By Jake Levin
Making smarter decisions for your investment property empowers you as an apartment owner. A closer examination of solar energy as an addition or substitute to your investment strategy may change your mind about alternative energy if you are on the fence. As your trusted partner, our sound advice to you is to consider the many benefits of solar panels for apartments.
(1) Save money on energy
Unsurprisingly, solar energy for apartments may put a significant dent in your monthly electric bill or even cancel it out altogether.
Solar Panels, also known as photovoltaic or PV panels, are a renewable energy source that homeowners, businesses, and investment property owners can leverage to cut energy costs by harvesting their energy from the sun’s rays.
If you follow the data fueled by research for solar energy, you may save an incredible amount of money over the next several decades of your investment property ownership.
The main factor to consider is the amount of sunlight your area receives. Fortunately, we have an excellent understanding of weather patterns across the country, and your qualified solar panel specialist will be able to assess how many sunny days to expect accurately.
The National Renewable Energy Laboratory (NERL) has an excellent solar map to use as a resource for the yearly sunlight levels in your area on a month-by-month basis.
If you happen to live in Arizona, New Mexico, Nevada, or Texas, you are exceptionally fortunate along with Florida; here on the East Coast.
(2) Generate wealth
Solar panels for apartments allow you to transform from an energy customer into a provider. The avenue from which to do this is called “Net Metering.”
Net metering essentially allows you as the consumer to sell excess electricity to a utility provider at a retail rate.
According to the National Conference of State Legislatures (NCSL), “This credit offsets the customer’s electricity consumption during other times of the day or year, which reduces the amount of electricity the customer purchases from a utility.”
With solar quickly becoming an emerging powerhouse in the retail market, many companies offer a referral program. These programs can provide compensation from the referral and any potential conversions to the solar program, resulting in monetary rewards for your part in helping to find new solar clients.
Solar panels can pay for themselves in as little as a few years, depending on your area.
The profitability degree depends on exactly how much sunlight your site receives.
Feel free to use this valuable tool to help calculate your investment return period depending on your area to help determine if solar panels for apartments are the right fit for you.
(3) Get tax credits
The United States government provides federal investment tax credits for solar panels for apartments and individual single-family homes. For some context, Congress gave owners of commercial property the ability to take advantage of several tax incentives. The U.S Department of Energy explains.
- 26% for systems commencing construction in 2020-2022
- 22% for systems commencing construction in 2023
- 10% for systems commencing construction in 2024 or thereafter.
- Any PV system placed in service after 2025, regardless of when it commenced construction, can receive a maximum tax credit of 10%
Here’s how this works
Who is eligible?
Your system, according to section 48 of the tax code, must meet the following for business ITC (investment tax credit) eligibility:
- Used by a business subject to U.S. federal income taxes (i.e., it cannot be used by a tax-exempt entity like a charity)
- Located in the United States or U.S. territories (though can only be used against federal income tax obligations)
- Systems must use new and limited previously used equipment
- Not used to generate energy for heating a swimming pool.
Additional tax benefits
Like all things, solar panel systems do not last forever. With this in mind, you may enjoy incentives for your system’s gradual depreciation over time.
According to Oak City Properties, “A high-quality solar system comes with a warranty period of 20 to 25 years. If you install a solar system on your investment property, it allows you to claim a 10% decline in your solar system’s value each year through the depreciation value method.”
Please use the following model for a ten-year depreciation tax claim on a hypothetical $10,000 solar panel investment.
(4) Stay ahead of growing energy costs
The road ahead for affordable, reliable energy may become uncertain due to rising energy costs, inflation, war, scarcity, and climate change.
Consider your potential move to solar as an investment for the future.
The sun isn’t going anywhere; you can count on it as a potentially limitless resource for energy. With a simple up-front cost, almost no maintenance, and other complications, solar panels in apartments protect you from spikes in energy costs, sudden lack of availability, and much more.
(5) Become energy independent
As a commercial real estate investor, you know better than anyone that going through the hoops of energy regulations and requirements is one of the most significant hassles of the business. It takes a lot of work to keep your systems up to code and, equally importantly, ensure the energy itself gets delivered successfully to your tenants consistently.
Switching to solar creates flexibility to control your energy systems and provides an opportunity for an income-generating asset.
With solar, you may produce more energy than you consume if you invest in a higher volume and high-quality solar system. The surplus energy gives you extra leverage and a leg up as a business owner.
(6) Raise your property value
Adding solar to your energy arsenal can maximize your investment for the future. This value-add approach promises to help increase the value of your property when it comes time to sell the asset. While the data is not an exact science yet due to differences in location, sunlight and other factors predict that scaling owned solar panels for apartments may yield substantially higher property values than without.
According to ADTSolar, “Installing 5KW of solar panels adds an average of nearly $30,000 to the retail value of a medium-sized home and helps you differentiate your property when it becomes time to sell.”
With the current cost of solar at $2.776 per watt, a 5KW system in this example would be $10,249 approximately. In this example, you might expect to make $19,751 or a 65.84% net profit margin on your investment.
(7) Protect the environment
One of the pillars of commercial real estate is the concept of home. Landlords make capital improvements daily to improve their tenants’ lives and well-being while agents help people find a place to live. The growing rollout of alternative energy helps create a positive transformation for our planet. Solar panels, in particular, are particularly prudent because they fit seamlessly into an energy routine that all of us can implement in some way.
Adding solar energy to your property will help protect the environment in two ways.
Reduce your emissions:
Since solar panels draw energy from the sun, you will become less reliant on more traditional forms of energy such as gas and electricity. Solar panels for apartments will lower your carbon footprint as a property owner.
According to the Environmental Protection Agency’s (EPA) statistics on household emissions, “Many of our daily activities cause emissions of greenhouse gasses. For example, we produce greenhouse gas emissions from burning gasoline when we drive, burning oil or gas for home heating, or using electricity generated from coal, natural gas, and oil.” Specifically prudent to apartment properties is the emissions your heating creates. The EPA cites the following three factors as the most significant sources of pollution.
- The quantity of greenhouse gasses emitted from your furnace and boiler depends on the efficiency of these items.
- The size and insulation of your house.
- The amount and type of fuel used.
Reduce global pollution:
By pulling less from the power grid, you are reducing the demand for global energy production, which significantly contributes to air pollution. According to the EPA’s statistics on global greenhouse emissions, electricity and heat production makes up 25% of global emissions.
“The burning of coal, natural gas, and oil for electricity and heat is the largest single source of global greenhouse gas emissions.”
Once in a while, it’s essential to take a step back and remember that this planet is also our planet, and making sound decisions to care for it should not get put on the backburner. Whether that means outfitting the roof of an entire multifamily property or simply installing a small fixture outside that runs on solar, we should try to make ethical choices about alternative energy and take responsibility for the future of our planet.
Solar panels for apartments make it easy for apartment owners to create a difference while maintaining a value-add investment strategy.
To recap, solar panels for apartments can be considered investment tools to help lower costs and add value to your multifamily property. Additionally, solar energy will help you operate with a will reduce your emissions and contribute to pollution on a global scale while potentially increasing your monthly collections.
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