Sale and leaseback options are gaining popularity as US businesses look for ways to give their business a cash boost. Many companies are recently bought as operating companies with attached ownership; ditching the property can give you the cash to expand.
As with any deal, there are pros and cons to consider and you must decide whether the pros outweigh the cons before signing on the dotted line.
Start by looking at the benefits of sales and leasing opportunities and how you can help your business move forward.
Of course, the main advantage of this option is that you sell your building and receive the cash, which you can use as and when you want, whether it is to invest in other buildings, expand your business or pay off your debts.
Another advantage is that you rent the property to the new owner. This has the added benefit of a fixed rental amount that is agreed upon for a period of several years, which is typically fifteen years or more.
On top of this, it means you don’t have to move properties, which confuses your clients and saves you money on marketing your new information like address and phone number.
Then there’s the advantage that if you choose a put-down option, you can cancel your mortgage, which is always a winning opportunity. Without mortgage repayments, you can enjoy having a fixed amount of rent that you can offset with your tax return.
This is why many companies choose sale and leaseback options is that they can take advantage of the tax savings they get when renting.
Rental payments are tax-free, adding cash to your bank balance, increasing the amount of cash you have in your pocket to help your business grow to the next level.
When you give up your ownership rights to the property, you also lower your maintenance costs, depending on the type of sale and lease you choose.
There are several options, triple net leases are generally a cheaper rental amount, but you are responsible for all maintenance or you can choose a slightly higher rental amount, handing over the maintenance responsibilities to the new owner.
The last advantage you’ll want to consider is whether the agreement you sign gives you the ability to repurchase the property after the agreed rental period. This is something to keep in mind and a great benefit when the lease ends.
Then there are the downsides. While there aren’t many, you need to weigh them up against the sale and leaseback advantages to decide if it’s the right option for you before proceeding.
One of the disadvantages you may consider is that you lose certain rights to the property when you become a tenant, this includes using the property as collateral when applying for a loan, if you ever need more cash.
Other downsides include that after the contract, when it comes to signing a new rental agreement, you may not have any control over how much the rent increases.
During the rental period, you know what to expect, but when your years are up, you may need to consider moving to pay the rent.
The final downside is that some deals do not offer the ability to buy the property back from the new owner and this is a serious consideration that can affect your business in the future.
