Should I Lease Equipment For My Home?
Are you planning on leasing some equipment for your home? Maybe a furnace, or air conditioner, or solar panels?
One of the things that I've started to come across lately is home sellers who are leasing equipment for their home. Furnaces, alarm systems, air conditioners, hot water tanks, even solar systems. Well a couple situations I've come across lately with clients may cause you to reconsider.
First, I get it: your furnace quit, and you need a new one; it's not an optional expense, and you don't have $5,000 cash to pay for a new one. So there are companies out there that will offer to lease you one, so you only pay a low monthly fee; that makes sense or does it?
Well, first of all, this can be problematic when selling your home because buyers are not expecting or wanting to assume your lease payment. They've already budgeted for and are shopping for homes based on the monthly payment they can afford, and now you're asking them to add another payment. It's not an easy sell.
It would be like if you went shopping for a new car and you found a car you like, and you can afford it, and then when it comes time to signing the purchase contract, the dealer tells you there's another monthly payment because they had to replace the transmission. What? You assumed when you looked at the car and agreed to buy it that it had a working transmission, which was part of the purchase price of the car. Well, it's the same when someone is buying a house; they assume you have a working furnace, and it's part of the sale price of the home. If not, they expect a discount on the price of the home. They don't want to pay market value and the lease payment of a new furnace, which means you're overpaying.
Okay, no problem, you say; I'll just pay out the lease on the furnace so they won't have to assume it. Great, except do you know how much it's going to cost you to pay that out? Don't assume that because you've already paid $2,000 towards a $5,000 furnace, you will owe them $3,000. The fact is, paying off your lease can be very, very expensive. In fact, a client of ours learned it was going to cost him $8,000 to pay off the lease on his air conditioner even though he had already made three years' worth of payments. He figured his $5,000 air conditioning system ended up costing him $11,000. More than double the cost of the actual unit. Make sure you read the contract before you sign it, and know what the penalty is to pay it out early. If you don't understand it, don't sign it; hire a lawyer if you need to.
Also, calculate how much that $5,000 furnace is actually going to cost you over the life of your payments. You may be agreeing to an extremely high rate of interest. You're probably far better off going to your bank to get a loan or a homeowner's line of credit. The interest rate will be cheaper, and there won't be any penalties to pay it off early. Here's another situation we came across recently that kind of blew me away.
We found a home for one of our clients that had a solar system installed that was leased from the Solar Company. It was only about $50 a month, and our clients could easily afford that; in fact, it would probably save them $50 a month on electricity anyway, so they had no problem with the payment. Unfortunately, their bank did. Not with the payment; they could afford it, but the bank did not want to provide a mortgage because of the solar system, and it turns out other banks did not want to touch it either. Why, I really don't know. I was surprised, and so was our client's mortgage broker; they couldn't understand it either. The mortgage broker did a really good job of shopping around and found them a bank that would fund the mortgage, but they had to pay a slightly higher interest rate. They still went ahead because they loved the house and got a good price on it, but it very nearly cost the sellers a sale.
Now interestingly, a few months earlier, I had sold a home with a solar system, and the bank had no issue, but that's because the solar system was not leased; it was purchased as part of the home when they had it built. So it's not the solar system the banks had a problem with, but the lease. So again, if you're considering a solar system, I would suggest you would be better off buying it instead of leasing it.
Want to learn more DO's & DONT'S when it comes to selling your home? Click here to read our other relevant blogs on resale value!
If you have any questions about leasing equipment or anything real estate related, just give me a call at 780-462-5002 or you can fill out the form below to get more information!