To lease or buy--that is the question.You should compare the benefits of leasing versus buying your property from a cash standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the , as well as the more obvious needs standpoint, such as long term space requirements and expansion possibilities. While there are benefits to both options, for startups there appear to be more benefits to leasing than buying. Cash flow is, of course, an issue and buying takes a larger portion of your hard earned cash up front. Here are some other monetary benefits of leasing: * Your credit rating will not be quite as critical for leasing as it would be for buying. So again, for startups, this might be a sticking point sticking point n. A point, issue, or situation that causes or is likely to cause an impasse. Noun 1. sticking point - a point at which an impasse arises in progress toward an agreement or a goal . * Your monthly lease payment is tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). because it's a business expense. * You may be free from paying for building maintenance. Here are some non-monetary benefits of leasing: * Freedom to sublet sub·let tr.v. sub·let, sub·let·ting, sub·lets 1. To rent (property one holds by lease) to another. 2. To subcontract (work). n. and move to another location if you find the need to. * No hassle Hassle () is a location in Närke, Sweden, where a Celtic treasure was found in 1936. It comprises a large bronze cauldron which contained two Bronze Age swords of the Hallstatt type, a pommel of bronze, two bronze buckets with of selling before you can move to another location. * No loss from owning a building in a bad real estate market. * No assignment of personnel to oversee property issues that the owner should oversee. * Buying also has its benefits. It all depends on your situation and the type of business you're in. Here are some of the monetary benefits of buying: * Interest on the mortgage loan is tax deductible. * You can take annual depreciation deductions on your taxes. * In the long run, you'll probably come out ahead because you won't be facing increases in rent. * You'll benefit financially if the real estate market is good when you sell. * You may be able to lease out a portion of the building if you determine that you have excess space. * If you need to make substantial changes to the building to accommodate your business, those changes are owned by you and not your landlord. Non-monetary benefits of buying include: * You can make any changes you want to the property. * The hours of your business can be whatever you want them to be. * You are free to stay in the same location as long as you wish. Cash Flow Analysis If you can't make a decision based on these pluses and minuses, you can (and probably should) do a cash flow analysis to see which option makes more sense from a cash standpoint. Before you can do this, however, you have to have all of the necessary information for making your comparison. This includes information like the full cost of purchasing, the terms of the lease, the depreciated Depreciated may refer to:
To do the cash flow analysis, complete cash flow budgets that include all of the expenses you would incur for either buying or leasing over a set period of time. For the lease analysis, you'll need to determine your net cash outlay, which is the amount you end up spending on the lease once you've subtracted the tax savings you receive from it. (Remember your lease payment is considered a business expense.) In order to compare apples to apples from a cash flow standpoint, you also have to take into consideration the change in the value of today's dollar versus a dollar five years from now. This are known as the discount factor and can be calculated using most spreadsheet applications. You'll also have to know the amount of your interest deduction Interest deduction An interest expense, such as interest on a margin account, that is allowed as a deduction for tax purposes. that you will get on your business's taxes. You can arrive at this number by multiplying mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. the interest rate of the loan by each month's preceding balance. Now for the tricky Adrian Thaws (born January 27, 1968), better known as Tricky, is an English rapper and musician important in the trip hop and British music scene (despite loathing the "trip hop" tag). He is noted for a whispering lyrical style that is half-rapped, half-sung. part ... remember above where I mentioned estimating the value of the property when you would be selling it? This is the number that will ultimately determine who wins in the battle of the benefits of buying versus leasing. Obviously the longer you stay in the building, the better off you will be because you will be gaining more and more equity. However, do you know how long you will actually be there? Do you know what the real estate market is going to do in that time period? Not unless you have a crystal ball. So, study the current market, as well as trends and predictions for as far into the future as you can get. Keep in mind that the farther out farther out Of or relating to an option contract with a later expiration date than a contract that is currently owned or being considered. For example, a contract with a May expiration date is farther out than a contract with a February expiration date of the prediction, the less reliable it will be. Arm yourself with as much knowledge as you can, and then make your best estimate. You know your business and you should have a good idea of where it is headed. If you know you want to be in an area for the foreseen fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future (say 10 or more years), the market is strong, and you've identified a building that will suit your needs for that timeframe then go for it. Ten years of equity can be substantial. If you can get a good deal on the property (at or below market value) then it certainly makes sense to buy if you'll be there "You'll Be There" is a single by American country music singer George Strait. It peaked at #4 on the Billboard Hot Country Singles & Tracks chart in 2005. for ten years. If you know the building is priced at or above the fair market value, or if you think five years may be more the length of time you'll be there then think about offering to lease. Tim Russell Tim Russell (born 1947) is a radio announcer and voice actor (AFTRA/SAG) in Minneapolis and St. Paul, Minnesota. He is “Entertainment Editor” in the early morning hours at WCCO-AM radio and one of the actors on Garrison Keillor's radio show, A Prairie Home Companion. is a freelance writer |
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