Going solar is an investment, and many of our customers want to know the return on their investment.
Will solar increase the value of their home?
We talk about this subject to every customer, but there are many factors that go into how much value solar adds to your home—age of home, tax incentives to offset your costs and other long term factors that are hard to put a number to.
This blog will dive into what the market research reveals about this subject and how it specifically applies to New Mexicans.
Investing in Your Home
It is common knowledge that owning your own home has its own price tag. There is a yearly cost associated with your home, including property taxes, utility bills, home maintenance, and home improvement costs. But what if you could control some of these fluctuating costs, such as your utility bill and invest in solar for your home?
“When you invest the money you would already be sending to your utility company, you can create an asset that is part of your house.” -Steve Poulin
Put simply—you stop paying the utility company to generate electricity for you, and you start generating your own electricity by investing in a solar. You start controlling your energy costs, and once you own your system, you eliminate that bill.
Cost of Solar
The average cost of a solar system, including installation, is $22,000 in the Albuquerque area.
If you do a simple mortgage calculation of your monthly bill for 10 years at 3.5%, the loan payment will be $218 per month. This is with $0 down, so your bill could be less if you add a down payment to your system.
Now you have a locked rate of $218/month without fluctuating rates for the next 10 years. When has this happened with your utility company?
After the 10 years concludes, you won’t have an energy bill except for a small fee to stay connected to the grid.
Compare this with your normal electric bill—it typically fluctuates month to month with higher payments during summertime. Depending on your home’s size customers could pay up to $400-$500!
Cost of Solar Vs Value Added to Your Home
According to a study by Berkeley National Laboratory, your solar system will add an average of $3 per watt of your system. For a 5-kW system, your home’s value will increase by $15,000, about 68% of your investment. If you take into account the current tax credits, you would recoup about 94% of your investment (subtract the cost of your system from the 36% state and federal tax credits).
Property Taxes in NM Won’t Rise When You Own Solar
New Mexico does not raise your property taxes when you install solar panels on your property. Your home’s value will increase, but they won’t tax you on this portion. New Mexico is one of 18 states(1) in the US that provides this benefit without tax stipulations over a number of years, cost of the system, or other restrictions.
No State Sales Tax
The upfront cost of most investments includes state sales tax. In New Mexico, solar systems currently do not get charged for state tax. For the average $22,000 system, you’re saving an additional $1,732.50, or 7.875% tax in Bernalillo county.
Going Solar If You Plan to Move
We have found that if you plan to stay in your home for 5 years or more, solar is a profitable investment. Numbers don’t lie, so let’s take a look at what your return on investment is after 5 years of owning solar.
Your solar system costs $22,000 on average. As of 2020, you would get a 26% federal tax credit and a 10% state tax credit in New Mexico.
Your system x 36% tax credits = Savings on System
$22,000 x 36% = $7,920
Now let’s subtract your savings from your tax credits from the system’s cost:
$22,000- $7,920 = $14,080. This is how much you need to get out of your investment for your home to make it worth your while.
Now let’s look at your average utility bill for the next 5 years. An average bill is $150 per month.
($150 x 12 month) X 5 years = $9,000
$9,000 is what you would already be paying your electric company for energy, assuming their rates did not increase over the next 5 years. If you take this money out of what your system costs, you would only need to make sure your home’s value increases by $5,080.
$14,080 – $9000 = $5,080
So, will your home’s value increase by $5,080?
Let’s take a look at a study conducted by Zillow that looked at the real estate market to see if homes with solar sold at a higher price with comparable homes.
They found that on average, a home with solar will sell for 4.1% more than a similar home without solar. This translates to about $8,200 added to a home valued at $200,000.
At this rate, you’re now making $3,120 on your home by going solar if you decide to sell after 5 years.
Soft Benefits of Solar
There are other benefits of solar that are hard to put a number to but are worth noting.
- According to a study by National Renewable Energy Laboratory, homes with solar sell an average of 20% faster than homes without solar. Many home buyers perceive the value of solar and their future savings on their energy bills.
- Older homes with installed solar will have a competitive advantage in selling against newer homes that are more energy-efficient.
- It is important to note that the benefits above directly benefit the owner of the solar system. If you do not own the solar system, you won’t reap the tax benefits. If you have a Power Purchase Agreement (PPA), you don’t own the system and when you sell your home, there is typically an awkward agreement transfer.
- The money you’re already sending to the utility company can be invested into your home to go solar and become an asset.
- Your solar loan is a locked rate that does not fluctuate and typically saves clients money right away.
- On average your home’s value increases by $3 per watt of installed solar
- Property taxes in New Mexico will not increase when you own solar, even though your home’s value will increase
- There is no state sales tax for solar in New Mexico
- If you stay in your home 5+ years, an investment in solar is a profitable investment
- Your home’s resale value increases an average of 4.1%
- Homes with solar sell 20% faster than comparable homes without solar
- Older homes will be more competitive in the housing market
- You get the most benefits by owning solar and not through a PPA agreement