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Lease vs. Buy calculator

  

Should you lease or buy your business space? That's the question, and your answer can significantly impact your personal wealth. As the graph to the right illustrates, if you purchase a business condominium, in 20 years you could own a half million dollars worth of business property. If you lease at $24,000 per year, you'll have paid a half million dollars in rent (or more with escalating cots), and have nothing to show for it! Which path is best for you and your family?
Lease Assumptions(1)
    
Square Footage
Monthly Amount
Yearly Amount
Gross rent per sq. ft. per month    
$2.00
    
Total unit square footage    
1,000
    
           
Start up Costs:          
Prepaid rent and security deposit    
$6,000
    
Rent payment    
$2.00 sq. ft.
$2,000
24,000
Operating expenses    
$.10
$100
$1,200
Total estimated costs    
$2.10
$2,100
$25,000
           
Ownership Benefits:
Yearly Amt.
x  Estm. Tax Rate
      
Rent expense
$24,000
45%
      
           
TOTAL EFFECTIVE COST      
$1,200
$14,400
           
Buy Assumptions(1)
    
Square Footage
Monthly Amount
Yearly Amount
Purchase price
$265,000
        
Closing costs
$10,000
        
Subtotal purchase price
$275,000
        
Total unit square footage    
1,000
    
           
Start up costs:          
Cash down payment (10%)
$27,500
        
           
Recurring costs:          
Mortgage payment(2)    
$1.56
$1.564
$18,772
Real estate taxes    
$0.28
$276
$3,312
Association dues    
$0.25
$250
$3,000
Other    
$0.10
$100
$1,200
Total estimated costs    
$2.19
$2,190
$26,284
           
Ownership Benefits:
Yearly Amt.
x  Estm. Tax Rate
      
Estimated depreciation using
cost segregation(3)
$5,919
45%
$0.22
$222
$2,664
Estimated sec. 179 on 5/7 year property. 1st year only(4)
$11,243
45%
$0.42
$422
$5,059
Estimated annual appreciation(5)    
$0.44
$442
$5,300
Total estimated costs    
$1.09
$1,085
$13,023
           
TOTAL EFFECTIVE COST    
$1.11
$1,105
$13,262
 
(1) All amounts are estimated.
(2) Mortgage balance estimated at $247,500 with 6.5% interest per annum for 30 years.
(3) Estimated rough cost segration: Land=$60,950. Bld=$204,050 with $11,243 for 7 years (sec. 179); $40,014 for 15 years & $152,793 for 39 years.
(4) For sec. 179 assume the owner/manager/user is engaged in active trade or business, has a profit for the year, does not lease out the property to others.
(5) Calculation assumes annual appreciation of 2%. Property is not guaranteed to increase in value and may decrease.
 

 

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