Is Solar For You? Lease, Finance or Purchase? Here Is What I Did!
Maybe you’re thinking about installing solar on your house, or maybe you’re looking at buying a house with solar. So many people I talk to get so confused on the different solar agreements and which one they should choose, so I’m going to walk you through my thought process and see if we can figure out what might be best for you.
Hey I’m Kyle Winn and if you’ve never seen any of my videos I help people just like you buy and sell homes here in Southern California. Now I’m here at my home, in my backyard, and I actually just had solar installed on my house, like they just finished this morning. And there was an army of people here walking all over the roof for a few days which was pretty loud and disturbing and I was kind of annoyed, but then I reminded myself of why I’m doing this. I know so many people wonder if solar is right for them and it took me a lot of research to figure out what I wanted to do, how many panels did I need, did I want to lease the panels, finance the purchase of the panels, or just pay for the panels outright.
Now this video is going to be especially useful for you if you’re looking at a new home here in Southern California, because all new homes are required to have solar panels.
So you may be wondering why I even started thinking about installing solar panels anyways. Well to give you some background on that, I live in a house that is close to 2000 square feet, which isn’t a massive house, but it is a split level home with vaulted ceilings. So there’s probably more air to heat and cool inside my house than the average 2000 square foot home. Also my home was built in the mid 80’s and although I have dual pane windows, they were old and not very efficient, and when the sun shines through the windows you can really feel the heat. So knowing all that, you can imagine it takes quite a bit of energy to cool this house in the summer when it’s over 100 degrees.
I’ll tell you my exact situation. You already know that my house has a lot of volume to heat and cool, and that my windows are not very efficient, and since I knew all of this I only kept the thermostat set at 78 degrees all summer long. I don’t know about you but that is barely cool enough for me to be comfortable enough to fall asleep. So I was trying to take it easy on the a/c so I didn’t end up with a crazy electric bill, but that didn’t work out too well because this summer I ended up with two months where my bill was nearly $600! That’s mostly my a/c, because I don’t have a pool, or a spa, or electric vehicle charger - none of that! So after those two painful months I decided to take a closer look at solar.
I started by contacting a few local companies to inquire about their processes, costs, and installation timeframes. I was curious to understand how they determined how big of a system I was going to need, and what they needed to see was 12 months worth of my electric bill to understand how much energy I use on an annual basis. With that information they designed a system to produce a little more energy than my annual consumption to account for uncommonly extreme weather, and to account for the fact that panels become less efficient over the years.
So one agreement I learned about was a lease that is known as a power purchase agreement. With this type of arrangement I learned you pay for whatever power is produced, but you don’t pay for the system itself. So you might sign a 20 year power purchase agreement and the solar company will install all the equipment on your home at no cost to you, and you only pay for the power that is produced. If you decide that you would rather own the system you may have the opportunity during the lease term or at the end to buy out the lease and own the system permanently. The cool thing about this type of lease is that the cost to purchase the power was less than what the electric utility is charging, at least when I looked into it. However, the cost for power did increase like 2 or 3 percent per year. The only thing I didn’t like is that I had to pay for all the power produced, even if I didn’t use it, so I started to explore buying a system.
When it came to purchasing a system I quickly decided that paying for the system outright was not an option for me. One because I wasn’t ready to write a check for tens of thousands of dollars, and two I learned that they had some reasonable financing options. I won’t bore you with all those details, but ultimately I decided on financing my system for 20 years. Now I know some of you are thinking “there’s no way I would do that! I won’t even be in this house for 20 years!” Well neither will I, but here is how I came to this decision.
My average electricity bill over the course of a year has been just over $290 per month, and financing this system is going to cost me $175 per month for 20 years. So we can say the total cost is $42,000 over 20 years, but the actual payoff is less since that number includes 20 years of interest. Now I plan on being in this house for 5 more years, so I’m saving $115 per month for 5 years, which is $6,900 that I would deduct from the total cost. Also, on most appraisal reports I’ve seen on homes with solar I’ve typically seen appraisers give $25,000 or so in value to a home with solar vs a home without solar, so let’s deduct that from my cost. Lastly, because I’m buying a solar panel system I’m eligible to receive a tax credit, not a tax deduction, a tax credit equivalent to 26 percent of the cost of the system, which for me will save me $10,920.
So if we start with a $42,000 system, assuming I pay all the interest over 20 years, and subtract $6,600 in monthly savings over 5 years, the $25,000 in value I just added to my home, and my $10,920 tax credit, we end up with negative $820. That means over 5 years I’m being paid to own this system, and any time after that I’m being paid even more. Or instead of being paid I should just say that’s what I’m saving. So in my scenario the break even point for this system is about 5 years, but it’s probably less because I’m locking in a $175 monthly power bill and over the next 5, 10 and 20 years I can just about guarantee that utility rates are going to increase. So what used to be an average monthly bill of $290 for me, might eventually be $350, $400 or $500. So in the long run financing solar made the most sense to me.
Now if I do decide to sell my house before the system is paid off, I basically have two options. One, I can pay off the system completely upon the sale of my home, and buyers would have free energy. Or the other option is for the buyer of my home to assume the financing on my system and finish making the monthly payments until the system is paid off. In reality I’m going to pay for it either way because whether I pay off the system or the buyer assumes the financing will be accounted for in the agreed upon sales price for my home.
Well I hope this helps you understand solar at least a little bit more. Now I’m far from an expert but I want to share my experience with you. If you have any questions about this video, or any questions about buying and selling real estate, drop a comment below, or reach out to me through email or phone.
Any questions? Reach out to me directly at Kyle@SoldByKyleWinn.com or by calling or texting me at 951-852-9980 any day of the week!