Q:  Everyone seems to think that we should buy, not lease, our next building.  What is the best way to make this decision? 

A:   While every case is different, there are certain underlying factors that drive the best decision in most buy-lease scenarios. These factors are the availability of capital, the alternative use of capital, and the anticipated growth of the firm.

To properly compare these factors and their results, a cash flow analysis should be prepared. This cash flow analysis will show the inflows and the outflows during the desired holding period. Each of these cash flows is then discounted back to its present value ($1.00 today is worth more than $1.00 spent ten years from now.) In this way, any number of lease and buy scenarios can be compared to one another in a very objective mariner. As an example, a company may compare a ten-year lease with a purchase. The lease in a cash flow analysis will usually reflect a steady series of oufflows that increase with each passing year. A purchase on the other hand, will show a down payment in the first year, fixed series of outflows each year, representing a constant mortgage payment, and a sale of the property in the tenth year. In each case, certain assumptions must be made, such as a discount rate and market appreciation.

One of the most important factors ... Click here for full article