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Sale-Leaseback Transaction: An Essential Information

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SVN Infinity
Sale-Leaseback Transaction: An Essential Information

Many commercial real estate owners are unaware of a financing alternative that might increase their cash flow without interfering with their everyday business operations. This type of financing is known as a sale-leaseback. If you are considering this form of Commercial sale-leaseback investment property but are uncertain of its specifics, we are here to assist you. Today, we'll cover every aspect of sale-leaseback transactions.


What Exactly Is A Sale-Leaseback

Sale-leaseback is a specific type of financial instrument in which the owner of an asset (the seller/future lessee) sells the asset to an investor (the future lessor). Then, the seller rents the asset back to the buyer. The buyer is the landlord, and the seller is the tenant. The benefit to the seller is that they can get money without having to move or stop running their business. Also, they are selling the asset at the current market price, probably more than what they paid for it in the first place.

The investor gets a return on their investment right away in the form of monthly rent payments when they buy an operating asset. So they don't have to spend money on marketing or leasing campaigns to find tenants.


Types of Sale-Leaseback

There are two kinds of selling and leasing back in the business world: operational and capital leases. A selling-and-leasing-back contract is usually set up as an operating lease, but in some cases, it will be treated as a capital lease. A sale-and-leaseback deal is usually a capital lease if the lease has a buyback option, a buyback deal at a discounted price, or if the lease value is more than 90% of the property's value.

By putting some or all of the risk of operating costs on the tenant, the landlord seems to get some protection from rising operating costs. In general, there are four different types of leases that describe the different ways to handle operating expenses:

1. Gross Lease - The renter pays rent, and the owner offers to pay for the tenant's living costs. They can if the contract says the renter has to pay for exceptional repairs.


2. Net Lease - Depending on whether the lease is a single net lease, a double net lease, or a triple net lease, the occupant is in charge of the rent and the operating expenses.


3. Hybrid Lease - Include the gross and net rents since the tenant and the owner pay for running the building.


4. Percentage Lease - This depends on whether the lessee's profits are "gross" or "net." With a percentage lease, the lessor needs a minimum rent if the tenant leaves.


Why Should You Consider A Sale-Leaseback?


Property owners can get a lot out of a sale-leaseback deal that helps them make more money. Some of the most important advantages for the seller/tenant are:

1. Getting cash from the business property's equity

2. Setting your rent rates and other deal terms for a leaseback.

3. The ability to use the money invested in real estate to pay back investors, fund business growth, buy capital equipment, or reduce debt.

4. A long-term lease with fixed rent costs for the whole term and options to renew, so the seller and tenant can be sure that the tenant will stay in the space.

5. The ability to keep living in the property you used to own and make all the real estate decisions.

6. Being able to write off rent as a business expense


In the same way, the buyer/landlord also gets a lot out of a sale leaseback. These things are:


1. The ownership of a cash-generating asset with a long-term NNN lease.

2. The ability to deduct interest payments and property depreciation costs on a buyer's or landlord's income tax return

3. Protection from the volatile real estate market

4. Tax breaks for investments (if available)

5. The chance to get a predictable return on investment (ROI) with less risk than in speculative or value-add commercial real estate transactions.


The Closing Note

A sale-leaseback is a commercial real estate deal in which a property is sold to a new owner, and the same property is leased back from the new owner. For business owners, this transaction can help make an asset that is usually hard to sell more liquid. For investors, this deal can add valuable real estate to a growing portfolio and provide a steady source of cash flow through a lease agreement signed at closing. One way for investors to get involved in this kind of real estate deal is to work with a private equity firm. So, SVN Infinity is the best choice if you want the best commercial real estate brokerage near me.


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