Lease vs Buy Commercial Calculator

Early mortgage payments go mostly toward interest rather than principal, so equity builds slowly at first. Over a short holding period, the buyer has paid a down payment plus mostly-interest mortgage payments and maintenance, without much principal paydown or appreciation time to offset it — so the net buy cost can exceed the lease cost even when the same purchase would look favorable over a much longer holding period.

Yes, holding everything else fixed — a higher interest rate increases the monthly mortgage payment for the same loan amount and term, which increases total mortgage payments over the holding period and therefore total buy cost. It doesn't change equity from appreciation, so a higher rate purely raises the cost side of the buy scenario.

It compounds the annual rent upward each year of the holding period, the same way compound interest grows a balance, rather than applying a flat annual dollar increase. A 3% annual escalation on a 10-year lease results in a meaningfully higher cumulative lease cost than a flat 3%-of-year-one increase applied every year, because each year's increase is calculated on the already-escalated prior year's rent.

Because leasing and buying aren't directly comparable on cash outflow alone — a lease payment buys nothing beyond occupancy, while a mortgage payment partly builds ownership equity the buyer keeps (or could sell) at the end of the holding period. Netting equity against total buy costs puts both scenarios on the same footing: the true economic cost of each path over the holding period, not just the cash that left your account.

Quite sensitive, especially over longer holding periods, since appreciation compounds on the full property value every year and directly increases equity at sale, which reduces net buy cost. Because future appreciation is inherently uncertain, it's worth running the comparison at a conservative rate as well as your expected rate to see how much the conclusion depends on that single assumption.