Are you looking to completely manage your servers and just need space, power, and bandwidth, Also, how much space in the rack or cabinet? Or would you prefer a fully managed solution? There are many things to think about when deciding.
When you colocate you should buy equipment and to make sure that you'll have someone in the data center to do the engineering work (hardware replacement, cabling, etc.). When you get a dedicated server you save time and money on this. If you are about to have a 1 - 3 servers only it is much better to go for a dedicated hosting and not to spend money on buying hardware and dealing with it.
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There isn't any "best" - both are viable methods for getting servers online and it really just depends on how you want/plan to go about doing things and what you feel is best.
There are pros and cons of both methods such as leasing usually costs more in the long run (con) but is cheaper up front (pro) and colocation usually costs less in the long run (pro) but quite a bit more up front due to having to purchase hardware and sometimes setup fees (con).
There are many more aspects that make them different but neither is "best" overall.
It really depends on how you want to do things, as MikeDVB said both have pros and cons. Colocation may work out cheaper in the long run, however your then responsible for the hardware. What is your budget?
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