Sale lease back is a type of financial transaction in which the owner of a particular NNN property sells his real estate asset to a third party investor. Simultaneously, he enters into a long-term lease at a rental rate for that same property. In simplest terms, there is a reversal in the role of the owner and lender in case of sale lease back. While the owner of the property acts as lessee, the buyer becomes the lessor based on a mutually agreed period of time, a lease term. Generally, the specified period of the lease term ranges from 20 to 25 years. The rental rate and the lease term usually rest on the lessee’s credit rating and the investor’s financing costs.
Why should you enter into Sale and leaseback transactions?
Sale-leaseback transactions have become quite a popular strategy in the commercial real estate industry for more than a quarter-century. Investors, mostly from the United States, are investing in Sale and leaseback properties. This is indeed a smart investment which allows a company to sell its own commercial real estate property to a third person and who will lease that property back to the original owner at a high credit rating rent. On the other hand, by selling the property, the owner generates some cash which he or she can use to expand some other business in some other areas. In the meantime, the lessor will receive a stable and fixed debt for a specified period of lease. This type of deals can also provide the sellers additional tax deductions.
So the reasons to invest in Sale Lease Back nnn properties are as follows:
- The involved cash: The seller or the company can get the cash from the sale of the property and use that cash in some other business with more profits.
- Appreciable savings: Moreover, the payment of the lessee is 100% tax deductible, hence it helps you to save a lot of money.
- Avail benefit anytime: Although it is 20-25 years of the lease term, but you can always avail the opportunity to renew the deal before the term ends.
- Strong financial support: Without any additional help of the expensive market financings like bank loans, balloon payments, and others, Sale and Leaseback gives you a better financing experience as you can build a long-term lease to satisfy your needs.
- Loan free deal: There is no need to pay loans in this real estate financing.
- Quick closing: Just because you are dealing with a single tenant, the closing of this type of deals is quick enough which takes around 30-60 typical days.
Who are the sellers and buyers of Sale-Leaseback properties?
Mostly, the real estate developers, corporate and franchise firms, and other business owners are the sellers of these leased properties. Leaseback properties are becoming the most preferred solution to generate more cash and use it to the immediate expansion of other businesses. The sellers of these properties lease the asset to the qualified, high credit rating single tenants like various government bodies, business, and institutional investors. Consequently, they use the proceeds in reducing company debts or expanding the other businesses. Unlike the other conventional expensive financing deals like bank loans, mortgages, refinancing and others, sale and leaseback financing deals are way more cost effective for any smart and wise investor nowadays.
Points to consider before making sale-leaseback investments
As you might be aware, in today’s economy sale-leaseback deals are becoming popular day by day, despite the increase in interest rates in the United States real estate industry. Over the last few years, these types of investments are the major sources of finances to expand one’s business plans. However, if you are a new investor with high dreams, then it is advisable to keep few things in mind before making any kind of final investment. These points will make things easier for you to remember:
- Background verification: Always check the corporate and business background of the tenant and ask for the lease guarantee so that you can go back to the guarantor’s properties to recover the lost rental income if in any case your tenant defaults.
- Check tenant’s credit history: To make your business more profitable, it is wise to check the tenant’s financial statements as well, Just to make sure if he or she is able to pay the high credit rents, property insurance, taxes and other maintenance expenses.
- Consult CPA: Always approach a CPA to receive opinions regarding the lessee’s financial strength.
- Hire a broker: Hire a skilled broker with a rich knowledge of the on-going market who will help you to understand the pros and cons of investing in the various type of real estate assets and help you to reach to the right people.
- Approach an attorney: Always get in touch with an experienced real estate attorney who will help you to cope up with the legal issues that might rise up during the lease term.
- Negotiate the deal: Always negotiate the lease term with the seller and compare the market value of the property, location, and benefits of the lease terms in long run before making the final decision.
For hassle free deals, make sure to consult with the real estate experts of the Triple Net Investment Group who will always help you to identify the perfect lease properties as per your requirements and crack the best deals.