Buy vs Lease Office Calculator
Compare the 10-year real cost of buying your space vs leasing it — equity build and appreciation included — and see the year owning pulls ahead.
Written by Dorothy Ibrahim, 10+ years in banking & finance
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How we calculate this
This calculator compares the net cost of buying your business space against leasing it over a horizon you choose (10 years by default). Owning costs more up front — down payment, closing costs, maintenance, property tax, insurance — but builds equity through principal paydown and assumed appreciation, which the tool credits back at the horizon. Leasing is just escalating rent. The result is a net cost for each path, the winner, and the crossover year when owning pulls ahead.
The formulas
- Annual mortgage payment
- monthly payment × 12, where the monthly payment = loan × (monthly rate × (1 + monthly rate)^number of payments) ÷ ((1 + monthly rate)^number of payments − 1); loan = price − down payment
- Equity at year n
- price × (1 + appreciation rate)^n − remaining loan balance at year nAppreciation is an assumption, not a guarantee — a flat market builds equity through principal paydown only.
- Net cost to own at year n
- down payment + closing costs + sum of (annual mortgage payment + maintenance/tax/insurance) for each year − equity at year nWith a discount rate above 0, each year’s cash flow (and the recovered equity) is divided by (1 + discount rate)^year first.
- Net cost to lease at year n
- sum of annual rent × (1 + escalation)^(year − 1) for each year through n
- Crossover year
- the first year in which the net cost to own drops to or below the net cost to leaseIf that never happens within your horizon, leasing wins for your stay length.
Worked example
- Say the building costs $750,000 with 25% down at 7.5% over 25 years, 3% closing costs, $18,000/yr of maintenance + tax + insurance, and 3%/yr appreciation — versus $48,000/yr rent escalating 3%/yr, over a 10-year horizon in nominal dollars.
- Upfront: down payment $187,500 + closing $22,500 = $210,000. The $562,500 loan costs $49,881.90/yr in mortgage payments.
- Ten years of payments and upkeep add ($49,881.90 + $18,000) × 10 ≈ $678,819, bringing total cash out to about $888,819.
- At year 10 the building is worth $750,000 × 1.03^10 ≈ $1,007,937 and the loan balance is $448,411, so equity recovered ≈ $559,526.
- Net cost to own = $888,819 − $559,526 ≈ $329,293; net cost to lease = $48,000/yr escalated 3%/yr for 10 years ≈ $550,266.
- Buying wins by about $220,973 over the decade, and its cumulative cost pulls ahead of leasing in year 2 on these inputs.
Rates, benchmarks & sources
- Mortgage payment and the remaining-balance schedule used for equity — Standard level-payment amortization formula (financial convention)
- Property appreciation rate — user-set, defaulting to 3%/yr; real markets can be flat or negative — Rule-of-thumb assumption (not a forecast)
- Commercial lenders typically require 20–30% down on owner-occupied property purchases — Industry rule of thumb
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- This is a planning estimate, not a loan offer — a lender’s underwriting sets your actual rate, required down payment, and whether the deal closes at all.
- Appreciation is assumed constant; a flat or falling market pushes the crossover later or eliminates it, and the tool cannot predict your market.
- Selling costs (broker commissions, transfer taxes) are not deducted from the equity recovered at the horizon, so owning is modestly flattered if you would actually sell.
- Tax effects are excluded on both sides: rent is generally deductible, while ownership brings interest and depreciation deductions plus possible recapture at sale — these can move the answer and depend on your situation.
- It assumes identical space either way; in reality the building you can buy and the space you can lease are rarely the same square footage, location, or quality.
- Tying business cash into real estate reduces liquidity — the down payment stops being working capital the day you close.
Frequently asked questions
What is the crossover year and how should I use it?
It is the first year when the cumulative net cost of owning (after crediting the equity you would have at that point) drops to or below the cumulative cost of leasing. On the defaults that happens in year 2. The practical read: if you are confident you will occupy the space past the crossover year, owning has the edge on these assumptions; if you might move sooner, leasing keeps you flexible and cheaper.
Why does buying win here even though it costs so much more up front?
Because most of what an owner spends comes back as equity. Mortgage payments retire principal, and the building itself is assumed to appreciate — in the default example about $559,526 of equity exists at year 10, offsetting the roughly $888,819 of cash spent. Rent, by contrast, is pure cost: $550,266 over the decade with nothing recovered. That equity credit is also the fragile part — see the appreciation caveat.
Would a bank actually finance this purchase for my business?
This tool cannot tell you that — it models the arithmetic of a purchase, not your approval. Commercial lenders underwrite the property and the borrower: expect a 20–30% down payment requirement (an industry rule of thumb), and note that lenders commonly want income of at least 1.25× the debt service (the lender-standard DSCR minimum recorded in our benchmarks). Rate, fees, and terms are set in underwriting; treat these results as an estimate to frame the decision.
What happens if property values stay flat instead of rising 3% a year?
Set the appreciation input to 0 and see — equity then builds only through principal paydown, the net cost of owning rises, and the crossover moves later or disappears. Appreciation is the single most decision-swinging assumption in this comparison, and it is a rule-of-thumb input, not a forecast. Testing 0% alongside your base case shows how much of "buying wins" depends on the market cooperating.
What is the discount rate input for?
It is an optional, simplified net-present-value adjustment. At 0 the tool compares nominal dollars — a dollar in year 10 counts the same as one today. Setting a discount rate shrinks future costs and the future equity credit back to today’s value, which typically makes leasing look relatively better, since owning’s big payoff (the equity) arrives at the end. Many owners use their expected return on cash invested in the business itself.
Should I worry about tying up cash in a building?
It is a real trade-off the numbers here do not capture. The $210,000 of down payment and closing costs in the default example stops being available for inventory, payroll, or a rough quarter the day you close. Before committing, it is worth checking your cushion with the Working Capital tool — a building you own is hard to turn back into cash quickly.
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themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions. Rates shown are estimates; actual offers depend on lender underwriting.