Free tool · The CREE Course, Chapter 8
Rent vs buy
Should a business lease its space or buy a building? This compares what renting costs with what owning costs once the building is sold, including what the down payment could have earned elsewhere.
Over 10 years
Buying comes out $704,213 ahead
About $70,421 a year, before taxes.
Total cost to rent$1,719,582Rent plus operating costs
Cash paid to own$1,803,745Includes $405,000 down and closing
Cash back when you sell$1,043,078Value $2,015,875 less costs and the loan
What the cash could have earned$254,702Added to the cost of owning
Net cost to own$1,015,369
Difference$704,213Owning costs less
Year by year
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Rent | $110,000 | $113,300 | $116,699 | $120,200 | $123,806 | $127,520 | $131,346 | $135,286 | $139,345 | $143,525 |
| Operating costs | $40,000 | $41,200 | $42,436 | $43,709 | $45,020 | $46,371 | $47,762 | $49,195 | $50,671 | $52,191 |
| Loan payments | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 | $91,153 |
| of which interest | $72,578 | $71,334 | $70,007 | $68,591 | $67,080 | $65,467 | $63,747 | $61,912 | $59,953 | $57,864 |
| of which principal | $18,575 | $19,819 | $21,146 | $22,562 | $24,073 | $25,686 | $27,406 | $29,241 | $31,200 | $33,289 |
| Reserves | $2,500 | $2,575 | $2,652 | $2,732 | $2,814 | $2,898 | $2,985 | $3,075 | $3,167 | $3,262 |
| Loan balance | $1,106,425 | $1,086,606 | $1,065,460 | $1,042,898 | $1,018,824 | $993,139 | $965,733 | $936,492 | $905,292 | $872,003 |
Before taxes. An owner can depreciate the building and deduct interest; a tenant deducts rent. Ask a tax adviser how that changes the answer for your business. CRE Room members can download this same model as a spreadsheet from the Library.