The 10-Year Financial Model
The decision to own or lease your facility is not fundamentally a real estate decision. It is a financial strategy decision with a 10-year horizon. Many operators approach it the wrong way — comparing monthly payments rather than total economic outcomes — and end up with a choice that feels manageable in year one but costs them significantly by year ten. Running a proper model does not require a spreadsheet PhD. It requires knowing which variables to include and what each one is really worth.
The most common mistake in the own vs. lease analysis is framing it as a monthly payment comparison. A lease payment of $18,000 per month versus a mortgage payment of $22,000 per month appears to favor leasing by $48,000 per year. That calculation is correct as far as it goes — but it captures almost none of the true economic picture.
What it ignores: the equity you build through ownership, the tax advantages of ownership vs. leasing, the appreciation in your real estate asset, the escalation that will occur in your lease payment over 10 years, and the terminal value difference between owning an asset and holding an expired lease at the end of the period. When you model all of these, the economics almost universally favor ownership for established, profitable businesses with a long-term horizon in a market.
A rigorous 10-year own vs. lease model includes five variable categories, each of which must be estimated with reasonable specificity to produce a useful output.
Variable 1 — Occupancy cost trajectory. Lease payments escalate, typically 3–4% annually under most commercial lease structures. Model your lease payment in year 1 and then compound it annually through year 10. Compare that escalating cost against a fixed-rate mortgage that stays flat (or declines on an amortizing basis).
Variable 2 — Equity accumulation. Every mortgage payment includes a principal component that builds equity in an asset you own. In the early years this is modest, but by year 10 on a 20-year amortization schedule you have paid down meaningful principal. Model this balance explicitly; it is real wealth creation that a lease payment generates zero of.
Variable 3 — Real estate appreciation. Commercial medical and healthcare real estate has historically appreciated at 2–4% annually in most markets. Use a conservative assumption — 2% is defensible — and model what the property value looks like in year 10. This is the terminal value of ownership; lessees have no equivalent.
Variable 4 — Tax implications. Mortgage interest and depreciation on commercial real estate generate significant tax deductions under current tax law. Lease payments are fully deductible as well, but the depreciation deduction available to owners on the building structure itself is an additional benefit that requires modeling against your specific tax situation.
Variable 5 — Opportunity cost of the down payment. The down payment required to purchase represents capital that could otherwise be deployed elsewhere. Model this as the after-tax return you would expect on an alternative investment of that capital over 10 years. This is the most favorable input for the lease scenario and should be included honestly.
The opportunity cost of the down payment is the variable most commonly omitted from own-vs-lease models — typically because it favors leasing and people building the model want ownership to win. Include it anyway. A model that honestly includes all inputs and still favors ownership is a model you can trust.
Ownership is not always the right answer. There are specific circumstances where leasing is the more rational financial choice, and being clear about those conditions leads to better decisions.
"The 10-year model almost always favors ownership for an established practice with stable cash flow and a long-term commitment to a market. The operators who lease because they think they cannot afford to own are often wrong. They can afford to own — they just have not modeled it."
Start with a side-by-side spreadsheet that runs year 1 through year 10. On the ownership side, track: annual mortgage payment, principal paid down (equity), estimated property value, net equity position, and cumulative tax benefit estimate. On the lease side, track: annual lease payment (escalating), cumulative lease payments, opportunity cost return on the down payment, and terminal position (zero equity at lease expiration).
At year 10, calculate the total economic outcome of each scenario: the equity position under ownership (property value minus remaining mortgage balance) versus the cumulative total payments and terminal value under leasing. For most established businesses in stable markets, the ownership scenario shows a net economic advantage in the $400,000 to $1,000,000+ range depending on property value and market appreciation. That is the number that drives the decision.
The own-vs-lease decision looks different for every business. Our Expansion Readiness Brief includes a financial framework tailored to your market, your business, and your goals.
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