Three Advantages of Sale-Leaseback

Three Advantages of Sale-Leaseback

The concept of a sale-leaseback is quite simple.  A business owner runs a business out of a building owned by the business owner.  The business owner sells the building but then leases the space back to continue the business.  There are some advantages to the sale-leaseback option.

1. Unlock liquidity

One of the biggest benefits of a sale leaseback is that it can provide businesses with much-needed liquidity. This can be used to fund growth, pay down debt, or simply improve the company's financial position.

For example, let's say a company owns a commercial property that is worth $1 million. If the company sells the property and then leases it back, it will receive $1 million in cash upfront. This cash can then be used to invest in new equipment, hire new employees, or expand into new markets.

2. Reduce risk

Another benefit of a sale-leaseback is that it can help to reduce risk. When a company owns a commercial property, it is exposed to the risk of the property decreasing in value. This could happen if the market for commercial real estate declines or if the company's needs change and it no longer needs the property.

A sale-leaseback can help to mitigate this risk by transferring the ownership of the property to another party. This party will then be responsible for the risk of the property decreasing in value.

3. Tax Advantages

 When a business sells its property and then leases it back, the rental payments are generally fully deductible as business expenses. This can provide significant tax savings, as the business can deduct the entire amount of the rent payments, including operating expenses, CAM fees, and any owner-paid tenant improvements.