Frequently asked questions
What is a sale-leaseback?
What are seller advantages of a sale-leaseback?
The reasons and advantages for a seller/lessee are varied, but the most common are:
- Help finance expansion of the existing business, purchase new plant equipment, or invest in new business opportunities. A sale-leaseback enables a corporation to access more capital than traditional financing methods. When the real estate is sold to an outside investor, the corporation receives 100% of the value of the property. Traditional financing is limited to loan-to-value ratios of between 60% to 75% for most middle-market companies.
- Help pay down debt and improve the company's balance sheet.
- Help reduce the seller/lessee's business income tax liability, because entire rent payment is tax-deductible, as opposed to only the interest portion of a mortgage payment.
- Eliminates residual value risks associated with the long-term ownership of real estate.
What are investor/landlord benefits of a sale-leaseback?
The advantages for an investor/landlord are:
- Fair return on the investment in the form of rent during the lease term, and ownership of a depreciable asset already occupied by a reliable tenant.
- Long-term, fully leased asset with a guaranteed income stream.
- For income-tax purposes, the investor/landlord can take an expense deduction for an investment in a depreciable property to allow for the recovery of the cost of the investment.
- Ability to invest in real estate with a tenant who is already familiar with the property and who continues to be solely responsible for the property's maintenance and operation.