The returns earned in business operations typically exceed real estate returns. That’s why many owner/operators use sale-leasebacks to move real estate capital into their core business.

A sale-leaseback transaction allows businesses that own the building they operate out of to sell the real estate and remain in the location as a tenant. It’s a strategy to utilize the equity tied up in your real estate rather than using cash to grow a business.

Raising funds through a sale leaseback transaction offers owners several business advantages.

Move Real Estate Capital Into Your Core Business

When a higher rate of return can be generated from your primary business than from owning real estate, free up cash by moving real estate capital into your core business to grow the operations.

Create More Value

Sale leasebacks allow the owner to achieve full value of the building rather than the typical 50-70% gained through a cash-out refinance.

In the sale leaseback transaction, the seller will receive 100-300% more than what it costs to construct the building due to the additional value of the long term lease, and the security of the credit of the tenant.

The owner creates value, immediately in the form of equity, by committing to a lease; and then can monetize it by selling the real estate along with the future stream of regular lease payments.

Tax Advantages

In property ownership, the tax advantages are typically limited to deductions for interest expense and depreciation. Whereas lessees in a lease can usually write off their total lease payment for tax purposes.

Liquidity

A primary advantage for the business owner is the conversion of equity in real estate into liquid cash. The business owner regains use of capital that had been tied up in property ownership.

Choose Your Own Lease Terms

The key benefit for the business owner is setting the terms of the lease agreement, including rent payments and lease structure. The owner typically structures a triple net lease where the tenant is responsible for all of the maintenance associated with the property, and there are no landlord responsibilities. The lease usually includes an option for the tenant to renew the lease and may include an option to repurchase the property.