Real Estate Investing: Acquisition With A Lease Or Purchase Option


by Alexander Gordon - Date: 2006-12-04 - Word Count: 450 Share This!

Acquiring equipment on lease or purchase in real estate business could be a significant investment decision. Therefore, one must do all necessary comparative analysis pertaining to costs and various other factors before taking the final step. It is important to know that purchase or lease decisions are case-specific and therefore are difficult to generalize. A careful need-based study of the business is therefore very important.

Factors to Be Considered Before Lease or Purchase; It is important for a real estate investor to determine the time, for which the equipment that he is planning to lease or purchase is likely to be used. One must also compare the total rental payments together with the interest component with the net purchase value of the particular equipment. If the cumulative lease amount exceeds the net purchase prices, it makes no sense in leasing the equipment.

One must also estimate various costs related to transportation and installation of the equipment. Routine repair and maintenance of such equipment is necessary to keep them in good working condition. Hence, a real estate investor must check with the service provider if he has provisions for routine check-ups. Most importantly, check with the lender or seller if he offers purchase options or extension of lease.

Choose the Right Mode of Acquiring the Equipment; There are two ways of acquiring equipment: you can either purchase it or lease it. Purchasing equipment is wise, only in a scenario where the equipment is to be used over a long-term for a number of real estate developments. The rentals are lower compared with the net purchase value of the equipment.

Leasing equipment is a great option for those who want to gain expertise in specific areas with less time and cost overrun. It eliminates large cash outlays and allows companies to use their funds for other investment purposes. With the perspective that - it is not the ownership of the equipment but its use that generates revenues, leasing seems attractive. Leasing is advisable if the equipment is to be used for the development of a few real estate projects over a small to medium term. One must avoid leasing equipment for a long-term unless the package offers very attractive features. If you are considering a lease, prefer one that has an option of purchase.

Prefer a Lease Agreement with Option of Purchase; Such a lease agreement specifies that the owner will rent out his equipment to the customer for monthly rental for a stipulated time with a predetermined buy out. The customer is responsible for insurance, maintenance, and all other costs of ownership. At the end of the lease period, the user has the option of purchasing the equipment, re-leasing it, or simply returning it to the owner.


Related Tags: real estate, investing, lease option, purchase option

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