PPA vs. Owned Solar for Rental Properties: Which Wins for Landlords?
There is no universally right answer — only the right answer for *your* hold period, tax situation, and cap rate. Here's the cleanest way we've found to think about it.
Part of our guide to power purchase agreements (ppa).
The two clean options
There's an entire industry of hybrid structures (lease-to-own, prepaid PPAs, ESAs), but for rental property owners, most decisions come down to:
- PPA: the owner does not buy the equipment. A third party owns the system; you keep the difference between the tenant rate and the PPA rate. That margin depends on the tariff, the PPA rate and the escalator, so model it per property.
- Owned: You (or your LLC) buy the system, often via a CRE or solar-specific loan. Capture 100% of the tenant revenue. Take depreciation. Carry the maintenance.
When PPA wins
- You're planning to sell or refinance in the next few years. There is little point owning long-lived equipment you will not hold.
- Your cost of capital is high. Every dollar of capex you avoid is a dollar earning your real estate return instead.
- You don't want to be in the solar business. Someone else handles inverter swaps, panel warranty claims, and monitoring.
When owned wins
- You have a long hold horizon and want the value after payback.
- You may be able to use depreciation and the federal credit against your tax basis. The credit rate a project earns depends on its construction dates, its labour and sourcing compliance and any bonus it qualifies for, and the claimant must own the asset. Solar and storage run on different deadlines; see our Section 48E summary and confirm with your tax adviser.
- You're optimizing for building value at exit. An owned, paid-off solar asset shows up cleaner on a cap-rate appraisal than an encumbered one.
The decision matrix
| Factor | Lean PPA | Lean Owned |
|---|---|---|
| Hold period | Shorter | Long |
| Available capex | Limited | Strong |
| Tax appetite | Low | High |
| O&M tolerance | None | Some |
| Building value goal | Cash flow now | Max exit value |
The hybrid most people miss
There's a third path: PPA now, buyout later. Many PPAs include a fair-market-value buyout option after the provider's depreciation period. You start without buying the equipment, then convert to owned once the asset is de-risked and the tenants are billing reliably. Whether it beats either clean option depends on the buyout terms, so we model it alongside them.
What we actually do
At NOI, we quote both side by side in your initial assessment. Same kWh production, same tenant rate, two financing paths. You see five-year and ten-year cash flow, exit-value impact, and the post-tax NOI lift — then pick. No installer is pitching you a single product.
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