Rent Vs Buy

Lease Vs. Buy Decisions Shift, Accounting Proposals Hit Home

Not surprisingly, when Cubist Pharmaceuticals Inc. announced in June that it was buying some of its headquarters buildings in Lexington, Mass., the primary driver behind the transaction was financial. "We will save about $4 million a year in cash by not paying rent," says David McGirr, CFO of the developer of pharmaceutical products, about the purchase that the company expects to close in mid-July.

Not surprisingly, when Cubist Pharmaceuticals Inc. announced in June that it was buying some of its headquarters buildings in Lexington, Mass., the primary driver behind the transaction was financial. "We will save about $4 million a year in cash by not paying rent," says David McGirr, CFO of the developer of pharmaceutical products, about the purchase that the company expects to close in mid-July.

But in this case, some expected changes in lease accounting rules played a role in management's decision, too. "We'd have to carry the asset on our books anyway," he says. "If the accounting looks the same, and with the cash savings, we might as well own it."

The overhaul of lease accounting rules started in earnest in August 2010, when the Financial Accounting Standards Board and International Accounting Standards Board issued a joint exposure draft identifying their proposed changes. The rules overhaul continues today, albeit "in fits and starts," says Betty Davis, a partner in the financial services office with Ernst & Young.

A May meeting of FASB and IASB was particularly noteworthy for its uneven character. The boards reversed an earlier decision in which they had indicated that interest expense for "other-than-finance" leases would be recorded in a straight line on lessees' income statements. The earlier decision was part of the boards' response to companies' concerns that the front-loading of interest expense under finance lease accounting didn't always make sense, particularly for short-term leases.

The reason for their change of heart? "Some board members expressed the view that an upfront pattern of lease expense recognition is consistent with the future commitment to making lease payments in the earlier years of a lease," according to this issue brief by KPMG .

The boards did leave some wiggle room for leases with terms of up to 12 months. These short-term leases can be accounted for "by not recognizing lease assets or lease liabilities, and by recognizing lease payments in profit or loss on a straight-line basis over the lease term," according to this Project Update on the FASB website .

Rent vs. Buy in the Denver Real Estate Market | Denver Real Estate ...

Should You Rent vs. Buy in the Denver Real Estate Market?

Denver vacancy rates are at their lowest point in a decade. Denver rental rates are up. You don’t like renting, Denver housing prices are at an all time low, your job is secure and you have managed to squirrel away some down payment money.  However, you still can’t get off the fence.  

Here’s a great interactive tool that allows you to play with some numbers and calculate what happens if interest rates go up (they will) and home prices should slip (we don’t think they will). 

If you have any questions on how to use this calculator, feel free to contact us at 303-400-6060. When you are ready to go out and see just how far your money will go towards becoming a Denver homeowner, we can help with that, too.

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