Should a Pahrump, NV Restaurant Lease or Buy Its Kitchen Equipment?

A lease buyout is the price at which the business can take ownership when the lease ends. A lease names it in one of three ways: a nominal $1, a fixed percentage of the original price, or the fair market value at that time, set by appraisal. The buyout belongs in any comparison, because a lease with low payments and a large buyout can cost more than a loan.

Illustration only, invented figures: a combi oven priced at $18,600 is offered on a $1 buyout lease at $612 a month for 36 months, $22,033 with the buyout. Bought instead through equipment financing over 36 months at an annual rate of 11.25%, the same oven costs $611.14 a month and $22,001.04 in all, so the lease comes to $31.96 more over the term.

A gap that small puts the weight on the other terms: whether the lease includes service, what insurance each side requires, and whether the loan asks for a down payment.

With a $1 buyout lease the restaurant owns the ice machine for a dollar at the end, so the choice against a loan turns on the monthly amount, any down payment and the fees in each offer.

Illustration only, invented figures: two ice machine heads with bins, one for the bar and one for the kitchen, cost $7,480 together. A $1 buyout lease asks $262 a month over 36 months with nothing down: $9,433 including the buyout. A loan asks for 10% down, $748, and finances $6,732 at an annual rate of 12% over 36 months, $223.60 a month; with the down payment, the loan totals $8,797.60. On these figures the lease costs $635.40 more, in exchange for keeping $748 in the account on day one.

Not every dining room has staff: Nonemployer Statistics for 2024 counts 9 establishments under Full-Service Restaurants (NAICS 722511) in Nye County, NV with no paid employees.

A fair-market-value (FMV) lease keeps the monthly amount low because the lessor expects the equipment back, or a purchase at its appraised value, at the end. A $1 buy out lease charges more each month and hands over the title for a dollar.

Illustration only, invented figures: a four-fryer line with a filter system costs $16,200. The FMV lease runs 48 months at $372, $17,856; the $1 buy out lease runs 48 months at $441, $21,169 with the dollar. If the restaurant keeps the fryers after the FMV lease and they appraise at $2,430, its total becomes $20,286, still $883 less than the $1 buy out lease. An appraisal above $3,313 would turn that result around.

The FMV lease suits a kitchen that expects to replace the line when the lease ends; the $1 buy out suits one that plans to run it for years.

A lease buyout price can also be a fixed percentage of the original price, such as 10%, stated in the lease from the start. Read the end-of-lease clause for the notice the lessor needs before the buyout and what happens if no notice is given; some leases renew on their own.

Illustration only, invented figures: a walk-in cooler and a walk-in freezer, boxes and refrigeration, cost $24,500 and are leased for 60 months at $548 with a 10% purchase option of $2,450: $35,330 for the payments plus the buyout. A term loan or an equipment loan for the same $24,500 over 60 months at an annual rate of 10.25% is $523.57 a month and $31,414.20 in all, which puts the lease $3,915.80 higher.

Running costs during an install, such as food that has to be moved or thrown out, fit working capital rather than the lease. The restaurants page works a single walk-in cooler on 48- and 60-month terms, and the Pahrump, NV page prices a kitchen's first food orders in new space.

For a counter-service kitchen weighing a walk-in lease, the 2023 ZIP Code Business Patterns lists 24 establishments under Limited-Service Restaurants (NAICS 722513) at ZIP 89048 addresses.