Lease vs Buy Calculator
Evaluate full lifecycle costs, cash outlays, and asset appreciation between leasing and buying commercial property.
Lease vs Buy Calculator
Compare total financial outlay between leasing and buying commercial property over your holding period
10-Year Financial Outlay Comparison
Total lease payments vs net purchase cost (down payment + mortgage paid minus net equity at sale)
- Year 1 Annual Rent:$120,000
- Year 10 Annual Rent:$156,573
- Equity Accumulated at End:$0
- Down Payment + Debt Paid:$1,543,836
- Year 10 Net Proceeds at Sale:$1,251,694
- Year 10 Future Market Value:$2,419,049
What Is a Lease vs Buy Analysis and Why It Matters
A Lease vs Buy analysis is the fundamental financial framework used by owner-occupiers and business owners when deciding whether to lease or purchase office, retail, or industrial space. Leasing requires lower upfront capital and offers operational flexibility, but 100% of lease payments represent unrecoverable expenses with zero equity build-up. Purchasing requires an initial down payment and ongoing mortgage debt service, but monthly principal paydown acts as a forced savings mechanism while building substantial long-term equity through property appreciation.
The Formulas
Total Lease Outlay = Sum of [ Annual Rent × (1 + Escalation Rate)^Year ]
Net Buy Outlay = Down Payment + Cumulative Mortgage Paid − Net Sale Proceeds at Exit
Net Sale Proceeds = Purchase Price × (1 + Appreciation Rate)^Years × (1 − Selling Cost %) − Remaining BalanceA 10-Year Lease vs Buy Example ($1.8M Purchase vs $10k/mo Rent)
Suppose a company requires an office space for 10 years (Benchmark Scenario: $1.8M Purchase Price, 25% Down, $1.35M Loan at 6.5% Rate & 25-Yr Amortization; $10k/mo Initial Rent with 3% Escalation; 3% Appreciation & 5% Exit Selling Costs):
Loan Amortization Schedule Mechanics (25-Year Amortization Schedule):
The $1,093,836 10-year debt service in Option B is modeled on a $1,350,000 senior commercial loan at 6.50% interest with a standard 25-year amortization schedule (monthly payment of $9,115.30 × 120 months). At the end of Year 10, $303,597 of principal has been amortized, leaving a remaining balloon loan balance of $1,046,403 paid from exit sale proceeds.
Strategic Underwriting Factors: Holding Period Dynamics & Tax Shields
Deciding whether to lease or purchase commercial real estate is never a simple comparison of monthly rent versus monthly loan debt service. The true break-even inflection point is driven by two institutional factors: the planned holding horizon and the tax shield created by real estate depreciation:
1. Holding Period Inflection (3–5 vs. 7–10+ Years)
Short holding horizons (under 5 years) almost invariably favor leasing due to heavy transaction friction: 2% to 4% in upfront financing and due diligence closing costs, plus 5% to 6% in broker disposition fees upon exit. If your business relocates or expands before these frictions are amortized, leasing preserves vital working capital. Conversely, holding horizons exceeding 7 to 10 years strongly favor ownership as debt principal paydown accelerates and property equity accumulates.
2. Depreciation Shields & Cost Segregation
Under IRC §168(c), non-residential commercial buildings are depreciated straight-line over 39 years (residential over 27.5 years). While lease payments are 100% deductible as ordinary operating expenses, property acquisition unlocks cost segregation studies, accelerating 20% to 35% of building components into 5-, 7-, and 15-year MACRS property to generate front-loaded tax shields.
If you are evaluating whether an acquisition price aligns with institutional market norms, check prevailing sector cap rates in our National Cap Rate Benchmarks Master Reference Table, or explore our in-depth Commercial Buy vs. Lease Decision Framework Guide.
Commercial Real Estate Buy vs Lease Decision Framework
A step-by-step financial framework evaluating opportunity cost, tax deductions, capital expenditure risk, and 5-to-10 year hold scenarios.
Frequently Asked Questions
When should a company choose to lease instead of buy?
Companies in rapid growth phases, those needing to preserve capital for core operations, or businesses with uncertain spatial requirements (likely to move in 3-5 years) should choose leasing to maintain capital agility.
What loan options exist for owner-occupier buyers?
In the US, owner-occupiers (occupying >51% of space) can leverage SBA 504 or SBA 7(a) loan programs, which offer down payments as low as 10% with long-term 25-year fixed financing terms.
How is the "Net Outlay" calculated for the buying option?
Net Outlay accounts for equity recovery upon sale: Net Outlay = (Down Payment + Total Mortgage Debt Service Paid) minus (Net Cash Realized from Selling at Exit). Because accumulated equity and appreciation are recovered at sale, net purchasing cost is often far lower than total rent over long horizons.