Many customers have consulted us on whether it’s necessary to install solar panels for their investment rental properties, and if so, what the returns would look like.

We happen to have a client who just installed solar panels on his rental property, and here are some summaries from our discussions with him during the initial phase:

1. Installing solar panels on a rental property does not necessarily lead to a corresponding increase in rent. Many landlords think that after installing solar panels, they can raise the rent by two to three hundred or even three to four hundred dollars, thereby quickly recouping their investment. However, in the rental market, tenants are not accustomed to adding their future possible electricity expenses to the rent when calculating total costs. Therefore, if your initial quote is higher than the market price, it might be harder to rent out.

2. If a long-term tenant wants you to allow the installation of solar panels, it could be worth considering. You could take out a loan in your name for the purchase, with the tenant covering the monthly payments. Since it’s a long-term tenant, it doesn’t matter if they leave after a few years because they would have helped pay off the loan for a while, and a house with solar panels is always easier to rent. Plus, you can transfer the monthly loan payment to the new tenant as an electricity bill using the method described in point 3 below. But remember, never install solar panels through a leasing agreement! We will provide a detailed article exposing the hidden rules of solar panel leasing later.

3. The best approach is to install solar panels under your name and then charge the tenant for electricity. The client we mentioned did exactly this:

a. He installed a relatively large solar panel system and paid for it in full to avoid high-interest rates.
b. He installed a subpanel, which means all electricity usage for the house was routed through this subpanel, with both the solar panel system and the electrical grid powering it. He also installed an electricity monitoring device (electric meter) at this subpanel, allowing him to see the real electricity usage and costs after installing the solar panels.
c. He charges the tenant for electricity at a rate lower than the market price, making the tenant happy while also earning a good return on his investment.

4. Generally, if a tenant’s monthly electricity bill ranges from $300 to $500 (the average for a household in San Diego currently), you can recoup your investment within 5 years after installing solar panels. After 5 years, it’s pure profit. With further increases in electricity rates, you could earn an additional income of over $400 per month on top of the rent!

5. If the tenant’s monthly electricity bill is around $200, you can still ensure extra income after 5 years by adjusting the system size accordingly, making it an excellent investment!

6. Additionally, don’t forget that besides the 30% federal tax credit, you can also enjoy certain tax deductions each year through equipment depreciation!