Lease vs Buy Calculator

Buying’s net worth = building equity (appreciated value − mortgage balance − selling costs). Leasing’s net worth = the capital not tied up in the building — down payment, costs and every monthly difference — invested at the opportunity cost of capital. Both spend the same; the higher net worth wins, and the break-even is where the curves cross.

It’s a net-worth comparison, not lease-vs-mortgage

The instinct is to compare the monthly lease against the monthly mortgage, but that misses almost everything. Buying ties up a large amount of capital and adds ownership costs — property tax, insurance, maintenance — yet builds equity through paydown and appreciation. Leasing frees that capital to work in the business and keeps you flexible, but builds nothing in property and faces annual escalations. The right comparison asks which leaves the business wealthier after the years you expect to occupy the space. This calculator runs both as a net-worth race on an equal budget: the buyer sinks the down payment and costs into the building; the lessee invests that same capital at its opportunity cost and pays the rent. At the horizon, the buyer holds building equity and the lessee holds an investment portfolio — and the higher number wins.

Framed this way the result is honest about both sides, and it produces a break-even: the number of years you must stay for buying to come out ahead. Occupy the space longer and buying usually wins; plan to move sooner and leasing does.

Worked example — an $800,000 premises, 25% down at 7.5% over 20 years, versus $5,000/month rent, over 10 years (3% appreciation, 8% opportunity cost): Owning costs about $6,900 a month against $5,000 to lease, and builds equity — but with the down payment earning 8% elsewhere, leasing-and-investing comes out roughly $158,000 ahead over 10 years. Lift appreciation to 6% and buying wins instead, breaking even around year 5.

The opportunity cost of capital is the swing factor

For a business, the down payment is not idle savings — it is capital that could be reinvested in operations, inventory or growth, often at a high return. That is what the opportunity cost of capital captures, and it is the input that moves the result most. A company that can earn 15% reinvesting in itself faces a steep hurdle to justify locking cash into real estate; one with surplus cash and few growth options faces a low one. Set the opportunity cost high and leasing wins comfortably; set it low and buying’s equity-building pulls ahead. It pulls in the opposite direction to appreciation, so the verdict really hinges on the spread between the two — which is exactly why the calculator treats the answer as assumption-dependent rather than a single confident call.

Beyond the capital, buying also concentrates risk: your premises and your business become a single bet on one location. Leasing keeps them separate and preserves the option to relocate as the business changes. Those are strategic factors the numbers do not capture, and they often matter as much as the break-even.

Tax, escalations and the long view

Tax cuts both ways and is worth modelling for a business. Lease payments are fully deductible as an operating expense; ownership deducts mortgage interest, property tax and depreciation (commercial buildings over 39 years), which can shelter income substantially — but at sale, capital gains and depreciation recapture claw some of it back. Enter your business tax rate and the calculator runs an after-tax comparison alongside the pre-tax one; the deductions usually narrow leasing’s advantage, sometimes flipping the verdict. It is indicative — business property tax is intricate, so treat it as a prompt for your accountant, not a filing.

Lease escalations matter over a long horizon: a rent rising 3% a year roughly doubles in 24 years, steadily eroding leasing’s early cost advantage, while a fixed-rate mortgage holds the owner’s core payment flat. The chart traces both net-worth curves crossing at the break-even, and the table breaks the position out year by year — so you can see not just which option wins, but when, and by how much.