The direct answer
A lease-versus-buy DCF comparison discounts each scenario’s future cash costs to the same date and rate. The buy case includes initial cash and ongoing costs, then subtracts discounted net exit proceeds. The difference depends on the modeled timing, scope and residual value.
Align the alternatives over one horizon
Use the same period and define what each occupancy option includes. The linked model places annual lease payments at year-end, with escalation beginning in year two. It discounts annual ownership costs and debt service at year-end too. Initial buying cash is paid now. A real contract with deposits, monthly payments or other timing needs another schedule to capture those differences.
To apply the approach to an editable scenario, use the Lease vs Buy Commercial Property Calculator. For the neighboring question, explore Commercial Rent Calculator.
Make the buy-side exit assumptions explicit
The model grows purchase value at the selected appreciation rate, deducts percentage sale costs and the entered ending loan balance for net sale proceeds. It does not amortize the loan or determine that ending balance. Ownership expenses are supplied as a constant annual amount in this simple version. Taxes, depreciation and unentered capital costs remain outside the comparison.
Read the sign with the limitations
The reported difference is lease present cost minus buy present cost. A negative difference means leasing has the lower modeled present cost; a positive difference means buying does under those assumptions. This is not a recommendation. Exit value, discount rate and occupancy flexibility can materially change the result, and some practical constraints do not reduce to the modeled cash schedule.
Worked example
The linked ten-year default uses $120,000 first-year lease cost, 3% escalation and an 8% discount rate. Lease PV is about $906,016.04. With the supplied buying cash, annual costs and net exit assumptions, buy PV is about $943,056.03. The difference is −$37,039.99, a lower modeled present cost for leasing.
Open Lease vs Buy Commercial Property Calculator and test your assumptions →
Common mistakes and limitations
Do not compare undiscounted lease totals with discounted buy costs. Do not treat a user-entered ending loan balance as an automatically calculated amortization result.
Illustrative DCF comparison only. Financing, taxes, depreciation, transaction structure and business-specific opportunity costs may materially change the result.
Frequently asked questions
Does a negative difference recommend leasing?
No. It identifies the lower cost in the entered cash-flow comparison, excluding unmodeled factors.
When is the first lease payment modeled?
At the end of year one, with escalation beginning in year two.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Read our editorial policy for the scope of these educational methods.