Should I assume a solar lease?

[silversaver]

Thanks for all of your ideas. We were looking for about 2 months - we do plan to stay forever but you never know and I am not certain I want to be in the seller's position in the future. Its pretty close to being our dream home but yes we could walk away and start looking again. We are not obligated to assume the lease per the purchase terms. The lease does have early buy-out provision but its $72K during year 2 of the lease !!! Ouch !! And yes I am concerned that the system is too big for our needs altho it seems that SDG&E is bent on raising rates again. I like the EV car idea but I don't drive that far. Meeting with my agent tomorrow to discuss scenarios.

I read that as the seller won't do a full buyout because later in the thread, it sounds like some reduction in the home price to partially offset the lease assumption is feasible. In any event, I think the discussion is still productive as this whole issue of buying a home with a lease is being encountered more frequently. Some believe it's a deal-killer, others believe it's simply another factor to be considered in the pluses and minuses of the purchase.

I think we should wait until OP return. Guessing aint do any good

[Ian S]

Hey guys,

There is no need to chip in pro n con, it is pretty clear that seller wants the buyer to assume the lease as part of purchasing the house. It is part of the deal. Take it or leave it type....

I read that as the seller won't do a full buyout because later in the thread, it sounds like some reduction in the home price to partially offset the lease assumption is feasible. In any event, I think the discussion is still productive as this whole issue of buying a home with a lease is being encountered more frequently. Some believe it's a deal-killer, others believe it's simply another factor to be considered in the pluses and minuses of the purchase.

[foo1bar]

Reference removed. The original commenter's item C> made no sense to me as it implied - although hard to tell for sure - that you get nothing for overproduction. .

I didn't intend to imply that you got absolutely nothing for overproduction.
But depending on the lease and the power company getting nothing could indeed be true.
In the adjacent city to mine, if you over-produce by a little you get nothing.
For example if you produce more $ worth of electricity than you consume - you produce $350 at $.35/kwh and consume $250 at $.20/kwh at night.
Then you get nothing.
If you over-produce significantly and produce more kwh, then the excess kwh you get ~$.04/kwh
With leases or PPAs, you'd have to look at the language in the contract as well as what the POCO rules are.

But back to what I said - if you over-size you're producing electricity that isn't something you can use - sure you might get $.04/kwh back from the POCO for it - but that just means you lose less money, not a real benefit.

[silversaver]

Hello everyone! I am brand new and here is my situation. We are in escrow to buy a home in Carlsbad, CA moving from Yorba Linda CA. The new home has solar and it turns out its on a lease - so I am skeptical. Looks like a standard SunPower lease and there are 19 more years left. The system is SPR-327NE-WHT-D with inverter SPR-10001f-240. Max rated at 11.45 kW-DC. Not sure what the AC output is. $268/mo lease with no increasing payments.

In Yorba Linda we averaged 1040 kWh/mo which at SDG&E prices is approx. $273/mo. The Carlsbad home is larger (by 50%) and both homes have the same size pool and similar appliances, etc. The YL home had one energy-gulping AC that we often used as it gets hot there. The Carlsbad home has dual-zone AC and its much closer to the ocean on a hill - so maybe we don't need the AC very much?

The seller uses an average of 1622 kWh/mo with an avg bill of $482 so he saves $ with that system. The seller either couldn't or won't negotiate a buyout of the lease so he wants us to assume it, so I value your input. Moving it to the seller's next home is apparently not an option.

Hey guys,

There is no need to chip in pro n con, it is pretty clear that seller wants the buyer to assume the lease as part of purchasing the house. It is part of the deal. Take it or leave it type....

[foo1bar]

A) Qualifying for the lease is a pretty basic thing...it's credit score based and nothing else. If you qualified to buy the house, there shouldnt be an issue qualifying for the lease.

And yet there are articles about how that IS a problem for sellers that their buyer didn't qualify.

You're paying 3X probably of what the house actually costs over 30 years.

Only people paying 9.5% rate would pay 3x.
And I don't know anyone paying that. I think low 4.x% is typical rate right now.

And you're paying X amount more when you finance your car.

I paid 0%APR for 3 year loan on my car.
But IIRC I gave up $250 incentive for that - so you could say I paid 1.01 X for my car to finance it.

Like I've said over and over...yes a cash purchase is better any day...but a lease is still much better than not doing solar at all.

A lease when you're moving in 1-2 years is much worse than not doing solar at all.
A lease when you're staying put for 5+ years is better. At that point you've gotten some value out of it.
But looking at this lease ($268/month over 20 years) it seems a HELOC loan or even a personal loan would have been a even better option if the solar purchaser didn't have the cash.

[foo1bar]

A> You presumably qualified for a mortgage so how hard can it be to qualify for the lease.
B> You assume the buyout but if he takes over the lease, it's $61K financed over 19 years.
C> This doesn't make sense to me. If it's undersized, that's frequently the best bang for the buck. If it's oversized, he'll still get some value out of the overproduction.
D> If he takes over the lease preferably with some compensation from the seller, what's the big worry? We're talking $268 a month most or all of which he'd probably be paying to the electric company instead of SunPower. And it's most likely a $800,000 - $1,000,000 purchase. Why all the angst?!!!

If the home is to the person's liking in other ways, then logically, I don't see why the lease would kill the deal. But, as someone who would leap at any chance to gain an advantage in negotiation, I, as a buyer would of course use it as a bargaining chip.

A - qualifying for the lease is NOT guaranteed just because you can buy the house. There are many many many options for buying a house. IF you're using standard 30y fixed mortage and qualify for the best rates, then *probably* you qualify for the lease assumption. BUT it's not guaranteed and is one more credit application (which probably will show up as a credit inquiry on your credit report and drop your credit score a little.)

B - OK - $70k or $61k over 19 years - either way it's more than the system is worth.
$268/month for 19 years ($61k) would be a loan for $44.5k at 3.5%

C - With either under or over sized system you would be better off if the system wasn't there, and you bought a new system yourself that was sized correctly. If oversized, you probably get $0.04/kwh which is often about break-even for a purchased system but I'm sure is a loss on a lease system like this. (Cost per kwh over the life of the system I'm guessing is $.06-$.08/kwh, but maybe it's in a sunny place and will be better than that)
Under-sized is at least a little better news - with that you're paying the power company less than you would otherwise.

D - If it's *with compensation* (ie. lower price to deal with the extra crap) then I'm willing to listen. But if it's choice between two houses, one with a solar lease, the other without, my default would be to take the one without. If I want to get into that kind of lease myself a year later, I still have the option to do that. (And if I want to purchase a system outright which is my general preference, I can do that too)

[Ian S]

The seller needs to buy it out, included it in the deal, and let the new owner deduct the interest paid from his taxes and not get screwed.

...done.

Unless the seller is desperate, I doubt they'd agree to that. Seller would be better off not to transfer the lease and just keep making payments on it. After all would you rather pay $71k up front or $61k spread out over 19 years?

The buyer has been looking for 2 months and it's close to a dream home. If he can knock $20-30k off the home's price and take over the lease in exchange, I think it would be fair to both parties.

[Alisobob]

The seller needs to buy it out, included it in the deal, and let the new owner deduct the interest paid from his taxes and not get screwed.

...done.

[Ian S]

You must have $20k to burn.

No, what I have is a compelling argument for the seller to reduce his selling price by $20k.

[J.P.M.]

Reference removed. The original commenter's item C> made no sense to me as it implied - although hard to tell for sure - that you get nothing for overproduction. I thought I made it clear that there was at least some compensation. I don't think I implied it was much let alone ideal in that respect.

Look, ideally, this home would not have a leased SunPower system that's only 1 year in. But few homes are exactly the way buyers might want them to be. A wise buyer looks at the whole picture. And frankly, having the equivalent of a $40,000 solar system financed over 19 years would be no more important to me than if I had to do $40,000 right away in renovations to get an $800,000 home the way I liked it. It certainly gives you a bargaining chip as well: if you can get the price down a few percent as a result, that's great.

Ian: Thank you for the clarification.

J.P.M.

[Ian S]

Ian: On your comment to C above: If you are referencing my comment of my understanding of how excess production is compensated by SDG & E, infer as you pleasefor your own use, but also please do not put more into what I wrote than I put there myself and imply a different meaning to my opinion by taking what I wrote out of context.

For the record, I think such payments/carryover make any poor economic sense. They are little more than a bandaid on the $$ hemorrhage of oversizing.

Also, along with all the other reasons I think leases almost always suck, and they're a shortsighted poor choice, I see no sense in paying a lessor for system capacity that I will never need.

Reference removed. The original commenter's item C> made no sense to me as it implied - although hard to tell for sure - that you get nothing for overproduction. I thought I made it clear that there was at least some compensation. I don't think I implied it was much let alone ideal in that respect.

Look, ideally, this home would not have a leased SunPower system that's only 1 year in. But few homes are exactly the way buyers might want them to be. A wise buyer looks at the whole picture. And frankly, having the equivalent of a $40,000 solar system financed over 19 years would be no more important to me than if I had to do $40,000 right away in renovations to get an $800,000 home the way I liked it. It certainly gives you a bargaining chip as well: if you can get the price down a few percent as a result, that's great.

[Alisobob]

You're missing the point that it's essentially financed for 19 years. Do you also object to getting a 30 year mortgage on your home because you wind up paying double for it?

solar64.JPG

After the tax break, your effectively financing $31k.

Heres the payment schedule, and the total amount paid back.

You must have $20k to burn.

[J.P.M.]

A> You presumably qualified for a mortgage so how hard can it be to qualify for the lease.
B> You assume the buyout but if he takes over the lease, it's $61K financed over 19 years.
C> This doesn't make sense to me. If it's undersized, that's frequently the best bang for the buck. If it's oversized, he'll still get some value out of the overproduction according to J.P.M.
D> If he takes over the lease preferably with some compensation from the seller, what's the big worry? We're talking $268 a month most or all of which he'd probably be paying to the electric company instead of SunPower. And it's most likely a $800,000 - $1,000,000 purchase. Why all the angst?!!!

If the home is to the person's liking in other ways, then logically, I don't see why the lease would kill the deal. But, as someone who would leap at any chance to gain an advantage in negotiation, I, as a buyer would of course use it as a bargaining chip.

Ian: On your comment to C above: If you are referencing my comment of my understanding of how excess production is compensated by SDG & E, infer as you pleasefor your own use, but also please do not put more into what I wrote than I put there myself and imply a different meaning to my opinion by taking what I wrote out of context.

For the record, I think such payments/carryover make any poor economic sense. They are little more than a bandaid on the $$ hemorrhage of oversizing.

Also, along with all the other reasons I think leases almost always suck, and they're a shortsighted poor choice, I see no sense in paying a lessor for system capacity that I will never need.

[Ian S]

Honestly I won't be willing to buy any house with a solar lease or PPA.

Stating that so absolutely is irrational IMHO. Would you really refuse to buy a house with a prepaid lease? What if you had two similar homes, one of which had decor not to your liking and would cost $100,000 to redo. The second had decor to your liking so no redo but had this O.P.'s same 19 year solar lease with $268/mo payment that would otherwise be going to the POCO? You'd really reject the latter simply because of the lease?

[Ian S]

Seriously?

So if I'm looking at a house, and they have a solar lease, as a buyer
A> I have to qualify to assume the lease
B> I have to pay $70K for a system that would cost me $30K to have installed
C> the system is likely oversized or undersized for me (which means I either pay extra to the POCO for power if it's oversized - or I pay extra to the leasing that I get no benefit from if it's undersized.
D> It's one more thing I have to worry about in what's very likely the biggest financial transaction I'll do in my life.

A> You presumably qualified for a mortgage so how hard can it be to qualify for the lease.
B> You assume the buyout but if he takes over the lease, it's $61K financed over 19 years.
C> This doesn't make sense to me. If it's undersized, that's frequently the best bang for the buck. If it's oversized, he'll still get some value out of the overproduction.
D> If he takes over the lease preferably with some compensation from the seller, what's the big worry? We're talking $268 a month most or all of which he'd probably be paying to the electric company instead of SunPower. And it's most likely a $800,000 - $1,000,000 purchase. Why all the angst?!!!

If the home is to the person's liking in other ways, then logically, I don't see why the lease would kill the deal. But, as someone who would leap at any chance to gain an advantage in negotiation, I, as a buyer would of course use it as a bargaining chip.