New Location - Lease versus Own

Okay, we have done all our homework, considered all the associated costs to move your business. Together we have found the ideal location. Now we need to decide if you are leasing or buying the building.
Maybe you are not sure if you have the ability to buy the building. There is a substantial down payment to consider. But remember, there is also a first and last lease payment and damage deposit due the landlord. Think about the lost cost of leasehold improvements, which become the improved value of the landlords property. Think about all the upfront out of pocket. They may be more similar than you first thought.

There are two different methods when calculating lease versus own. They are, Present Value and Internal Rate of Return. We will compare the after tax cost of leasing versus owning using Present Value. If I were helping you, I would calculate both, but for illustration here, I am only providing PV. I have spreadsheets to assist with these calculations, using both methods, and would provide them to your accountant for their verification. There are a lot of assumptions in any calculations like this, so you need the independence of your accountant or attorney to look closely at all the numbers I provide to see if they fit your specific situation.

With the Present Value method, we add all the related income and expenses for each line item in leasing or owning and come to a bottom line, cash flow after tax. Using those numbers, we then select a PV calculation rate, (which equals what you would receive in an after tax investment, or perhaps the after tax cost of capital) We then reduce the after tax cash flow from leasing and owning to its present value. Remember, the cost of ownership, also comes with selling the property at the end. This includes some of those assumptions I was speaking of earlier. We have to assume that we would sell at some point, and include the estimated cost and estimated appreciation associated with the sale.

Whichever method gives us the lowest present value ( leasing or owning ) will be the one that we should select. If you are confused, let me do it for you. Call me.