Commercial Real Estate Lease vs Buy NPV & Cash Flow Calculator

Corporate Real Estate: The Strategic 'Lease vs. Buy' Trade-Off

Deciding whether an operating business should lease or own its physical commercial real estate depends on capital allocation and time horizon:

• Buy Advantages: Builds long-term wealth equity, locks in stable monthly occupancy costs (protecting against landlord rent spikes), generates annual building depreciation tax deductions (39-year MACRS), and creates a valuable corporate retirement asset.

• Lease Advantages: Preserves 100% of upfront working capital for business expansion, hiring, and marketing inventory, while offering complete geographic relocation agility.

How to Use This Calculator

Enter your Buy Option: Property Purchase Price () (e.g. 1200000), Buy Option: Down Payment (%) (e.g. 20.0 (e.g. SBA 504 is 10-20%, Conventional is 20-25%)), Buy Option: Commercial Loan Rate (% - 25-yr amortization) (e.g. 7.0), Lease Option: Monthly Base Rent ( / month) (e.g. 7800), Lease Option: Annual Rent Escalation Rate (%) (e.g. 3.0), Occupancy Time Horizon (Years) (e.g. 10), Expected Annual Property Appreciation (%) (e.g. 3.5), and Discount Rate / Cost of Capital (%) [for NPV] (e.g. 8.0). Results update instantly as you type — adjust any value to compare scenarios.

The Formula

Commercial Lease vs. Buy Net Present Value (NPV) equations: Net Present Value (NPV) = -Down Payment - Σ_t=1^N (Annual P\&I + Opex_t) / ((1 + r)^t) + (Terminal Net Equity_N) / ((1 + r)^N) Net Present Value (NPV) = -Σ_t=1^N Annual Rent_0 × (1 + g_rent)^t-1(1 + r)^t Present Value Advantage = NPV (Buy) - NPV (Lease) Net Equity = [Purchase Price × (1 + g_prop)^N] - Remaining Loan Balance - Disposition Selling Costs

Worked Example

For example, evaluating a 1,200,000 commercial building with 20% down (240,000) at 7.0% mortgage interest vs leasing at 7,800/mo with 3.0% annual rent escalations over 10 years at an 8.0% discount rate and 3.5% property appreciation (1,692,719 future value, 752,380 terminal equity): NPV of Buying is -478,540.00; NPV of Leasing is -685,420.00. Buying is superior by +206,880.00 in Net Present Value.

Understanding Your Result

Real estate calculations depend heavily on local market conditions, current interest rate environment, and property-specific factors. Use this result as a starting analysis point — verify with recent comparable sales data (comps within 0.5 miles, same bedroom/bath count, within the past 6 months), current lender rate quotes, and a local real estate attorney for title and contract matters.