Real estate buy versus lease
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Below is a real estate exercise that calls for a comparison between buying and leasing a property. I am not a real estate major and I do not understand what I am supposed to do with that $100,000 stated in the beginning. I am looking for help in devising a way that the cash flows can be compared. I have never worked with a lease before and do not know how to devise the cash flows
Acme Corporation needs a new facility with $100,000 in specialized leasehold improvements.
They can buy the property for $10,000,000 with 25% down and a loan at 6%, 25 yrs. The property is expected to appreciate at 5% per year.
They can lease the property for $65,000/mo. For 5 years.
Assume a triple net lease.
You have been retained to advise Acme on how to proceed. Based on cost of funds alone, what is your expert recommendation?
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Solution Summary
This solution considers Acme Corporation and whether it's better to buy or lease.
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The $100,000 in leasehold improvements Acme will have to pay whether they buy the property or lease the property. A triple net lease is where the lessee pays the principle, interest, and taxes. The taxes would be paid in both ...
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