Solar panels on your rental property can help you attract better tenants. This improves your property’s bottom line.
Tenants are willing to pay a higher rent for a home with solar panels. Your renters save money on electricity, and you get more money in the form of rent.
The increased rent translates to a straightforward approach for recouping the solar system’s purchase and installation costs. When market-rate rent increases are taken into account, there are several years of gains.
Is it possible to finance solar panels as part of my mortgage?
The FHA Solar program from Guild complies to Federal Housing Administration loan regulations and has a low down payment option of 3.5 percent. The down payment is based on the purchase price of the home before the solar panels are factored into the mortgage payment, offering consumers a reprieve from having to come up with both a home and a solar system down payment.
How do I market my solar-powered home?
Solar is a big investment you can make in your house that will pay off in the long run with lower electricity costs, less reliance on fossil fuels, and protection against growing energy prices. But what if you decide to sell your home after solar panels have been installed on your roof or property? Will solar still be beneficial to your business? What if you’re looking to buy a house with a solar PV system already installed?
The good news is that solar advantages are instant, and solar panels can significantly increase the resale value of a home. So, if you’re thinking about going solar but plan to sell your house soon, solar is still likely to help you save money. Similarly, if you’re a home buyer, purchasing a home with solar panels allows you to start reaping the benefits of solar energy right away.
How Do Solar Panels Affect Home Resale Value?
A lot of studies have shown that solar panels have a beneficial impact on home resale value. According to a recent Zillow research, solar-paneled homes in the United States sell for 4.1 percent more than comparable properties without solar panels. According to a study conducted by Berkeley Lab, homes with solar panels sell faster than those without.
When one of our customers chose to sell her home two years after installing a solar energy system, she found similar benefits. Her system nearly reduced her electricity expenditures over the two years she had solar panels on her roof. Then, when she sold her house, it went for $16,000 more than she had anticipated.
What If I Financed My Solar PV System with a Solar Loan?
When you buy a solar PV system with a solar loan, you can own it while paying for it over time. With a solar loan, you can still take advantage of the federal solar tax credit of 30% and the Massachusetts SMART incentives that come with purchasing and owning a solar power system.
If you decide to sell your home during the period of your solar loan, you have a few options based on the loan type:
If you used a secured loan to pay for your solar PV system, such as a home equity loan, you’ll need to pay off the remaining sum before selling (since your property was used as collateral for the loan.)
If you paid for your solar PV system with an unsecured loan (one not secured by your home), you can sell your home before paying off the debt, but you will still be accountable for it.
Whatever path you choose, bear in mind that having solar panels on your roof will certainly increase the value of your home, allowing you to pay off the loan faster.
What If I’m Selling a Home with a Leased Solar PV System?
Many homeowners are concerned about what would happen if they opt for a leased solar PV system and then sell their property before the lease period ends. (On our solar financing page, we go into more depth on leasing vs. owning a solar PV system.) When selling a home with leased solar panels, you typically have two options:
Pay the remaining balance on the lease. Before you sell your house, you can buy out the remainder of your lease and own your solar energy system. You’ll be able to sell the system as part of the house and get a better price.
Pass the lease on to the next owner. The lease agreement can be transferred to the new homeowner’s name using this option. While some home buyers may not be ready to adopt a solar lease, studies have shown that many are willing to do so.
Can I Buy a House with Solar and Remove the Panels?
You have a couple of options if you’re thinking about buying a house but don’t want to keep the solar panels. To begin, you may request that the panels be removed from the home. Of course, the home seller has the option of doing so. Another alternative is to contact the solar firm that installed the panels and inquire about the cost of moving or relocating them.
One thing to keep in mind is that buying a solar home allows you to start enjoying the benefits of solar right away, without having to worry about the installation. So, if you truly want to get rid of the solar panels on a house you’re buying, be sure you know everything there is to know about solar energy.
Learn More About Selling or Buying a Solar Home
The major point for homeowners is that you should not feel obligated to pay high utility expenses simply because you anticipate moving in the next 25 to 30 years. If you’re looking to buy a home, bear in mind that buying a solar home is easier than you would think, and it comes with immediate financial benefits.
Contact the Boston Solar team if you have any questions about selling or buying a solar home. We know a thing or two about solar real estate, having completed over 3,800 solar installations, and we’ve seen how solar panels may effect a homeowner’s bottom line.
How do appraisers account for solar panels in their calculations?
The modifications made by the appraiser are based on what recent buyers paid for those products. In order to avoid making a modification, the appraiser should include comparables with equivalent energy efficiency or solar power amenities when producing an appraisal.
Is it possible to depreciate solar panels on a rental property?
Yes, the solar panels can be depreciated. You must, however, deduct any tax credits you got from the cost basis. The panels are classified as residential rental real estate and depreciated over 27.5 years because they are now “a physical element of” the structure.
If the panels are put “in service” on the same day as the property, it’s easier/simpler to just add your authorized cost to the structure’s cost – not the land’s cost.
For instance, suppose you had the following structure:
Let’s imagine you have $10,000 to depreciate after subtracting your tax credit from the cost of the solar panels. Replace the above values with:
The algorithm now “Knows” that $70,000 will lose value over the next 27.5 years.
It’s also fine if you wish to enter the panels as a distinct asset. Both options have advantages and disadvantages. They would be entered as a separate asset in my book. That’s because, in the event of a hurricane, the solar panels will most likely be damaged before the structure, making it easier to manage the asset with insurance payouts and all that.
As a side point, keep in mind that when you change a personal use property, such as your primary residence, to a rental property, your typical homeowner’s insurance policy *WILL* *NOT* protect you. You’ll need to either convert your existing policy to a rental dwelling policy or buy a new rental dwelling policy. Whichever option you choose, make sure the solar panels are included in the coverage. Remember, if anything isn’t written down, it *DID* *NOT* *OCCUR*. So our representative may talk the talk all day. What they say is meaningless. Insist on it being written down and signed off on by the policy’s underwriter.
What is the federal solar tax credit, and how does it work?
The solar investment tax credit (ITC), often known as the federal solar tax credit, has been incentivizing homeowners to switch to solar since 2005. This tax credit now allows you to deduct 26% of the entire cost of your solar system installation from your federal taxes.
Why do mortgage lenders inquire about solar panels?
When purchasing a home with solar panels, it’s critical to understand all of the following information:
- Do the panels belong to the present owner?
- Is it true that the panels are rented from a solar company?
- Is the solar equipment subject to a lien?
- What kind of funding was used to buy the panels in the first place?
- Are there any warranties on the current equipment?
Knowing the answers to these questions is critical not just for ensuring that you understand exactly what you’re paying for, but also for ensuring that you’re not overpaying. Mortgage lenders will almost always require this information in order to put together an offer, and in some situations, they may not be able to make one at all.
Does the Homeowner Own the Panels?
If a home’s solar panels are currently leased, the buyer must determine if the lease can be transferred to the new owner. Most of the time, this isn’t a problem. The lease will be assumed by the new buyer, usually on the same terms. If that isn’t possible, the corporation may have to remove the panels or renegotiate new terms with the new owner.
There is usually no problem if the homeowner owns the panels outright. While they are technically allowed to take the panels with them, the buyer’s agreement would have to allow it. The panels are usually kept with the house.
However, if the panels are currently being funded, things can become a little more tricky. When a homeowner takes out a loan to purchase solar equipment, the solar firm will place a lien on the property. Most mortgage lenders will not finance a home that already has a lien on it. This means the solar firm will have to agree to temporarily release the lien until the acquisition is completed, and then reinstate it.
Mortgage lenders have little choice but to make an offer on some debts used to buy solar panels. PACE loans, or property-assessed clean energy finance, are one example.
A lien is imposed on the property, just like previous solar loans. These loans are backed by state and local governments to stimulate renewable energy improvements. PACE loans, on the other hand, usually take priority over other loans, such as mortgages, making the home a considerably less secure type of collateral.
Other Considerations
When purchasing a property with solar panels, there are several more aspects to consider. One easy inquiry is whether the device is covered by a warranty. Solar panels are normally highly sturdy and should last for many years, but a guarantee is an essential element of safeguarding your investment.
In addition to solar electricity, the residence requires a backup energy source. Mortgage lenders such as Fannie Mae forbid residences from relying only on solar power because a power outage could render the home uninhabitable.
You should also think about how any solar panel payments may affect your debt-to-income ratio. Large solar payments may result in increased interest rates or the rejection of a mortgage application. That’s why it’s crucial to think about the whole cost of solar power in your new home.
Is a solar loan deducted from your debt-to-income ratio?
If you pay a monthly lease payment for your solar panels, this is usually factored into your debt-to-income (DTI) ratio when applying for a mortgage.
This rule does have a number of exceptions:
- The agreement can be exempt from DTI if it guarantees a specified amount of electricity over a specific time frame and compensates the client if the solar panels fail to fulfill those targets.
- If the client pays a rate based on the property’s utilization, the lease or purchase power agreement may be exempt from DTI. This is handled as if it were a utility.
When I acquired a house with solar panels, what happened?
If you’re thinking about buying a new house, solar panels on the roof are a terrific alternative.
Aside from the fact that acquiring a home with existing solar panels allows you to receive all of the benefits of solar electricity without having to invest in the cost of installing the panels yourself, panels may also raise the value of the home if you decide to sell it later.
Here’s the distinction:
Leased Panels
The homeowner does not own the panels that are leased. Instead, they’re leased to a solar installation firm for a long time.
These leases usually run 10 to 20 years. In other circumstances, the panels can be purchased directly from the installation business or rolled into the home’s sale price. However, both approaches can be costly.
Furthermore, some solar panel lease agreements involve escalating payments, making them a long-term responsibility for you or future homeowners.
Here’s an illustration:
The solar lease could increase your debt-to-income ratio, making it more difficult to obtain a home loan and qualify for a mortgage.
Owned Panels
Solar panels that a homeowner has purchased outright are known as owned solar panels. When you sign the purchase agreement for a home that includes owned solar panels, you will also own the panels. Most likely, you won’t have to pay anything for the solar panels when you buy the house.
If you’re buying a home with solar panels, the seller is responsible for paying off any remaining solar power debt. If you decide to sell this house in the future, you’ll be able to move the solar panels from one house to another.
What is it about solar that real estate brokers despise?
Some real estate salespeople push buyers away from solar homes because they don’t comprehend them.
“A lot of agents scare buyers away with their personal opinions.” McGill remarked. “This is reckless and, by the way, goes against agent ethics, but it happens. And, once again, it’s due to a lack of knowledge and education.”
Below is further information on buyer and agent education. Meanwhile, the vendor may encounter difficulties:
Most homeowners who install solar panels are pleased with them, according to McGill, and are willing to tell others about their positive experience. However, some people regret installing panels, and those sellers may frighten away customers if they have the same opinion.
Other sellers fail to preserve important information about their solar system that is required at the time of sale. McGill advises homeowners to maintain solar installation information in the same place as other home information, at least until a database can be developed to save everything.
In most cities, the multiple listing service (MLS) now has “green fields” for agents to fill up in a home’s market profile. Environmentally friendly elements such as solar PV, passive solar, energy efficiency, and LEED certification are included in the green fields. Some appraisers are aware of how these qualities contribute to a home’s worth, while others are unaware.
“Finding evidence to support the list price and any extra for solar can be particularly tough if you can’t find a qualified appraiser and the MLS green fields haven’t been filled out.”
Solar leases provide homeowners with instant utility savings, but the panels remain the property of the solar contractor. According to McGill, some homeowners are surprised to learn that the lease adds little real value to their home, and other buyers may be unwilling to renew the lease.
The lease’s monthly payment may disqualify certain buyers by increasing their debt-to-income ratio.
A closing might be delayed or canceled if the lease is not transferred to the buyer in a timely manner.
“There are various reasons why you would do a solar lease,” McGill said, “but one of them is to make the real estate transaction easier.”
McGill recommends education for homeowners, real estate professionals, solar installers, and utilities to overcome these five barriers.
In the Fort Collins region, she offers free workshops, and Elevate Energy, a non-profit organization, offers low-cost online classes for people in other areas.
“While solar is amazing, it can add some challenges to an already difficult selling process,” Pamela Brookstein, Elevate’s market transformation specialist, explained.
When homeowners see home sellers receiving fair and consistent value for their solar investments, the market will change, according to Brookstein.
“That’s how market revolution happens. When homeowners realize how solar benefits others in the short and long term, they will be more ready to consider and eventually invest in solar.
McGill aims to provide solar installers, utility companies, and regional databases with information regarding solar home sales to help with all of the necessary education. She would make it mandatory for all realtors to learn about solar house sales, or at the very least aggressively urge them to do so.
According to McGill, a considerable percentage of homes on the market each year now contain solar or green building elements, and a solar array may change hands two or three times over its lifetime.
“Trust is what drives market revolution,” McGill added. “The market will change as soon as they realize that everything is being taken care of elsewhere. And while the number of installs and adoptions will continue to rise, this still feels like an unknown.
