What is a Better Investment – Income Property or Solar?
I’ve been toying with an idea in my head and am hoping you’ll give me some input. Please don’t tell hubby John though because I need my facts straight first.
You may think this a very odd thing for a REALTOR to say, but is it possible that there is actually a leveraged investment out there that is better than income property? I’m talking about solar power generation.
Not a day goes by that there is not some mention about this technology and like you, I’ve been taking notice. There are some interesting facts out there. Did you know that southern Ontario receives almost as much solar radiation as Miami, Florida? In regard to solar, it’s actually better in our cooler climate since solar photovoltaic technology works less efficiently as the temperature in the solar panels increases
A typical solar PV system ranges from $6,000 to $10,000 per kilowatt (kW) installed. The least expensive system to install is a grid-tied system while the most expensive is the off-grid system. Under the Ontario microFIT program, a homeowner can install a system, up to 10 kW in size. That’s a lot of money!
Then again, spending $60-100,000 is less than the cost of buying another income property. According to Natural Resources Canada, every kilowatt (1000 watts) of solar PV installed in southern Ontario should produce an average of 1150 – 1300 kWh (kilowatt hours) of power annually. Under Ontario’s microFIT program, the government is guaranteeing to buy the power generated back from me for 20 years at astronomical rates of 80.2 cents per kWh for a roof stop system or 64.2 cents for a ground mount system which is less expensive to install.
How does this translate: According to this website, I could expect the following:
$70,000 installed sloped roof residential or commercial 11.5 kW* (11,500W) rated Grid Tie Solar PV system based on an annual average of 4 peak sun hours per day:
1. 11.5 kW (11,500W) x .8 (20%) de-rate factor** = 9.2 kW
2. 9.2 kW x 4 peak sun hours/day = 36.8 kWh/day
3. 36.8 kWh/day x 80.2 cents/kWh = $29.51 /day revenue
4. $29.51 x 30 days (x365/12 method) = $897.60 average per month income or $10,771.20 annual revenue.
Now let’s say I have no money and need to finance the cost 100%. Canadian banks are now seeing the merit in lending money for this investment. It’s a guaranteed return for 20 years, remember? So if I went to the bank and borrowed $70,000 at an average rate of 5% paid off over 15 years, my cost would be $552.00 a month or$6,624.00 a year. Gosh, I could even pay down my loan each year to pay it off faster. We’d have more than enough to pay our entire hydro bill and still have money left for increased insurance.
If I paid it off over ten years, it would cost us $8892.00 a year.
Hmm. On top of this, my house would have an increased value every year that goes by. After my system is paid off, I’m REALLY making some money. I’d have no maintenance, no tenancies to deal with, an increased property value …
Here are a few of the sites I’ve been reading:
Ontario Ministry of Energy has a useful website explaining the use of residential solar energy systems http://www.mei.gov.on.ca/en/energy/index.php?page=solarpv_res
TD-Canada Trust Financing: http://www.tdcanadatrust.com/renewableenergy/homeowner/
Renewable Energy Technology Site: http://www.retpower.com/return-on-investment
Ontario Power Authority http://microfit.powerauthority.on.ca/
COLLUS (Collingwood Utilities) http://www.collus.com/feed-in-tariff
So tell me, what am I missing?
Update: We did it – we went solar! Read about it here.