Real Estate

Real Estate

Leasing vs. buying is a topic that comes up when someone is in the market for a new vehicle. There are always advantages and disadvantages to each. One advantage of leasing is leasing is that it is based on a percentage of the cars price and not the full price of a new vehicle. The disadvantage is the limit set on the number of miles you are able to drive per year. The advantage of buying is that you will eventually own the vehicle while gaining equity on it. In other words you save money in the long run after paying it off. The biggest disadvantage in buying is the resale value of the vehicle if one chooses to sell it and there is also the large down payment required by lenders.

In comparing leasing and buying of capital assets, both have some form of stable cash flow. The difference however lies in the calculations of the cash flow. In the video by (Codible, 2013), cash flow for the purchase option included no interest rate, whereas the leasing option included an 8% annual interest rate in the calculation. The book defines an operating lease as an ordinary lease for the use of an asset that does not involve any attributes of ownership. Whereas in a capital lease or buying option, the lessee assumes virtually all the benefits and risks of ownership for the leased asset (Marshall et al., 2013). Basically with a capital lease you are purchasing an asset. You do not get this with the leasing option. Another difference seen with leasing and buying option is in the financial statements. The lease option is something you would not see on the balance sheet. With the buying option, the asset stays on the balance sheet. Most companies will choose the lease option because of the flexibility in updating and replacing equipment for example.

With Obamacare, the decision to lease or buy health care office space seem to no longer exist. The ACA (Affordable Care Act) expects people to look for cost-effective treatment and physicians. With this in mind,...