Will Adding Solar Boost Your Rental Property ROI?
Adding solar isn’t just about sustainability; it’s a smart business decision that can significantly reduce expenses, increase net operating income, and enhance property value.
But is the cost worth it? Especially if your tenants are responsible for utilities (like almost all rentals in Michigan, where we operate)?
Here’s what every landlord needs to know about adding solar to rental properties and how to decide whether it’s the right move for your portfolio.
The Business Case for Solar Energy
If you’re paying significant utility bills each month, solar can immediately shift your financials. Its biggest appeal lies in its dual ability to reduce operating costs and create revenue streams.
Here’s how it works:
- Cut Electricity Expenses: By generating your property’s power, you’re less dependent on fluctuating utility costs.
- Monetize Power Generation: You can sell the solar energy you produce to tenants, either as a direct charge or through utility-inclusive rent, creating additional income.
- Leverage Financial Incentives: Between federal ITCs (Investment Tax Credits), accelerated depreciation benefits, and state-level grants, you’re looking at significant cost offsets right out of the gate.
This isn’t speculative either. Carl Moose, a solar expert and property owner, puts it best in a recent podcast: “Take your roof, traditionally a liability, and turn it into an asset.”
Solar makes that transformation possible.
Is Your Property a Good Fit for Solar?
Not every property is the right candidate for solar installation.
Here are the basic criteria to check that it makes sense first:
- Electric Costs: If your monthly electric bills exceed $800–$900, solar could have a strong ROI. This applies to everything from tenant-paid utilities to common areas like hallways or parking lots.
- Roof Space: A roof with 5,000–10,000 square feet or more of usable space is ideal. The larger the surface available, the greater your capacity to generate power.
This applies across a range of property types, from medium-sized apartment complexes to industrial facilities.
Even smaller multifamily units can benefit if the finances make sense.
What About Tenant-Paid Utilities?
If tenants handle their own electricity bills, there are still ways for property owners to monetize without losing the benefits of solar:
- Submetering: Track tenant energy use with submeters and charge them directly for the solar energy their units consume.
- Utility-Inclusive Rent: Alternatively, fold electricity costs into rent and charge a higher per-square-foot price. This approach simplifies tenant bills while allowing you to maintain a competitive edge (if you price it appropriately).
Either method sets you up as a power provider–instead of leaving that revenue to the utility companies.
How the Solar Process Works
If your property’s a good fit for solar, implementation is simpler than you might think. Here’s the typical process:
- Initial Assessment: A certified EPC (Engineering, Procurement, and Construction) firm evaluates your building’s roof size, energy needs, and solar potential. Most assessments are free.
- Proposal Review: They’ll provide detailed estimates covering system design, upfront costs, available incentives, and the expected payback period.
- Site Inspection: Engineers ensure your roof structure can support the panels. The added weight is minimal, and structural issues are rarely a problem.
- Permitting and Installation: Once permits are approved, the solar system is installed and connected.
From start to finish, an experienced EPC firm manages the details to ensure smooth execution.
What’s the Financial Payback?
Here’s what investors care about most–ROI.
Thanks to advancements in solar technology and hefty financial incentives, most solar systems pay for themselves in three to six years.
Programs like the federal ITC allow you to offset 30%-50% of installation costs upfront, while accelerated depreciation under MACRS (Modified Accelerated Cost Recovery System) adds further tax value by letting you write off 80% of costs over five years.
After breaking even, you’ll enjoy decades of reduced utility expenses. With modern solar panels designed to last 25-30 years, the long-term savings can transform your property’s profitability.
Why the Timing Couldn’t Be Better
Federal and state governments are aggressively incentivizing renewable energy installations, but these programs won’t last forever. The ITC, for example, is confirmed through 2030, but smart investors are moving now to lock in those credits while they last.
Doing nothing means you’re leaving potential earnings–and cost savings–on the table. Solar isn’t just forward thinking; it’s a strategic move to stabilize one of your biggest operating expenses in an age of fluctuating energy costs.
Adding solar isn’t about keeping up with trends or earning environmental accolades. It’s about maximizing your rental property’s financial potential in ways that go far beyond energy savings.
Want a property manager in Metro Detroit who will handle projects like these on your behalf, and more?
Contact us to find out what sets us apart from other PMCs.