California Fix-to-Rent Real Estate Investors Seeing Growing Profitability in Solar Energy

In The 1001 Nights, there’s a story about three princes. One prince is always looking at his rivals and emulating them, regardless of whether or not it’s a good idea. The second prince refuses to deviate from how he was taught, even if circumstances change. It’s the third prince,  who takes the right lessons from his peers and from his education, who shows true wisdom. In other words, he doesn’t rush after every turn, nor is he afraid of change and being adaptable. Real estate investors have to be like the third prince if they hope to turn a profit.

Entrepreneurs with an eye for real estate know that keeping one ear to the ground is important. The changes coming to the industry relate not only to the greater market rise and fall, but also the technological options for remodeling a home for resale. Making the most of these new tech developments, both sudden and gradual, may be the difference between a good remodel and one that truly shines.

Our clients are always asking us what they can do to improve the value of their properties. When using an equity-based hard money loan to implement a fix-to-rent strategy, it’s important to be aware of these developments so that you can put your money in the right place. Implementing yesterday’s ideas in tomorrow’s house is akin to throwing money away. That’s where green energy comes in.

You’d have to be living under a rock to be unaware of the clean and green movement sweeping the nation in the past decade. Despite the possible inconveniences of new regulations and cultural swings in this ubiquitous trend, the clean energy movement comes bearing many gifts. Making use of these new innovations in energy-saving technology for a fix-to-sell or fix-to-rent property can make a big difference when it comes to the bottom line.

Solar Panel Payouts

One of the biggest gifts in renewable energy technology has been the evolution of quality, cost-effective residential solar panel systems. The National Renewable Energy Laboratory (NREL) is charged with researching the effects, usages, and possible innovations of renewable energy in the United States. Their studies have yielded some very helpful numbers relating to the dramatic practical impact of solar energy on real estate.

  • Solar homes appreciated 17%, and sold 20% faster on average than non-solar homes.
  • A study in California estimates that purchasing solar panels can increase the resale value of your home by more than $5,000 per kilowatt added.

California is the number one state for using solar power, according to research from the Solar Energy Industries Association (SEIA). From observing and evaluating the plans of our clients, we’ve seen firsthand that it’s a movement on the rise. Builders and renovators are incorporating solar into their fix-and-flip schemes with increasing frequency. The SEIA’s president and CEO boasts that solar power is the fastest growing source of renewable energy.

With statistics like those, it’s no wonder that the solar energy industry is rapidly growing, offering homeowners a cheaper, cleaner way to heat or cool their houses. The most common solar panel system for a residential home is a photovoltaic (meaning it converts sunlight into usable electricity) 3.1 kilowatt unit, including panels, wiring, and a converter unit. Because the panel works primarily through direct sunlight, the installed systems depends on clear skies for maximum efficiency, but don’t fret:

  • Most major areas in California receive over 250 days of sunny skies year round (excepting Eureka, which only gets around 180, reportedly).
  • California homes typically receive 5-6 hours of peak sunlight per day from which to draw solar energy.

Be Aware of Potential Drawbacks

However, any builder will tell you that there is no perfect plan. The panels won’t last a lifetime—high quality producers offer a 25 year guarantee for their devices, but they say that the panels should realistically last about 40 years. In the racks of panels that are produced, there are also sometimes ‘bad cells,’ (ones that don’t work properly), so it is important to buy quality devices and to properly test and inspect systems. Purchasing a solar energy system can be pricey, with one company estimating the normal unit at just over $10,000. However, the SEIA reports that the price of a solar power system has dropped by more than 50% in the past 5 years, making the affordability of such an investment an even greater value in today’s market.

Even though solar power can be an expensive undertaking, it can be well worth the investment. If you’re short on capital, a hard money loan can provide the assistance you need with a speedy turnaround. Fix-and-flip or fix-and-rent investors can get the funding they need without a lengthy credit approval process by turning to a hard money lender like Socotra Capital. While a bank may focus only on your credit history, Socotra focuses on the power of your project, and we understand that appealing to energy-conscious buyers and renters can be a smart move.

Government Benefits

There’s also the option of acquiring government assistance. The New Energy for America Act was recently introduced to Congress. If passed, the legislation will add a five year extension to the availability of the Investment Tax Credit (ITC), which gives a 30 percent tax credit for solar systems on residential properties. The ITC works best for fix-to-rent properties, as the legislation stipulates that a property owner must not sell the home for five years after installing their system if they want to receive the full tax break benefits.

In California, cities and counties offer additional benefits to residential solar system users. Some cities may buy unused energy from homeowners and some local governments offer reduced pricing on installation. The clean energy boons continue to multiply, making upgrading to solar power increasingly efficient for your home and your wallet.

Since 2014, California’s permitting for residential solar systems has been streamlined, so the state can reach its goal of drawing 25% of its electricity from renewable resources by 2016. The Golden State has set a goal of upping that number to 33% before 2020. By fall of this year, cities and counties are required to have revamped their permitting processes for solar panel systems under 10 kilowatts to make it simpler and faster.

Lending to Leverage Your New Power System

If you’re looking for alternative ways to add to the functionality and list of selling points for your fix-and-rent property, consider a solar panel system. For other renewable sources of energy, check out wind power or geothermal.

When it comes to making an investment in solar energy for your fix-to-rent projects you need a lender who understands the value. If traditional lenders are giving you a hard time because they’re judging you based on paper scores and ratios instead of the value and merit of your project, consider an equity-based loan from Socotra Capital. Socotra Capital is California’s premier equity-based lender to small and large real estate investors alike. Socotra offers a quick turnaround time and informed approvals based on your current project. This quick cash makes many projects possible that would be impossible without such specialized lending.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.

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