Another spin on an age-old question.

I am trying hard to figure out what might be the best way to proceed. If I had the necessary funds, I would obviously buy all the gear outright, but for now that is not an option.

Thus, I feel as though I have 2 options:

1) Lease servers (ie Dell) for 24-36 months, and turn it back in when the lease is up.

2) Obtain a business loan for the equivalent value and pay it back over the same timeframe, 24-36 months and own it at the end.

One caveat:

-I need high end stuff, Dual Xeon, 2gigs ram, SCSI, 1U rackmount

The problems I envision are:

1) What if in 3 years my purchased equipment (option #2) doesnt really have the balls to run the apps I need to be run? Then, I just paid all that money over 36 months and still am faced with an upgrade (or in other words, back to square 1)

2) What is the downside of leasing?

As far as I can see, the payments will be quite similar, on lets say $20k worth of stuff. Lets not get into credit, my business has a good, established credit. Getting the lease OR the loan will not be difficult, and the interest rates are within 2% of each other.

So, its just a matter of owning free and clear versus turning the gear in for faster, better stuff in 3 years. Whats the consensus?

My only thought at this point is if a person gets a LOAN to own the gear, in the 3 years they can always assume a lease PLUS they get their stuff. Therefore it seems that if the LOAN can be had, it is looking much better.

Well IMHO you'd have to be nuts to pay for 3 years and not have anything to show for it at the end of it.

Originally posted by KDAWebServices
Well IMHO you'd have to be nuts to pay for 3 years and not have anything to show for it at the end of it.
You want 3 yr old hardware?

We have around 70 leased machines from Dell, the only thing we didn't lease are the 22' LCDs for my internet cafe.

For my kind of business here locally I do think this was a great deal, as every 2 months (I've only done this once), we just ship back our PCs back to get better hardware, dependent on how much the machine we want from Dell costs, our monthly lowers, o or rises just a tad bit,and since we need to stay up2date for our clients , its worth every penny :),a nd has saved us alot.

Aussie Bob - He's talking Dual Xeons, they'll be fine in 3 years time and still be running, in fact I'd hazard you could sitll lease them to customers or evne sell them on eBay and get some money back - Sure as hell beats pouring money down the drain.

We still have the very first server we bought running web sites on it, it's a P3 1Ghz with 512MB RAM and 240GB RAID array, it's over 2.5 years old now, bought it in Feb 2001 and in another 6 months time I can still see it running perfectly - So why not own it, rather than lease it? Sure it may only be worth about £200-£300 now at book value, but it's still assets in our business and I bet I could still lease it to one of our customers as a dedicated server tomorrow.

Usually, in the business leasing context, the cost to acquire at the end of the lease term is very low--often $1. I haven't leased from Dell, so I don't know what their lease terms look like.

I'd be very surprised if the total cost to purchase was very different from the total cost to lease over the lifetime of the lease plus acquisition.

There are three main differences between leasing and buying. One of them is the option to spread payments over time, and that difference can be equalized by financing the purchase. Another difference is that once you purchase the equipment, it's yours to dispose of; with leasing, you can't dispose of it during the lease term without serious penalties. (Imagine that your business runs into financial difficulties, and you need to reduce your capacity to stay alive; theoretically you could sell your owned equipment, but you're stuck paying for your leased equipment.) The other difference is the tax treatment.

Lease payments are fully deductible (for businesses) as you make them.

Purchased equipment, however, must be depreciated over its useful life--and for computer equipment, that's 5 years. (Actually, the deductions are spread over 6 years, because of the way depreciation is calculated.) Only the depreciation is deductible, although you get a comparatively larger deduction in the first 2-3 years.

But (and there is always an exception in tax law) Mr. Bush has been messing around with the tax code, and as part of his tax cut packages, you can take "extra" depreciation deductions in the first year, if you meet the qualifications and limits.

And if your equipment purchases total less than some dollar figure (used to be around $24,000, but may have gone up), then they can be expensed entirely (fully deducted) in the year of purchase, if you qualify to use that deduction.

Gives me a headache just thinking about it, so you might want to talk to your accountant or tax attorney.

The upshot of it is that the differences between leasing and purchasing have been largely eliminated, especially for small businesses, but there is probably a slight bias toward purchasing if you can swing the financing and the payments.

As Jim suggests, definitely talk to an accountant on this. This is a classic business finance question (buy or lease) and a lot will come down to what interest rate you can get approved for on a loan or line of credit vs. the lease.

You will also want to verify what the lease buyout terms are. (i.e. $1 buyout, "fair market value", etc.)

My instinct tells me that a loan might be more in your interest to do vs. a lease but it is really dependent on so many variables, you need to have a financial advisor calculate both options to verify.

Best regards,
Chris West
CDGcommerce

Originally posted by KDAWebServices
Aussie Bob - He's talking Dual Xeons, they'll be fine in 3 years time and still be running, in fact I'd hazard you could sitll lease them to customers or evne sell them on eBay and get some money back - Sure as hell beats pouring money down the drain.
I'm all for that. Got a bunch of dual xeons over here and hope to get 2 yrs minimum out of them. :)

Would it be a good idea for a startup to lease a server or two at the beginning, then put the revenue generated by them towards purchasing other hardware? After business picks up, the cost of leasing would be a rather moot point, but a very affordable way to get in to a dedicated server.

How much are you paying monthly if you buy your own system and lease it? Are you just paying for the Bandwidth?

Originally posted by d2dexter
How much are you paying monthly if you buy your own system and lease it? Are you just paying for the Bandwidth?

Bandwidth and rackspace.......


I think for the 1650 Power Edge dell with dualie's fully loaded...it was 150-200/month combine that with around 100-150 per month colo fees.
There ya go.

It seems like a good investment if you need more then 10 machines. I would see way too much risk for someone to merely lease one or two machines and just pray to make a return. If you have the cash to support the payments, you should just buy upfront, then your don't have the chance of defaulting on payments.

If you are well established, then I could see getting 1 or 2 machines since either way. Your business should be capable of supporting the payments.

I'd advise you to buy just a few servers and not stepping into a deep hole (like loans or leasing contracts).
Buy one box and fill it up. By that time you will make enough money to buy your second box.

IF they are compairable costs lease/buy then its ovious that in the end its better to own.

One reason, you can still use the machine for secondary services that require dedicated hardware but nothing super duper (i.e. DNS)

Two, you can sell the equpment on the secondary market, yes people are still buying 3 yr old hardware.

Three you can offer them as a budget option to dedicated/managed clients. Then you don't have to factor machine costs into the bill, and can provide service based on space/bandwidth costs. Saves your client some change, and add's value to your company.

I would say you would have to be a fool to lease something for the same amount you could buy it for. The only time I would recommend otherwise would be for a large corporation that requires new machines and service contracts. Then, they don't care what it costs they just want the equipment without all the headaches of ownership.

Originally posted by KDAWebServices
We still have the very first server we bought running web sites on it, it's a P3 1Ghz with 512MB RAM and 240GB RAID array...

Wow... that's an eye-opener. My first colocated server was a 486. Then I had a RaQ2... :D

We're still using PIII/1GHz servers for virtual hosting customers. Have about 80 vhost customers now on two of them and they're absolutely fine. To the thread starter, I'd definitely say dual Xeons will be worth something in a couple years... they may be where a dual P3/800 is now, but you'll still be able to lease them out for $79/month or so. It's better than leasing and having nothing to show for it at the end. :)

That was the first server we bought ourselves, not the first we ever used :)

It in someways is better to lease because if one of the servers goes wrong and will not work then the lease company have to fix the problem or provide you with a new one, or that is what happends with vans and lorry's. And I think Insurance is included.

Another thing in is future you want to rapidly exspand your business and need a big loan you are more likely to get it because of your credit history.

Here's some more insight into the issue of both equipment and data centers:

http://thewhir.com/features/ownvslease.cfm