The buy-or-lease question is a common dilemma, whether you’re asking as a homeowner, or for your business. For perspective, think of the big picture. In either case, you’re paying for the exclusive use of an item over a set period of time. With that as a point of reference, the difference boils down to two main considerations: cash flow and exit strategy.
The cash flow associated with buying a home is straightforward. After making a down payment, you commit to a long-term obligation. Purchasing a home also offers a tax deduction for interest and real estate taxes. In contrast, leasing may mean a monthly payment lower than what you’d pay on a mortgage. However, as a renter, you generally won’t benefit from tax breaks.
Business owners receive a tax deduction whether the final decision is to lease or to buy, but the timing of the deduction can vary. Lease payments are generally deductible over the life of the lease. Purchasing offers an immediate tax write-off in the form of accelerated depreciation or Section 179 expensing. The time value of money can play a role in your decision, as money you have today can be worth more than the same amount in the future.
What about exit strategy? When you rent a home, you know you’ll likely have to move at the end of your lease term, and you won’t benefit from any increase in real estate values. Home ownership has the potential for an increase – or decrease – in the value of your investment. This is especially true the longer you intend to stay put.
Exit strategy can be less of a decision factor for your business, especially if your policy is to keep equipment until it wears out. Do you routinely replace old equipment? A lease might offer an advantage.
Need help resolving the rent-or-buy decision? We routinely help clients with advice on such questions for their particular circumstances. Check out Management Advisory Services on our website. Contact our office for an in-depth analysis.