These days, many homeowners are installing solar panels, thinking about them, or envying their neighbors who already did. In areas that get more annual sunshine than they do overcast skies, solar panels are a dream for anyone who consumes and pays for electricity. In areas all across the country, solar panels are being offered in many new master-planned housing communities, they are being bought by the ones who can afford them, but most are being either financed or leased. Financing and leasing have long term consequences any homeowner should consider before you have them installed on your house. Potential home-buyers should also be aware of the risks they take when buying any new or existing home equipped with solar panels.
Solar Panels can be a Great Idea, Done Right
I’ll start up front saying, if you know you’ll be living in your home for the next 20 years, solar panels can be a great idea if you get the right system. It needs to generate more electricity than you use, and ideally, should result in a credit from the electric company for your extra juice. In some cases, these refunds will actually lower your cost of ownership, particularly if you’re out of the house most of the day and generate more electricity than you use.
Problems with Buying
If you buy your solar panels straight out, you’re paying in full – up front – for the total cost, and you immediately own all the equipment. This method puts you in immediate control of everything, good and bad, and also will take years of offset to your electricity bills to break even on the investment. If you have the cash, you might be able to negotiate an attractive price, but if you don’t have that kind of cash on hand, there are other options. But if you do, you might be able to afford a “maintenance program” or “extended warranty” on the system. Maintenance packages of any kind are always an attractive proposition. They don’t give them away for free, so even if they do increase your total cost of ownership, you’ll probably save some money down the line on repairs if you do have a breakdown during your maintenance period. If you decide to sell the home before you reach you “break even”, obviously you’ll take a loss, and nobody likes to lose money. In either case, if you sell the home – depending on the age of the system, and whether or not it has become obsolete – it could be seen as either a positive or a negative to your prospective buyer. If you happen to be unfortunate enough to foreclose, well, again it’s just money down the drain.
Problems with Financing
Financing is a route that more than thirty percent of solar panel customers take. Financing pretty much involves the same process as qualifying for any loan: they run your credit, give you an estimate of your usage (consumption) vs production (savings), issue you loan docs, then start taking your monthly payments. Like any loan, you’ll have a monthly payment, a due date, and, possibly, late penalties. Financing timeframes can run from five to twenty years, and there’s always an interest charge. And just like buying, you’ll probably have the option to add a maintenance package into the loan. Financing is, again, good for someone who stays in the home beyond their “break even” period, but your credit score is exposed to jeopardy if you run into payment problems and can seriously interfere with efforts to sell the home. I’ll get into these problems shortly.
Problems with Leasing
As always, if you generate more electricity than you use, and plan on staying in the home for many years, leasing is as good as an option as any. In fact, for homeowners who don’t have the cash for a downpayment (to get a loan) or the pile of cash it takes to buy outright, and for as much as fifty percent of solar panel users, financing can be the only way into the Solar Club. When you don’t own the equipment, there are certain inherent benefits of NOT being the equipment owner. The owner (lessor) owns the equipment and is required to handle any and all maintenance or repairs. If you have a breakdown, or if your inverter (the big box they install on the side of your house that connects to your panels to the main circuit panel) craps out, it’s not your bill to pay. Also, if your solar provider does a good job of insuring that your system generates more electricity than you use, the annual rebate from the power company may be enough to deeply cut into your annual leasing expense, making it even cheaper to lease the panels. But similar to both aforementioned forms of acquiring your panels, if you sell or foreclose the home before the lease term is up (usually 17 to 20 years), you’ve got problems.
Don’t Make a Move!
If you are even remotely thinking of moving in the next twenty years, you’ve got to be aware of the benefits and risks of solar panels, and to make your best educated decision on which way of getting them is best for you. If you have the slightest possibility of moving, be aware that you’re taking some risks that may impact you in any of the three of the above mentioned cases. Now, in the beginning, all homeowners envision their solar panels generating great profits, both on a monthly basis by generating more power than they consume, and/or increasing the value (and sales price) of the home if/when comes time to sell. In a unicorn world, the panels would pay for themselves, always increase your home’s value… and never go out of date. Which brings me to the list of potential problems.
In today’s modern era, five years is old for a computer and geriatric for a cell phone. Double that age and your device probably isn’t even being supported by the manufacturer any more. Point being, technology is advancing at an extremely rapid pace. Federal and private funds are being pumped into solar research constantly looking for the next best idea: one that will generate more electricity per square inch, and cost less to manufacture. It’s estimated that in the next ten years, solar technology will more than double from today’s levels. Today’s equipment will be ancient in ten years. In order for a buyer to believe that your panels are worth even one extra penny in the sales price, the newer the system, the better. As the equipment gets older, the risk runs higher for it to be outdated or to, possibly, become obsolete at any time. Buyers have to determine whether or not they think the system is too old to justify making years’ worth of payments on knowingly, or potentially, obsolete technology. In some cases, buyers actually walk away from the table if they think they aren’t worth the additional cost.
If you foreclose, both financing and leasing have similar, but slightly different problems. If you foreclose, your home loan will give you the biggest ding on your credit. So letting the loan for the panels go too might not feel like the worst of your worries. But if you don’t want to hurt your credit, if you sell, you’ll have to sell the home “subject to” the existing solar panel loan, and the buyer is likely to have to be approved for a new loan by the solar lender, or get their own loan from another source. Make no mistake, solar panel loans are not generally “assumable loans”. If you end up selling the home without having the buyer qualify for their own loan, you’re probably going to get stiffed by your loan one way or another. Some solar lenders have early termination penalties, in addition to having to pay the balance of the note, so read your fine print carefully. If you choose to default on the loan because of the bigger credit issue of the defaulted home loan, I’d advise you to get a free consultation from a bankruptcy attorney, just to see if you’d get any relief or not. Similar to the loan, if you have a lease and let your home foreclose, it’s likely you’ll pay an early-termination penalty or a settlement balance for the lease, the solar company will come remove all the equipment, and it’s still possible the whole thing somehow impacts your credit too. You can’t presume you’ll have the option for the next buyer to taking over the payments because they can’t unwillingly be forced into accepting your outdated lease terms and possibly many months worth of arrears.
Proceed with Caution
So no matter which method you choose, take great care in making your decision. What’s right for your neighbor might not be right for you, so give your own personal future careful consideration before you choose. For myself, I have solar, and I’ve experienced some of their advantages and disadvantages. Know your facts well in advance, study (and insure it’s accurate) the information from the solar company that tells you how much electricity the system should to generate, compared to how much you typically pay for electricity, and if you’ll earn any money back from it. Think about it overnight (or a few of them) before signing the contract. Consult your trusted REALTOR for insight on how it may or may not help or hurt a future home sale, even if it only is a remote possibility. Reason being, if something happens in your life that you didn’t plan for or expect and you end up having to terminate your lease agreement early, there’s no perfectly clean way out. If you end up having lumps, take them with a spoonful of sugar and don’t say I didn’t warn you.
Consult Your Real Estate Professional
If you have questions about solar and want to know how it may affect your home’s value, contact us for a free consultation. We’d be happy to give you a market analysis, checking the current and recent sales prices for homes like yours, both with and without solar. Management 1 Realty & Property Management is experienced in real estate investment counseling and financial advisement and would be glad to discuss your plans with you. We look forward to making you Number 1 at Management 1 Tri-Cities.