Real Estate – permanency or flexibility?
In the early stages of development consider the alternate uses of the charges against investment or revenue capital. It's the old Drucker question, "What business are you in?" Are you a marketer and/or landlord? Check your overall business plan.
Lease negotiations should provide for a balance of location guarantees and convenient termination. Consider the cost and useful life of leasehold improvements versus enhancements to a capital investment. What about succession plans for your children?
Observe the large retail operations. Note how most rent from property developers. Try to recognize what strategies they follow. Are they planning for flexibility and/or growth of market share?
Equipment
Weigh the outcomes of the asset's lifetime usefulness combined with trade-in and replacement costs, servicing conditions and alternate uses of the capital invested.
Match the rent or buy consequences with the long-term strategies in your business plans.
If you are borrowing or operating with a line-of-credit, compare the rates.
Some tax advantages still exist in leasing.
In my first course on mathematics of finance our professor repeatedly asked us to think of, "When is now?" From this we grasped the concept of money losing or gaining value as it passed through time. As we moved from calculating past, present and future values of principals he emphasized the importance of first establishing at what point of time was the calculation to be made. Associating rate with speed seemed to further simplify matters. All the various formulae were prepared variations of the simple equation, "I=prt" as 't' went backwards or forwards in time from the point of NOW.
I have found this to be an effective teaching strategy over the years. The concept seems to relate to decisions about extending the application of funds over time (rent) or NOW (buy).
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