To Lease or Not to Lease -or- Leasing vs. Ownership at DVinfo.net

Mike Barber · May 4th, 2008, 05:02 PM

There are pros and cons to both. I realize that it is a trade off rather than one being better, but I've never leased anything before (other than where I live) so I'm hesitant about the idea when it comes to equipment -- in this case, specifically my editing suite.

I'm looking at my options for upgrading my whole suite (computer, software and monitors) and when it comes down to either leasing or purchasing, I am torn.

Leasing pros: relatively low monthly payments, tax deductibility, and options at the end to upgrade, extend or buy at "fair market value".

Leasing cons: no ownership over the tools of production

Purchasing pros: ownership over the tools of production, possible to finance for monthly payments

Purchasing cons: having to drop large sum right away, upgrade path not as easy or much more expensive

The leasing option seems like an enticing way to go, but if I was to face another lean period like my past six months, I probably wouldn't have been able to hold on to the equipment and would then find myself royally and utterly screwed. When you own your tools, you aren't as vulnerable.

A carpenter doesn't lease his tools, but then he doesn't face the same technological pacing that we do. Bleeding edge isn't important to me, but keeping up with what is current is very important.

Any thoughts?

Jarrod Whaley · May 4th, 2008, 05:14 PM

Sorry, I don't really have any answers to your questions... in fact, I have a few questions of my own whose answers might benefit you as well.

Is there some reason why leasing is tax-deductible and buying isn't, or are we talking about a difference between the tax laws of the U.S. and those of Canada? Are you saying that you find more attractive the idea of deducting a regular lease payment as opposed to deducting the depreciation of the gear's value over a few years? Does anyone have any thoughts as to which approach is likely to be more financially beneficial, either short-term or in the long run, when all the costs and tax benefits of leasing vs. buying are taken into account?

Thanks,

Chris Davis · May 4th, 2008, 06:41 PM

Don't know about Canada, but here in the USA for us small operators, leasing carries no tax benefits over purchasing. If I purchase a computer I can choose to write off the complete cost in the first year as a Section 179 deduction, or depreciate it over several years.

For all practical purposes, leasing is the most expensive way to obtain your equipment. I see no pros, only cons to leasing. I'm pretty much cash only, but if I had to pick between leasing or financing, I'd finance because at least I'd have the option to pay off the balance at any time.

Chris Burgess · May 6th, 2008, 07:53 AM

yeah, I have to say I am not big on the leasing or financing options either...everything we have is purchased outright cash. yeah, it means we can't run out and buy the latest, greatest cams and accessories...but it also means I don't have people trying to track me down because I didn't make payments on my cameras (which happened to a friend of mine).

Jason Robinson · May 7th, 2008, 09:31 AM

Quote:

Originally Posted by Chris Davis

Don't know about Canada, but here in the USA for us small operators, leasing carries no tax benefits over purchasing. If I purchase a computer I can choose to write off the complete cost in the first year as a Section 179 deduction, or depreciate it over several years.

For all practical purposes, leasing is the most expensive way to obtain your equipment. I see no pros, only cons to leasing. I'm pretty much cash only, but if I had to pick between leasing or financing, I'd finance because at least I'd have the option to pay off the balance at any time.

About the only benefit I could see is to use the lease as a "try before you buy" method. Lease for a month or so and see if you like the new hardware / workflow, etc. Then buy it on your own. I have put all my equipment purchases through the Section 179 expenses.

George Kroonder · May 7th, 2008, 10:21 AM

All of these serve a purpose. The key is to select the appropriate financing method to match your business needs.

Sometimes renting equipment is best, especially if it is special equipment you only need on few projects. Maybe also to try something out or get your feet wet in some new venture without committing yourself at an early stage.

Leasing is often easier to get than financing and with sponsored "0%" rates, can be quite advantageous. There can be accounting advantages or disadvantages to not owning capital goods. Lease is based on 'fair market value' and is especially suitable if you want to fix your cost base and have regular upgrade intervals. Flexibility is provided through 'Technology Updates' with most leasing vendors, so you can 'trade-in' your equipment before the contract runs out.

With financing you can also partially finance and rates are lower as there is little/no risk (as to the equipment) to the lendor.

If you have the money to pay cash, you probably should. But sometimes it is better to lease or finance. Typically the more money you have the more you can finance and thus the more capital you can use to run and grow your business. Be a responsible risk taker though...

Sometimes it is a chicken/egg situation where you may want to, for example, expand your marketing or sales and need new equipment to take on better paying work. When your means are limited, like they are for most of us to some degree or another, choosing to lease equipment and investing in growing your sales may be the best option you have.

George/

Chris Davis · May 7th, 2008, 10:48 AM

Quote:

Originally Posted by Jason Robinson

About the only benefit I could see is to use the lease as a "try before you buy" method. Lease for a month or so and see if you like the new hardware / workflow, etc.

That's a rental. Leasing implies a legal arrangement for a specific length of time, typically three to five years in the case of equipment.

Seun Osewa · May 8th, 2008, 10:58 AM

I believe i can get more out of lower-end equipment I own that I might get out of higher end equipment I lease, because I'll have more time to study the features. For a prolific indie producer, I think ownership makes sense for most things.

May 4th, 2008, 05:02 PM	#1
Mike Barber Major Player Join Date: May 2006 Location: Toronto ON Canada Posts: 731	To Lease or Not to Lease -or- Leasing vs. Ownership There are pros and cons to both. I realize that it is a trade off rather than one being better, but I've never leased anything before (other than where I live) so I'm hesitant about the idea when it comes to equipment -- in this case, specifically my editing suite. I'm looking at my options for upgrading my whole suite (computer, software and monitors) and when it comes down to either leasing or purchasing, I am torn. Leasing pros: relatively low monthly payments, tax deductibility, and options at the end to upgrade, extend or buy at "fair market value". Leasing cons: no ownership over the tools of production Purchasing pros: ownership over the tools of production, possible to finance for monthly payments Purchasing cons: having to drop large sum right away, upgrade path not as easy or much more expensive The leasing option seems like an enticing way to go, but if I was to face another lean period like my past six months, I probably wouldn't have been able to hold on to the equipment and would then find myself royally and utterly screwed. When you own your tools, you aren't as vulnerable. A carpenter doesn't lease his tools, but then he doesn't face the same technological pacing that we do. Bleeding edge isn't important to me, but keeping up with what is current is very important. Any thoughts? __________________ Mike Barber "I'm laughing to stop myself from screaming."

May 4th, 2008, 05:14 PM	#2
Jarrod Whaley Major Player Join Date: Jun 2006 Location: chattanooga, tn Posts: 721	Sorry, I don't really have any answers to your questions... in fact, I have a few questions of my own whose answers might benefit you as well. Is there some reason why leasing is tax-deductible and buying isn't, or are we talking about a difference between the tax laws of the U.S. and those of Canada? Are you saying that you find more attractive the idea of deducting a regular lease payment as opposed to deducting the depreciation of the gear's value over a few years? Does anyone have any thoughts as to which approach is likely to be more financially beneficial, either short-term or in the long run, when all the costs and tax benefits of leasing vs. buying are taken into account? Thanks, __________________ -->jarrod whaley. www.oakstreetfilms.com

May 7th, 2008, 10:21 AM	#6
George Kroonder Major Player Join Date: Jan 2008 Location: Utrecht, NL \| Europe 3rd Rock from the Sun Posts: 612	Rent - Lease - Finance - Buy All of these serve a purpose. The key is to select the appropriate financing method to match your business needs. Sometimes renting equipment is best, especially if it is special equipment you only need on few projects. Maybe also to try something out or get your feet wet in some new venture without committing yourself at an early stage. Leasing is often easier to get than financing and with sponsored "0%" rates, can be quite advantageous. There can be accounting advantages or disadvantages to not owning capital goods. Lease is based on 'fair market value' and is especially suitable if you want to fix your cost base and have regular upgrade intervals. Flexibility is provided through 'Technology Updates' with most leasing vendors, so you can 'trade-in' your equipment before the contract runs out. With financing you can also partially finance and rates are lower as there is little/no risk (as to the equipment) to the lendor. If you have the money to pay cash, you probably should. But sometimes it is better to lease or finance. Typically the more money you have the more you can finance and thus the more capital you can use to run and grow your business. Be a responsible risk taker though... Sometimes it is a chicken/egg situation where you may want to, for example, expand your marketing or sales and need new equipment to take on better paying work. When your means are limited, like they are for most of us to some degree or another, choosing to lease equipment and investing in growing your sales may be the best option you have. George/

May 4th, 2008, 06:41 PM	#3
Chris Davis Trustee Join Date: Jul 2005 Location: Willmar, MN Posts: 1,400	Don't know about Canada, but here in the USA for us small operators, leasing carries no tax benefits over purchasing. If I purchase a computer I can choose to write off the complete cost in the first year as a Section 179 deduction, or depreciate it over several years. For all practical purposes, leasing is the most expensive way to obtain your equipment. I see no pros, only cons to leasing. I'm pretty much cash only, but if I had to pick between leasing or financing, I'd finance because at least I'd have the option to pay off the balance at any time.

May 6th, 2008, 07:53 AM	#4
Chris Burgess Regular Crew Join Date: Mar 2006 Location: Atlanta, Georgia Posts: 30	yeah, I have to say I am not big on the leasing or financing options either...everything we have is purchased outright cash. yeah, it means we can't run out and buy the latest, greatest cams and accessories...but it also means I don't have people trying to track me down because I didn't make payments on my cameras (which happened to a friend of mine).

May 8th, 2008, 10:58 AM	#8
Seun Osewa Major Player Join Date: Oct 2006 Location: West Africa Posts: 255	I believe i can get more out of lower-end equipment I own that I might get out of higher end equipment I lease, because I'll have more time to study the features. For a prolific indie producer, I think ownership makes sense for most things.