Answers to Common Questions About Sale Leasebacks

If you’re exploring options for a sale leaseback commercial property, an expert in our Avison Young Net Lease Group can help. We’re a trusted choice for many smart investors who choose to work with a commercial brokerage company.

Sale and leaseback is increasingly popular for many reasons. Undoubtedly you’ve heard good things about the sale leaseback market, which is why you’re here. We encourage you to contact us to find out how we can find a good fit for your investment needs. One of our team members will be happy to answer your questions. In the meantime, here are answers to some of the common questions we hear from those considering sale-leaseback.

What is a sale leaseback?

When a business sells its commercial real estate property to someone who will lease that property back to the original owner, this arrangement is known as a sale-leaseback. There are advantages to both parties:

  • The investor will earn a return on their property investment from a tenant they can trust to make payments and commit to taking care of the property.
  • The business receives a fair market value price for the property and gains liquidity by selling the property.

What are the advantages of investing in a sale leaseback?

Investors are drawn to sale leaseback arrangements for a number of reasons. Some of the most common ones include:

  1. You can own property and collect rent while your commercial tenant shares the expenses and responsibilities of managing it.
  2. The tenant has a vested interest in the commercial property.
  3. Real estate as an investment performs consistently well as compared to many other types of investments, especially with regard to inflation.
  4. Investors have the option of structuring the lease so that they are not responsible for managing the property.

Why do sellers consider sale leasebacks?

Sale leasebacks are also attractive to owners of commercial property. The reasons for this include:

  1. Selling the property generates cash which business owners may use to expand or enhance the business in other areas. It also takes debt off the books. Major corporations lease their property for this very reason. Well-known examples include Starbucks, McDonald’s, and Home Depot.
  2. A sale leaseback separates the business owner from the real estate, which is the most valuable asset. It may make it easier to sell that business in the future. Many businesses employ a sale leaseback in their long term business strategy in anticipation of eventually selling their company.
  3. Many businesses use a sale leaseback strategy as a tax advantage. When they hold onto the property as an owner, they lose tax deductions in the form of interest write-offs and depreciation. A properly structured lease may allow the business owner to consistently reduce their tax liability by deducting the entire amount of the lease.
  4. If a business owner has debt, they can increase their credit rating, eliminate some or all of their debt, and free up the balance sheet by entering into a sale leaseback arrangement.

A Smart Investment

If you have questions about sale-leaseback as an option for investing in commercial property, talk to our Net Lease Group. Contact us here for answers about sale leaseback.

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Calkain recently published a white paper on the benefits of conducting a sale-leaseback in CFO Magazine.

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