How to use: How this lease vs build calculator works

The calculator compares two strategies for adding production capacity in an urban vertical farm. Both strategies assume you sell harvested produce at an average price per pound and incur variable operating costs per pound. The difference is how you pay for the facility: leasing converts facility access into a recurring annual expense, while building converts it into an upfront capital investment with an annual financing payment.

What the calculator outputs

• Annual net cash flow for the lease option and the build option.
• A simple decision snapshot that indicates which option has higher annual net cash flow under your assumptions.
• A cumulative cash flow table that shows how cash flow adds up over your planning horizon (with the build option starting at −Capex).
• A basic resilience note comparing annual debt service to annual lease expense as a quick risk signal.

Inputs and units (what each field means)

Each input is intentionally simple so you can run scenarios quickly. If you have more detailed data (for example, separate energy and labor line items), you can still use this tool by converting them into an equivalent operating cost per pound.

• Leased area (sq ft): gross grow area available under the lease. If the lease includes non-growing space, use only the productive area.
• Lease rate ($/sq ft/year): annual facility cost per square foot. If utilities or services are not included, reflect them in operating cost instead.
• Custom build area (sq ft): productive grow area in the owned facility. It can be larger or smaller than the leased area.
• Build capex ($): total project cost (construction, racks, HVAC, LEDs, automation, commissioning). The model treats this as an upfront outflow.
• Financing rate (%): annual interest rate used to compute a simplified annual payment over the planning horizon.
• Operating cost ($/lb): variable cost per pound. Use separate values for lease vs build if you expect different labor efficiency, maintenance, or energy pricing.
• Annual yield (lb/sq ft): annual production density. If you harvest multiple crop cycles, this should already reflect total annual output.
• Average sale price ($/lb): average realized price across your crop mix (wholesale, retail, or contracted price).
• Planning horizon (years): number of years used for the comparison and for the financing payment calculation.

Formulas used (plain language)

The model uses straightforward arithmetic so you can audit results easily. It assumes constant yields, prices, and costs across the planning horizon. If you expect ramp-up (for example, year 1 at 70% yield), you can approximate it by lowering the yield inputs and re-running scenarios.

Annual revenue:

Revenue = Area × Yield × Sale price

Annual operating cost:

Operating cost = Area × Yield × Operating cost per lb

Lease annual net cash flow:

Lease net = Revenue − Operating cost − (Lease rate × Leased area)

Build annual financing payment (amortization-style payment over n years at annual rate r):

Payment = (r × Capex) / (1 − (1 + r)^(-n)) (or Capex / n if r = 0)

Build annual net cash flow:

Build net = Revenue − Operating cost − Payment

Cumulative cash flow:

The lease scenario starts at $0 and adds the lease net each year. The build scenario starts at −Capex (an initial outflow) and then adds the build net each year. The table shows the running totals so you can see whether and when the build option catches up.

Worked example (quick sanity check)

The example below is illustrative only. It is meant to help you confirm that your inputs are in the right ballpark and that the outputs “feel” consistent with your expectations. Real projects should include taxes, depreciation, incentives, and a detailed ramp-up plan.

• Lease: 18,000 sq ft, $48/sq ft/year, 28 lb/sq ft/year, $3.10/lb operating cost
• Build: 22,000 sq ft, $14,000,000 capex, 6% financing rate, 32 lb/sq ft/year, $2.60/lb operating cost
• Sale price: $7.20/lb
• Planning horizon: 10 years

Under these assumptions, leasing often produces steadier early cash flow because there is no large upfront capex. Building may start slower due to financing payments, but it can outperform if yields improve, operating costs drop, and the facility remains competitive. Use the cumulative table to see when (or if) the build scenario overtakes leasing.

Decision guidance: what to look at beyond the numbers

A lease vs build decision is rarely only about year-one net cash flow. The same annual cash flow can represent very different risk profiles. Consider the following operational and strategic factors when interpreting results:

• Speed-to-market: leasing can enable earlier revenue, which may matter more than long-run margin if you are racing to secure customers.
• Control and customization: building can support crop diversification, automation, and energy optimization, but it also increases execution risk.
• Energy exposure: electricity is often a major cost driver. If your lease includes utilities, your operating cost may be more stable; if not, model energy volatility in operating cost.
• Upgrade cycles: LEDs, controls, and robotics evolve quickly. Leasing may shift some upgrade burden to the landlord; ownership may require retrofit budgets.
• Contract structure: escalation clauses, renewal options, and service-level agreements can materially change the effective lease rate.
• Financing realism: the financing payment here is simplified. If your loan term differs from the planning horizon, interpret results accordingly.

Assumptions and limitations (important)

• This is a simplified cash flow model. It does not include taxes, depreciation, grants, incentives, residual asset value, insurance, or equity dilution.
• Yields, prices, and costs are assumed constant across the planning horizon. If you expect ramp-up, add conservatism to yield or increase operating cost.
• The build scenario treats capex as an immediate outflow and then applies a constant annual financing payment. It does not model staged draws, interest-only periods, or construction delays.
• The lease scenario assumes the lease rate is constant. If you expect annual escalators, you can approximate them by using a higher effective lease rate or by running multiple horizons.
• The model does not include working capital needs (inventory, receivables) or downtime risk. Use it as a baseline, then layer in operational realities.

Practical tips for better inputs

If you are unsure what to enter, start with conservative assumptions and then run sensitivity checks. Small changes in yield and operating cost can dominate the decision. The following prompts can help you refine inputs without overcomplicating the model:

• Yield: base it on sellable pounds, not harvested pounds. Account for shrink, QA rejects, and customer specs.
• Sale price: use a blended price across channels. If you sell both retail and wholesale, weight by expected volume.
• Operating cost: include labor, consumables, packaging, and the portion of utilities you pay. If the lease bundles utilities, keep operating cost lower and reflect facility cost in the lease rate.
• Lease rate: confirm whether it is quoted on gross area, rentable area, or productive grow area. Convert to a consistent basis.
• Capex: include commissioning, contingency, and initial spares. Underestimating capex can make building look artificially attractive.

FAQ (common interpretation questions)

Does “build” include land purchase?

Only if you include it in the capex input. Many urban projects lease the building shell and invest in the grow system; others purchase property. Enter capex accordingly.

Why does the build cumulative cash flow start negative?

The model subtracts capex immediately as an upfront investment. The table then adds annual net cash flow each year. This makes payback timing visible.

What if my loan term is 15 years but I want a 10-year comparison?

This calculator uses the planning horizon to compute the payment. For a closer payment estimate, set the planning horizon to the loan term, then interpret the cumulative table as a loan-term view.

Can I model rent escalations or yield ramp-up?

Not directly in this simplified version. A practical workaround is to run multiple scenarios (for example, a “base year” and a “post-escalation” year) and compare ranges.

When you are ready to share results, use the Download comparison CSV button to export your inputs and key outputs. The CSV is useful for investment memos, lender packages, and scenario planning spreadsheets.