Why Installing Solar On Your Investment Property Can Make As Much Sense As Putting It On Your Own Home

By Finn Peacock - Chartered Electrical Engineer, Ex-CSIRO, Founder of SolarQuotes.com.au

Solar power has been delivering excellent returns for homeowners over the last decade.

With recent feed-in tariff increases, the simple payback period of installing a solar system is now between 4-7 years on average:

simple solar payback

Because a good quality solar power system should last more than 25 years, a payback period of 4-7 years means that once a homeowner has broken even on their purchase, they have another 15+ years of savings to claim from a system.

With rising energy prices, this adds up to a lot!

For example, here is an example of the paybacks for a 5kW system installed in Sydney:

 

The Investment Property Factor

But - for investment property owners, solar energy has always been a much harder sell. 

This is because the core advantage of solar panels, reducing electricity bills, only benefits the person who pays the electricity bill. In most cases, this is the tenant, not the landlord.

You may have someone who says "Who cares about the financial return! By putting panels on you're saving the environment, man! Peace out!"

While this is true - it's a big ask for a landlord to outlay $6,000+ on a solar panel system out of the goodness of their hearts.

But - a recent study commissioned by Origin Energy showed that tenants may be willing to pay more rent for a property with solar.

It found that 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.

Keeping in mind that the electricity savings from solar power for a tenant will be more than $10 per week, the end result will be that you, as a landlord, receive extra rent and the tenant gets lower energy bills - a win-win situation.

The extra rent you collect means the simple payback of a system that costs around $6500 to install, once you factor in market-rate rent increases, will be about a decade; leaving many years of gains past that point.

Every investor's best friend - depreciation

In 2018, a 5kW solar system costs about $6,500 fully installed (A 5kW system usually has around 18-20 panels).

For tax and depreciation purposes, the ATO allows you to claim a 10 percent decline in system value each year using the 'diminishing value' method.

While I'm confident that a good quality, well installed solar system will last over 25 years, the ATO thinks that any given solar system's effective life will only be around 20 years. 

Still - that's a long time you can claim depreciation and offset the tax payable on the additional income you can charge from putting a system on a roof.

 

Run the numbers and you'll be surprised

The bottom line is - solar energy is an investment that tenants are willing to pay extra for. If you are a landlord and have tenants in a property at the moment, sound them out for their opinions on paying $10 more a week in rent in return for solar being installed.

If you're looking to attract tenants or increase the overall value of your property, get quotes for solar, run the numbers around depreciation with your accountant, have a chat with your tenants, and I think you'll be pleasantly surprised about how you can come out on top.

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About Finn Peacock

I'm a Chartered Electrical Engineer, solar and energy efficiency nut, dad, and founder of SolarQuotes.com.au. My last "real job" was working for the CSIRO in their renewable energy division. Since 2009 over 350,000 Australians have used my site to get quotes for high quality solar from pre-vetted solar installers.

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