All Forum Posts by: Frank S.

Currently the average payback period for residential rooftop solar in Chicago is 8.2 years, according to the folks who track these numbers: https://www.solarreviews.com/b...

8.25 years according to these guys: https://www.energysage.com/sol...

and 5.1 years according to these guys (who are factoring in potential future rate increases): https://www.solar-estimate.org...

That's pretty good in my book for such a low risk investment, especially when compared to zero payback and infinite negative cash flow if one just continues paying their electric bill.

One company I work with is installing 29.36MW of commercial PV in the Chicago market this year, totaling over $90M. Those installations all have a payback period under 5 years. 

I agree with Franks comment that there is a soft benefit to producing renewable energy, and many folks buy into it for environmental reasons alone. However this is far from the only reason solar makes sense and we are seeing many sophisticated investors and large financial institutions are choosing to invest in solar in 2019 for the financial returns alone. The numbers are very good in certain markets with Chicago being one of them. For example the specific projects mentioned above are all strictly numbers-based as there are institutional investors involved who demand a certain return and give zero cares about the "warm tinglies" of saving the planet. These companies are choosing to put over $90M in solar in the Chicago market strictly because they see it as a low risk, high return, completely bankable investment. 

The tax credit is part of the equation of course but that's not unique to solar as every form of energy is heavily subsidized. It could just as easily be argued that nobody would invest in building a coal power plant without the many tax credits allocated to those projects, or without being able to mine coal on public land for pennies on the dollar. Furthermore the oil and gas industry wouldn't be what it is without the “Intangible Drilling Costs” (IDC) tax credit among many other subsidies. Not a single nuclear power plant would exist without government stepping in to insure them and manage the waste. Transportation wouldn't be what it is today if we had to pay the true cost of gas at the pump. We can't just single solar out as the energy industry is not a free market in any way. So the solar investment tax credit is necessary to keep solar cost-competitive with other forms of energy that have all been propped up by government for many decades in a heavily manipulated energy market. The good news is that solar is on it's way to becoming cost-competitive without subsidies whereas energy from fossil fuels will require increased subsidization over time to remain competitive. But I digress. In Chicago there is also a nice SREC program where one can sell their solar energy back to the grid for a premium which is an additional benefit on top of the tax credit. 

In my experience as solar leaves the early-adopters phase and enters the main stream, which happened in 2012-2013 in many markets, more and more solar customers are concerned with the hard numbers over the soft benefits. In many places with mature solar markets the hard numbers are looking very good thanks to decreased costs from mass production of equipment and increased efficiencies in racking and installation techniques. But other areas of the country don't even have net metering yet so solar hasn't advanced much in those areas where customers are locked in to an energy monopoly with no option to generate their own electricity and sell it back to the grid. 

One important thing to note is that unfortunately the 30% investment tax credit only applies to a primary residence or vacation home and specifically does not apply to investment property, so the payback period will be 30% longer in instances when the property doesn't qualify for the ITC. There are ways to monetize the ITC on investment property such as using a 3rd party that can take the tax credit and pass the savings on, like in a PPA or lease situation, but those options have some drawbacks such as clouding the title with a UCC-1 fixture filing (kind of like a lien) which isn't a benefit during transfer of title as in during a sale. Also worth noting is the ITC is dropping to 26% at the end of this year and will be phased out entirely in the next few years. 

@Daniel Levin

Ok everyone, thank you for the replies but my main question is: do I have to pay for her utilities if she isn’t paying rent? Now, her lease expires in a week or so anyway so in the ideal situation, she would be getting on my lease and paying her own utilities (except she’s being evicted).

My initial plan was not to house hack. I had enough to pay the mortgage for a year saved up. At the moment I’m looking for a roommate to at least help cover the expenses. Anywho- the last owner lied about a lot of things on the disclosure form (said average utilities were 400/ month, not 900). So there have been a handful of unexpected surprises.

For example, on day one THIS tenant told me that her kitchen smelled like gas for the last 2 years and that the previous owner told her she’d better leave the windows open during the inspections so nobody suspected anything. Day 1- 2500 bucks to fix the leak and buy a stove and have it installed on short notice. Two different inspectors and myself missed it initially since nobody could smell it. There has been a lot of stuff like that pop up. It turns out all of the tenants had been instructed to lie about the state of the place. Sure we found a bunch wrong during inspections so I knew it wasn’t going to be a picnic, but damn! I’m very upset with both inspectors (one mine, one from the bank), neither of whom found half the issues we have since uncovered.

The mortgage is high because 1) it’s my first property and 2) it’s a 203k so most of the refurbishments are part of the financing.

The rent rates are comparable to similar units in the area and could go up a little, but that of course needs to wait until the current leases expire so that’s not an option.

My plan is to use the income from this house to boost my monthly income so I can go and buy a second building, then pay down this first one and refinance. This should be possible with decent tenants but as you can see, I don’t have those in all the units yet.

All has been going very well, and as time goes on I’m updating the leases to get everyone paying their own utilities. I’m just sick of this particular tenant and her excuses. I’m doing what I can to get by and pay everything but what really hurt is this month, the 1025 guy was late, then only paid half due to a medical issue. He is getting on an assistance program and I can actually confirm this one.

So finances have been tight, and I was hit with the typical unexpected expenses and an inaccurate property disclosure. Moving forward, I’ll be starting the eviction process on the 11th for everyone who’s not paid in full.

So I have a plan, and the house does have a tiny bit of cash flow when all goes well. My big mistake is having too much of a heart and not starting the eviction process sooner. The only thing that stopped me is that she has a young daughter. However now here we are and the bank is far less forgiving than I am so I started the process a month and a half later than I should have.

Oh and I am currently rewiring my unit to get onto a separate electric meter. It’s expensive but it’s the first step to getting them to pay their own.

Currently the average payback period for residential rooftop solar in Chicago is 8.2 years, according to the folks who track these numbers: https://www.solarreviews.com/b...

8.25 years according to these guys: https://www.energysage.com/sol...

and 5.1 years according to these guys (who are factoring in potential future rate increases): https://www.solar-estimate.org...

That's pretty good in my book for such a low risk investment, especially when compared to zero payback and infinite negative cash flow if one just continues paying their electric bill.

One company I work with is installing 29.36MW of commercial PV in the Chicago market this year, totaling over $90M. Those installations all have a payback period under 5 years. 

I agree with Franks comment that there is a soft benefit to producing renewable energy, and many folks buy into it for environmental reasons alone. However this is far from the only reason solar makes sense and we are seeing many sophisticated investors and large financial institutions are choosing to invest in solar in 2019 for the financial returns alone. The numbers are very good in certain markets with Chicago being one of them. For example the specific projects mentioned above are all strictly numbers-based as there are institutional investors involved who demand a certain return and give zero cares about the "warm tinglies" of saving the planet. These companies are choosing to put over $90M in solar in the Chicago market strictly because they see it as a low risk, high return, completely bankable investment. 

The tax credit is part of the equation of course but that's not unique to solar as every form of energy is heavily subsidized. It could just as easily be argued that nobody would invest in building a coal power plant without the many tax credits allocated to those projects, or without being able to mine coal on public land for pennies on the dollar. Furthermore the oil and gas industry wouldn't be what it is without the “Intangible Drilling Costs” (IDC) tax credit among many other subsidies. Not a single nuclear power plant would exist without government stepping in to insure them and manage the waste. Transportation wouldn't be what it is today if we had to pay the true cost of gas at the pump. We can't just single solar out as the energy industry is not a free market in any way. So the solar investment tax credit is necessary to keep solar cost-competitive with other forms of energy that have all been propped up by government for many decades in a heavily manipulated energy market. The good news is that solar is on it's way to becoming cost-competitive without subsidies whereas energy from fossil fuels will require increased subsidization over time to remain competitive. But I digress. In Chicago there is also a nice SREC program where one can sell their solar energy back to the grid for a premium which is an additional benefit on top of the tax credit. 

In my experience as solar leaves the early-adopters phase and enters the main stream, which happened in 2012-2013 in many markets, more and more solar customers are concerned with the hard numbers over the soft benefits. In many places with mature solar markets the hard numbers are looking very good thanks to decreased costs from mass production of equipment and increased efficiencies in racking and installation techniques. But other areas of the country don't even have net metering yet so solar hasn't advanced much in those areas where customers are locked in to an energy monopoly with no option to generate their own electricity and sell it back to the grid. 

One important thing to note is that unfortunately the 30% investment tax credit only applies to a primary residence or vacation home and specifically does not apply to investment property, so the payback period will be 30% longer in instances when the property doesn't qualify for the ITC. There are ways to monetize the ITC on investment property such as using a 3rd party that can take the tax credit and pass the savings on, like in a PPA or lease situation, but those options have some drawbacks such as clouding the title with a UCC-1 fixture filing (kind of like a lien) which isn't a benefit during transfer of title as in during a sale. Also worth noting is the ITC is dropping to 26% at the end of this year and will be phased out entirely in the next few years. 

@Frank S.  I did work in Illinois in my time working for Tesla Energy but I don't have a specific reference as I do in Buffalo, just know that they are very similar in climates and days of sunshine.  The higher the electric cost, the quicker the payback as well.  States like Texas with 7 cents/ kWh are only competitive with solar because arrays have so much production because of the amount of sunshine and solar irradiation down there. 

Really couldn't tell you much about domestic hot water in the way of costs but it hasn't had the same scale and thus cost reduction as solar photovoltaic.

@Frank S. We have gas heat, gas stove and gas water heaters as well- much cheaper and more efficient than electric which is true in most places.  

Niagara falls, while its nearby, actually sends most of its electricity on high voltage lines across the state to New York City and the east coast.  Our electric costs are 10-12 cents/kWh which is average in the north.  Higher electric costs would make it easier to go solar as you alluded to.

You mentioned its been a few years since you ran the numbers- you'd be surprised that solar has dropped 90% in cost over the past ten years so that could account for a big difference as well.

That calculation is only including federally available subsidies (30% tax break) because New York has its own tax breaks through NYSERDA but it is a little more challenging of a process  to claim them and so not everybody gets that benefit.  Also, if you do need a new roof to go solar (if you have less than 7-10 years left on your roof) the 30% tax break will apply to the cost of the solar array AND the roof! Great way to get a discount on a re-roof and your electric bill.  

While I no longer work in the area, my cousin works at Buffalo Solar Solutions and they tell customers they don't have ideal conditions/may not install if they cant get payback under 10 years and most of the time can get it within 5-7 barring any major shade or electrical upgrades to older houses.

@Frank S. Thanks I agree. The tenant moved in yesterday and wants to move out now, and I can't blame her. Her first day in, she notices roaches and is attacked by bed bugs. I would be out too! I just spent an hour speaking to my property manager. Our plan is to get the place fully fumigated and have it rental ready by November 1st.