Why install solar on your rental property?

Why install solar on your rental property?

Thanks to generous government rebates and tax incentives, as well as falling solar prices, the economic rationale for installing solar panels on rental properties has never looked so good.

For landlords, installing a rooftop solar system on your rental property is a great way to increase the value of your asset and improve your rental yield. It’s also a sure-fire way to have happier tenants who stay for longer. Plus, there’s also the feel good factor that comes from doing your bit for the environment.

With your tenants benefitting from lower electricity bills because you’ve invested in solar, you can reasonably claim back some of these savings in increased rent.

On this post we explain in more detail how both landlords and tenants benefit from solar.

Landlord benefits:

  • Federal Government Solar Rebate
  • Victorian Government Rental Solar Rebate
  • Increased rent
  • ATO tax incentive
  • Increased property value
  • Increased renter retention

Tenant benefits

  • Lower electricity bills
  • More comfortable home
  • Reduced CO2 emissions

Landlord benefits

1. Federal Government Solar Rebate

An approved solar panel system installed by an approved solar installer will be eligible for Small-scale Technology Certificates, or STCs. STCs are a form of solar rebate from the Federal Government which cut the cost of solar by 25 to 30 per cent, depending on the property’s location.

The great thing about STCs is that you get them in addition to any state government solar rebate you may be eligible for.

And, if you own several rental properties, you can get STCs for each property when you have solar panels installed. There’s no limit.

STCs are a great incentive to go solar. But it’s worth knowing that STCs are slowing being phased out, reducing in value each year through to 2030. So, getting solar installed now before the STC value drops, makes good financial sense.

2. Solar Victoria – solar rebates for rental properties

The Victorian Government is keen to encourage the uptake of more solar on rental properties. So, as part of their Solar Homes program, they have put in place a special solar rebate for rental properties which landlords can apply for.

Through this program, landlords may qualify for an upfront reduction in the purchase price of a solar panel system of up to $2,800. This 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.

The landlord buys the system and receives the full value of the solar rebate as a discount against the purchase price of the solar system. The landlord can also choose whether to take out the government’s interest-free loan which is repayable over 4 years. If the interest-free loan is selected, this is also deducted from the purchase price.

There are two options for loan repayments:

  • A landlord can make the full monthly loan repayment of $29.16; or
  • The landlord and renter can agree to split the loan repayments where the renter contributes up to 50 per cent of the monthly repayment.

Eligibility criteria include:

  • the rental property is valued at less than $3 million and does not have solar panels
  • renters have a combined annual household income of under $180,000
  • there has been no prior participation in the Solar Homes program for that address
  • a Solar Homes Rental provider-Renter Agreement is signed by the rental provider and all renters
  • the property is currently tenanted with a rental agreement in place.

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’d like help applying for this rebate. Alternatively, visit the Solar Victoria website.

3. Increased rent

Origin Energy commissioned a survey in 2018 which found that two-thirds of renters would be willing to pay at least $5 more a week for a home with solar panels, while 55 per cent would pay at least $10 more.

If we assume a 10 per cent increase in what people are prepared to pay now compared to 2018, that means that 55 per cent of renters would be prepared to pay at least $572 more a year in rent if the property has a solar panels system.

These are just averages and every rental property is different. If you have a 3 or 4 bedroom rental that runs mostly on electric appliances for heating, cooling and hot water, your tenants may accept a higher rent increase in return for a solar panel system that reduces their electricity bills by more than the rent increase.

4. ATO tax incentive

Under ATO rules, solar panels on rental properties are classed as a capital expenditure item with a useful life of 20 years. This means that, as a landlord, you are entitled to write off the capital cost of any solar power system you install on a rental property over a 20-year period.

Each year, the ATO allows landlords to claim a 10 per cent decline in system value using the ‘diminishing value’ method. For a $6,200 system, this means you can claim $620 in year 1, $558 in year 2, $502.20 in year 3, etc. This equates to more than $4,000 worth of deductions over 10 years.

So, if you decide to increase the rent because you’ve installed solar, this ATO rule means your tax liabilities are minimised. Essentially, the depreciation you can claim thanks to your solar system should offset some, if not all, of the extra tax you’d be liable to pay on your additional rental income.

5. Increased property value

Origin’s 2018 survey also found that solar panels can add at least $10,000 to the resale value of your rental property. According to their survey, 57 per cent of people said they would pay up to $10,000 more for a home with solar energy installed.

Given that a typical 6.6kW solar panel system costs less than $10,000, installing solar on your rental makes sense on property value alone.

6. Increased renter retention

Low utility bills are a huge plus for renters and a great reason not to move. If you’ve been able to reduce your tenant’s electricity bills by installing solar panels, they will notice the difference!

For tenants, the advantage is they can run the air conditioning and other electrical appliances without worrying about sky-high bills. As a result, they’ll be more comfortable and less likely to be looking around for another rental.

For landlords, this means lower vacancy rates and a higher rental yield. Everyone’s a winner!

Tenant Benefits

1. Lower electricity bills

Tenants can save around $120 a month on their electricity bills with a typical 6.6kW solar panel system. This assumes they use around 50 per cent of the electricity generated by the solar system in their home and export the rest to the grid in return for a feed-in credit.

Even if your tenants are out for much of the day, if they use timers to set appliances to run during the day during solar-producing hours, it should be possible to get to close to 50 per cent self-consumption.

Achieving 50 per cent self-consumption of solar power is even easier if the electrical appliances – like the air conditioning and dishwasher – are WiFi-enabled and can be switched on remotely using an app. Taking the example of a modern reverse-cycle air conditioner, this could be switched on from work by the tenant when the sun’s shining so when they get home the house is at a comfortable temperature – powered for free thanks to the solar system.

So in this scenario, if you installed a 6.6kW solar system on this rental property and then increased the rent by $50 a month, your tenant will still be better off by $70 a month. Of course, modelling the projected electricity bill savings accurately is important if you are to be sure that the tenant will benefit sufficiently from the solar power system. That’s where we can help with accurate forecasting of electricity bill savings based on actual electricity usage data.

2. More comfortable home

The great thing about solar for tenants is that they can afford to run more electrical appliances without worrying about receiving an unexpectedly high electricity bill. Given that most households need to keep a close check on outgoings, having this degree of bill certainty is reassuring and takes away the stress associated with rising power costs.

What it also means is that on those hot summer days, running the air conditioning isn’t an issue because it will run for free on solar. Your tenants get a more comfortable home which they are sure to appreciate. And, as every landlord knows, happy tenants make good tenants.

3. Reduced CO2 emissions

Renters, like homeowners, are becoming increasingly concerned about climate change.

Because of this, most renters want solar panels on their home for financial as well as environmental reasons. All things being equal, if a renter is viewing two properties – one with solar panels and one without – chances are they’ll choose the property that’s got solar.

Of course, lower electricity bills are generally the main reason why most people want to live in a home with solar. But increasingly, people also want to live somewhere that’s helping to reduce CO2 emissions – not add to them.

When it comes to making your rental property as attractive as possible to potential renters, there’s no doubt that the environmental benefits of solar are a plus-point for many.

Get in touch

If you are interested in getting a solar panel system installed on your rental property, get in touch. We can run the numbers for your property to show you how the costs and benefits stack up. We can also advise on the government rebates that you may be eligible for and help you apply for them.