In the early days of solar (2001 – 2007) solar leases were a concept kicking around MBA programs and in boardrooms, but had yet to reach the living rooms of average Americans. If you wanted to go solar before 2007, you had very few financing options available. You could write a check or take out a bank loan (a home equity line of credit being the most popular during the credit boom of the mid-2000s), but that was it. Additionally, the solar investment tax credit (Solar ITC) was capped at $2,000. Solar was expensive and the incentives weren’t too enticing.
Then in 2008, solar leases and PPA’s (power purchase agreements) took the market by storm when traditional financing methods dried up in the wake of the Financial Crisis and Congress’ decision to lift the cap and make the Solar ITC a straight 30%. Combined with rich solar rebate programs in California, New Jersey, and a handful of other states, solar leasing companies could now offer monthly payment plans at a significant discount over local electric companies. Business boomed!
From 2008 through 2012, solar leases and PPAs enjoyed rapid growth and at one point over 70% of all residential solar systems were installed using this financing method. Then in 2013, something happened – traditional credit began to loosen and it now began to make more sense to buy solar rather than lease it since the loan payments often were equal to or less than a comparable lease payment and in many cases qualified for additional taxes incentives not available to leases. Many solar customers came to understand that if the cost was the same or less, buying and owning solar made much more sense than renting or leasing.
Let’s look at buying versus leasing in a side by side comparison:
|Who gets the 26% Solar ITC?||You||Leasing Company|
|Typical ROI or payback period||5 – 7 years||Pay for 20 years & then renew lease or purchase for fair market value|
|Payments tax deductible?||Yes, if Home Equity Loan or HELOC||No|
|Payment escalator (increases month payments every year)||No||Yes – often 2.9% annually|
|Equipment Warranty – Panels||12-25 years workmanship, 25 years production depending on manufacturer||20 Year Warranty|
|Equipment Warranty – Inverter||12-25 years workmanship depending on manufacturer||20 Year Warranty|
|Complications with Home Sale||Rarely (unless installed badly in a highly visible place)||There are many documented cases of real estate deals going sideways once the solar lease is disclosed. Your mileage may vary.|
|Service Plan||Choose a good contractor and they’ll perform any warranty work. Quality manufacturers will assist with warranty related issues||Sounds good, but all the leasing company is doing is putting a marketing spin on warranties you’d receive if you bought the system|
|Solar Increases Home Value||Yes, real estate appraisers will give you a higher home appraisal when you own solar||No, real estate appraisers do not consider leased solar when conducting appraisals|
It’s amazing that solar leasing is still as popular as it is considering solar loan payments are often equal or lower than lease payments, are often tax deductible, and provide greater savings than leasing. In a recent Consumer Reports study, buying solar panels with cash saved a NJ customer $60,000 over 20 years while a purchase with a loan saved the same customer $40,000. Savings with a leased solar system over the same period? A mere $20,000.
Thus, per Consumer Reports, a customer could save as much as 3x more money paying cash and twice as much money buying solar with a loan versus leasing!
More importantly, when you buy solar panels for your home, they are like any other improvement. They lower your home’s operating costs while increasing its value and are attractive to potential home buyers. Better for you, your home will appraise higher and therefore, you’ll potentially make more money on the transaction when you decide to sell.
What about solar leases? Fannie Mae issued an update to its Buyer’s Guide in 2014 that essentially did a couple of things to solar leases:
- Solar leases cannot be included in home appraisals
- If you are buying a home with a leased system:
- The solar payments must be incorporated into the buyer’s debt to income ratio
- The leasing company must carry third party insurance in the event the solar system damages the property
Selling a home is tough enough. Why layer on additional complication when today’s traditional home and solar loans give you everything the lease offers with far greater lifetime savings, increased home value, and less hassle.
At Flex Advisers, we advocate for solar ownership and our solar loan program is among the most innovative in the business today. Call us today to see if you qualify for one of our industry leading solar programs.