Landlord Economics

When it’s your home, it’s easy to justify spending thousands of dollars on a solar-electric system that will pay you back over time with reduced utility bills, possible rebates, and tax credits. But it’s a little more difficult to fork over the dough when it’s your rental property. There’s nothing wrong with wanting to get some return on your investment—above and beyond the savings in fossil fuels—and the good news is that adding PV to your rental properties can put dollars back in your pocket. Here’s how we made RE work for our situation:

Production Incentives. Because the majority of utility generation in the rainy Pacific Northwest comes from large-scale hydro plants, our electricity rates are relatively low. Therefore, our overall savings are not as impressive as they would be if we lived in an area served by fossil-fueled power plants. That said, the available incentives do add up nicely in our favor. With Washington state’s net-billing regulations, two meters are installed for each system—one for total production and one for standard net metering. Puget Sound Energy pays us 15 cents per kilowatt-hour (KWH) until 2014 for all electricity generated—even if it is consumed on site. This payout will gradually increase as the electricity rates climb over the years. Had we purchased modules and inverters built in Washington state, the production incentive would have gone as high as 54 cents per KWH.

On top of the 15 cents per KWH, a green tags program operated by Northwest Solar Cooperative pays us 2 cents per KWH. When you add in the value of the energy we avoid purchasing because we use it ourselves (8 cents per KWH), and the price we are paid for energy we do not use but send to the grid (also 8 cents per KWH), that equals about 33 cents per KWH.

Added Value. Our tenants recognize the financial and environmental benefits of living in a home with solar electricity. Not only does the system save them an average of $180 per year in utility bills, it also allows them to live a renewable energy lifestyle without bearing the initial expense. Though our tenants cannot take advantage of the green tags incentive, they do receive the utility offset through the net metering agreement. One tenant reported that their October electric bill was only $3. Rising energy prices will make the solar-powered rentals that much more appealing to prospective tenants.

Tax Credits & Rebates. All of the tax credits and rebates add up quickly. Our PV project cost about $51,000. We received the maximum $2,000 federal tax credit (up to 30% of the installed cost) and a $5,244 rebate through a now-defunct program offered by the Bonneville Environmental Foundation.

B&B Revenue. Though it is too soon to tell how much effect the system will have on our occupancy rates, we hope the PV system, as well as our other energy-efficient choices, will attract visitors who are looking for green hospitality.

Depreciation. Thirty years’ straight-line depreciation for the two rental homes’ capital improvements equals $567 per year for each—a total of $1,134 per year in depreciation schedules.

Resale. Although we’re not too concerned about resale value since we plan to retire in our current home and continue using our rental properties for income, it’s a comfort to know that if we did need or want to sell, the solar-electric system and workshop have increased the property value.