Sale Leaseback? Here’s How and Why

A sale-leaseback is a tool often used by real estate owners to gain access to the equity of their property without losing the functional use of the space. The process is as simple as it would seem from the name. A property of any type is sold and then leased back by the seller from the buyer (new owner) for their ongoing use. Most commonly this type of transaction will include both the sale and the lease back in the initial documentation. It is important to remember that the right to use the property will remain with the seller/lease holder as per the documented agreement.

The reason people enter into this type of transaction is also simple. The seller needs/wants the money, but wants to remain in the space. Perhaps the seller has run out of the tax benefits of ownership and will use the money to expand their business, invest in other property or remove other debt.

The buyer will get a property with a known secure tenant and an acceptable cash flow based on their investment. The buyer will also reap the tax benefits of depreciation and interest deductions. In most cases these transactions are between known entities and work well as a win-win proposition. It is important however that the sales price and the rental rates are market prices in order to avoid any questions about the legitimacy of the transaction. You would be surprised at how many of these transactions take place every year and how many people have good secure investments and ongoing business because of this simple technique. The opportunities are out there if you’re willing to go out and look for them.