Many of our clients come to us to help them decide if they should purchase or lease their business property. To do so, a firm understanding of real estate value versus business value, as well as a formula for comparing the financial aspects of leasing to those of owning a business property is required.
The best way to compare the value of owning commercial real estate to leasing it is to create a purchase versus lease model, similar to comparisons for other business investments. However, being able to either own or lease real estate makes analyzing financing alternatives more complex. With equipment, options are often limited to loans or capitalized leases, which are both debt equivalents. Therefore, comparisons are based on one factor: rate.
We can also make rate comparisons for real estate mortgages and operating leases. However, the analysis is complicated by the different tax ramifications and the need to factor in real estate appreciation and lease escalations.
In addition, real estate ownership carries a potential opportunity cost.