I’m looking at a deal where the seller is requiring the terms to be a 5 year lease (based on 10% down payment with the balance financed at 7%), with purchase at the end

of the 5th year. Its about a 9 CAP with a 42% annual cash return. My concern/question is with regard to the “tax effect”. By leasing for the first 5 years, I believe I would be losing out on Depreciation, meaning I would be paying full tax on my post debt cash flow, and the seller will be advantaged by being able to continue depreciating during this 5 year period.

I don’t have a lot of experience with Depreciation and would appreciate some input here.