 depending on your interest rate. 

But when you make this move, a few things happen:

1) You get a federal tax credit of 30% - $37,500 in the above example. Pay down your solar loan or use it elsewhere.

2) You gain a new revenue stream - your tenants start paying you for their electricity instead of the utility. You could get technical and install meters but a fixed montly number is probably better (so you know you're covered). And since it's solar: your property's appeal to the environmentally-friendly crowd goes way up. You can give them bragging rights for moving in. Raise rents too - people pay more to feel like they are doing their part to help the environment. Properties with solar sell faster and for higher prices too.

3) Since you are the utility now:, you get to set the price. Utilities are raising their prices a LOT these days - those bills NEVER go down. But that means you can increase the monthly tenant fee for power - since you are now the utility - to whatever you want. And if you just raise it at the rate of inflation (let's say 8%/yr) you'll be bringing in $1000/mo in 10 years and over $2400/mo in 20 years. and in 25 years when it's paid off (and you can probably pay it off much faster) you will have a free and clear $4400+/mo coming in for electricity (that costs you nothing) from a system that is paid off. Imagine if you had 20 4-plexes doing this - that's an extra $880,000/yr in revenue. Not chump change - definitely need some Bigger Pockets then!

Yes, you'll still be tied to the grid (batteries are cool for sure, but not much ROI yet) and that might cost a few bucks a month but you'll be done buying electricity from them and you'll become your tenants' utility.

What's the downside of this?

Disclosure: I sell solar, but this is a legitimate innovative strategy. And I didn't include any contact information. Happy to discuss.

[Jake Hilden]

I’m a real estate agent in Minnesota and also a solar consultant remotely to many states. The home value thing is never a guarantee and it is highly location and buyer specific. A place like San Diego that has highest electrical rates in the country, a solar system will look more beneficial to buyers. The benefit usually from from owned systems, not leases or PPA’s. In MN, there’s been some cases where an appraiser has given the solar system half of the install value to the home value. Then there are some who haven’t given any value because of not enough comps or data to support it. It’s still a new thing in many parts of the country and there are really no guarantees or standards. I’m obviously not against Solar at all, I just think it’s important to be realistic that it won’t always increase the value of the home.