Between bundling solar into a refinance, getting a solar loan, or paying cash we look at these scenarios and discuss what the ROI is for each and which ones provide the best and quickest ROI

In today’s blog we’re going to talk about a very popular topic, which is, what is my ROI for doing solar.

And unfortunately it isn’t just a straight out answer as there’s a couple factors to determine the accurate ROI for solar.

It’s not just as simple as saying two years, five years, or seven years, etc. There’s a lot of factors that go into this that I’m going to address in this article so that you understand what it’s going to be because what it is for one person is not going to be what it is for the other person.

The first and most important part is determining how much electricity you’re using, how much solar you need, and what direction your roof faces and how many panels are needed in order to offset your consumption.

As we have covered in our other articles regarding the cost of solar, if you have a great Southern facing roof, you’re going to need less panels and will cost less than if your roof faces east and west. Reasoning being is that those directions don’t get as much sun so it’s not going to generate as much. So there’s a lot of factors that go into the size of a system and the cost of the system to go solar.  On top of that, EVERY single company is going to be different with their pricing.

If you look at our other blogs/videos, we talked about what is the cost of going solar and how much solar you need. Once this has been done you’ll now have the cost determined for going solar (also depending on the company you are using).

Regarding determining the ROI, the next step is you have to look at what your current bill is right now.

An important thing you have to know when you’re looking at your current bill is it’s not going to stay the same as the utility companies raise their rate almost yearly.

When you’re calculating the ROI, you’d have to take into account that on average, your electric bill is going to increase 4% a year which is the average depending on where you live.

Some places it’s a lot more in 2020. Xcel in Denver went up 6.5% over 2019 rates just to give you a little bit of perspective of how much it could go up every single year.

They are limited to 10% raise per year, what the public utility Commissions can raise it by, but every single year that can change at least a little . So no, it’s not what you’re paying now that you have to look at in terms the ROI, it’s what you will be paying over the upcoming future as well.

 So let’s get back to the ROI, since now you have the cost of your project.

There’s two ways when you’re looking at your ROI. But be clear THIS IS NOT A TYPICAL ROI CALCULATION.

We will start by looking at ROI if you’re paying cash; also know that most companies will give you an additional cash discount if you’re paying cash.

When paying in cash, it’s a very simple calculation, counting for 4% increase in electric rate, how many years until the entire cost of the project is recouped.  BUT, also take into account that you currently get 26% back from the project on your federal taxes, so that shortens the timeframe as well.

That’s how you can calculate what your ROI will be if you pay cash.

So if you are paying $100 a month for electric, and have a Southern facing roof and paying cash, lets say the solar system needed to offset your bill will cost $20,000. After the 26% tax credit, the cost of the system is $14,000. In addition you will get around $17-18,000 increase in home equity. The ROI for this would be just 9 years when the total of utility bills will then exceed exceeding the total cost of the system. However, there is then another 20+ years of not having to pay the electric bill. (not including increase in equity)

After 20 years, the home will have saved $18,000 by not paying an electric bill in years 11-20. (not including increase in equity)

After 30 years, the home will have saved over $47,000 total by not paying an electric bill between years 11-29. (not including increase in equity)

However, one of the most popular ways to go solar is it doesn’t require any money down. And you can make monthly payments depending on various options.

There are solar loans, there’s credit unions, you can also bundle it into your mortgage if you refinance. So how you’re choosing to pay for it determines what your ROI is going to be.

If you bundle it into your mortgage. The second it goes on in your home, you’re getting an increase in equity, you’re not paying anything out of pocket, you get your solar tax refund, and depending on the rate you are getting your monthly payment often can and will be lower after the bundle than your previous payment was before adding in the electric bill.

The ROI on this is immediate. The second the system is installed it has paid for itself and then some. Since you are already paying less than you were previously for your mortgage AND electric bill.  Adding in the equity increase and the tax credit, the ROI gets even better after that.

If you’re going to pay $150 to the utility company every month, or you pay $150 into your own pocket, while already getting the immediate increase in equity, and a lot of cases, the second that solar goes on your home, it is going to be an ROI positive almost regardless of which loan options that you choose. Assuming you didn’t get ripped off by the solar company and overcharged for the system.

In this scenario of a mortgage bundle, we will stay with the $100 a month for electric, a $350k loan at 3.5% and have a Southern facing roof.  Bundling into the mortgage is the same as paying cash, so the solar system needed to offset your bill will cost $20,000. After the 26% tax credit, the cost of the system is $14,000.  However, this amount is bundled into the mortgage.  And with current rates, lets say we can lower the rate by 0.5%.

Current mortgage would be $1,572 a month plus $100 for electric to a total of $1,672 a month.

After the refi, lowering to 3%, the total for both the mortgage AND solar is $1,563. And an additional $5,200 back from the federal tax credit, AND paying over $100 less a month.

By the end of year 2, the home will have saved/gotten back at least $7,800.

By the end of year 5, the home has save over $15,000

All of this is without putting ANY money down with this option and not including increase in equity. Which taken into account given an even better ROI the minute the system is installed.

 

 

Now obviously, there’s a lot of factors in here if you do a solar loan through companies like LoanPal, Mosaic, Green Sky, as those are going to be a little bit different. Sometimes the payments are higher monthly, but that’s where it really comes down to your specific situation. So the ROI with these options are when the monthly/yearly cost for the loan is less than the cost of getting electric from the utility company. Taking into account that most electric providers increase their rates at 4% a year, and depending on the cost of the system which varies from company to company, that timeframe can be anywhere from 6 years to 11 years. Again, the most crucial part of this is what the company you are getting the quote from chooses to charge you for the system. There could be a massive difference for the same system size, which obviously changes the ROI, so be cognizant that the cost is the biggest determination of the ROI and each company’s ROI/cost will be different.

And one of my favorite things to do is look at the various options that people have been given and look at what’s going to serve you and how long it takes to get a full ROI. Many companies will give you false or misleading/inaccurate ROI timeframes, or propose an undersized system that will pay off sooner but not cover all your consumption, leading to additional cost paid to the utility company.

If you have a quote that you would like to get explained by someone other than the sales rep from the company that quoted it to you, we would be HAPPY and honored to look at it and answer any questions or explain in detail items that are often not covered and occasionally misleading.

You can go to www.ConsciousEC.com and either send a message wanting support with a quote, call us directly at 720-235-8302, or click get a quote now and either virtually or in-person we can show you the various ways you can pay for your system includes bundling into a mortgage or refinance, whether you do an option through a credit union or a HELOC, or a solar loan or pay cash, we’ll look at all these different options and look at what your ROI is and which one is best for you.

RECAP: what is going to give you the quickest and best return? Bundling into a refinance, second will be a solar loan. Just know that going solar, in most cases will have an immediate ROI, the second gets installed on your home.

Over the next 25 to 30 plus years, you’re going to have and own your electricity with a warranty, that will continue to work even beyond 30 years.

Every single month, you get the choice….Who are you going to pay? Are you going to pay your money to the utility company, throwing it away, getting nothing back? Or pay yourself and using any of these ways to pay for the system and get the increase in equity and invest into yourself?

Why would you buy a house versus leasing for the same reason that every single month you make those payments, you’re building your equity and you’re paying yourself back?

You’re paying the money anyways, so the best choice is to invest it in your property and pay yourself instead of the utility companies.  And with the tax credits still available through 2021, there likely won’t ever be as good a time as now to benefit from going solar and get a short to immediate ROI.

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