For many landlords, the idea of spending several thousand dollars to install solar panels on their rental property seems ludicrous. Why would you do that if you don’t pay the electricity bills? Of course, there’s the feel good factor from reducing the carbon footprint of your rental. But that’s a lot of money to spend to help the environment. Most landlords would love to do it if they could afford to but, at the end of the day, the numbers have to stack up.
In this article we’ll dispel the common perception that solar on rental properties doesn’t generate a good return. In fact, the opposite is true.
Done right, installing solar on a rental property should mean that both the landlord and the tenant are better off.
On this post we delve into the benefits of solar to both landlords and tenants.
It’s now proven that tenants are willing to pay extra rent for properties with solar as their electricity bills will be lower.
In fact, two thirds of renters would be willing to pay at least $5 more a week for a property with solar panels, while 55 per cent would pay at least $10 more according to a survey commissioned by Origin Energy in 2018.
That was four years ago. In 2022, you’d expect that figure to be bit higher. If we assume a 10 per cent increase on 2018 figures, that works out as an annual rental increase of between $570 and $600 because of installing solar.
And these are just averages. If your rental property is larger than average, it’s a fair bet that your tenants would pay even more in rent in return for solar panels that helped cut their bills.
How much exactly could solar add to the value of your property?
The clever people at Origin have looked into this as well. They found that solar panels can add at least $10,000 to the resale value of your property – and that was back in 2018.
According to their survey, 57% of people said they’d pay up to $10,000 more for a home with solar energy installed.
They also found that 77% of Australians think that solar panels add value to a property.
What’s clear from this research is that homes with solar panels command higher prices.
With a typical 6.6kW from SolarRun costing $4000-$6,000, it’s clear that solar makes sense on property value alone. You’re pretty much doubling your money when it comes time to sell your property.
If you have a rental property in Victoria, you may qualify for an upfront reduction in the purchase price of a solar system of up to $2,800. That amount comprises of a solar panels rebate of $1,400 and an interest-free loan of the same amount.
Landlords can claim this rebate for up to two rental properties a year in Victoria through the state government’s Solar Homes program.
The landlord receives the full value of the solar panels rebate against the purchase price of the solar panels system. As the landlord, you can then choose whether to take out the government’s interest-free loan which is repayable over 4 years.
Getting the rebate is reasonably straightforward given that it has been designed to include as many rental properties as possible. The main criteria are:
To be eligible for an interest-free loan, the landlord needs to provide a satisfactory credit report that is less than 12 months old.
Get in touch if you have questions about this rebate or would like help applying for it.
With solar panels on their home, tenants will save hundreds of dollars each year off their energy bills. This means they will be more likely to stay in the property if they can heat and cool their home at an affordable price. Ultimately, this results in lower vacancy rates and a better return for the landlord.
For landlords, solar is a great way to attract higher value tenants who stay for longer.
It also means happier, more comfortable tenants!
With solar you should be able increase the rent. But isn’t that just going to increase the tax you have to pay on your rental income?
Thanks to the ATO’s rules regarding solar, that’s not the case.
Under ATO rules, solar panels are a capital expenditure item which you can write off as depreciation over 20 years (that’s the period which the ATO deems is the useful life of your system).
The ATO allows you to claim a 10 per cent decline in system value each year using the ‘diminishing value’ method.
For a $6,200 system, this means you could claim $620 in the first year, $558 in the second year, $502.20 in the third year and so on. This equates to more than $4,000 worth of deductions over 10 years, offsetting the tax payable on most of the extra income from raising the rent.
With a typical 6.6kW solar system, tenants can save around $120 a month on energy costs. That’s assuming they use around 50% of the free electricity from the solar panels in their home.
With lots of energy smart tools available – like in-home energy monitors [link], advanced solar monitoring and Wi-Fi enabled appliances – achieving these savings should be easy for most people, even if they are out most of the day.
An extra $120 a month makes a big difference to most household budgets.
So, if you decide to increase the monthly rent by around $40-$50 to contribute towards the cost of the system, your tenant will still be better off.
With climate change constantly in the news, most people want to take positive action to reduce their carbon footprint.
Renters, like most people, are becoming increasingly well-informed about the importance of switching away from fossil fuels and using renewable energy to power their home.
However, renters have been left on the sidelines for a long time when it comes to solar. Just over 30 per cent of all Australian homes are rented – and most of these don’t have solar. In contrast, around one in three owner-occupied dwellings have solar panels on the roof.
Most renters want solar panels for financial and environmental reasons. With better information about the benefits of solar for both landlords and tenants, it can only be hoped that more rental properties will get solar.
Fortunately, the tide is changing in favour of rental solar. The numbers look good for both renters and landlords. Both parties stand to benefit.
And that can only spell good news for the environment.
For a quote for solar on your rental property, get in touch. We can size the solar system correctly to maximise the financial benefits to you and your tenants. Plus, we can help with cost-effective energy-saving systems that will increase use of solar power in the home.
We are available! Have a question? Text us here.