Understanding the Advantages and Disadvantages of Sale and Leaseback
Sale and lease back options are increasing in popularity as companies throughout the USA are looking for ways to give their company a cash boost. Many companies are newly purchased as operating concerns with property attached; ridding yourself of the property can give you the necessary cash needed to expand.
At the same time as with any agreement, there are advantages and disadvantages to take into consideration and you need to decide if the advantages outweigh the disadvantages before signing on the dotted line.
Start by looking at the advantages of sale and lease back opportunities and how it can help your business moving forward.
Of course the main advantage to this option is that you sell your building and receive the cash, which you can use how and when you wish, whether it’s to invest in other buildings, expand your business or pay off your debts.
Another advantage is that you rent the property back from the new owner. This has the added advantage of a set rental amount which agreed upon for a set several years, which is normally fifteen years or more.
In addition to this, it means you don’t have to move properties, confusing your customers and saving you money on marketing your new information, such as address and telephone number.
Then there is the advantage that if you choose a sale and lease back option, you get to pay off your mortgage, which is always a winning opportunity. Without mortgage repayments you can take pleasure in the fact that you have a set rental amount which you can offset against your tax return.
This is why many companies choose the sale and lease back options is that they can take advantage of the tax savings they get when renting.
Rental payments are tax-free, which adds 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 decrease your maintenance costs, depending on the type of sale and lease back agreement you choose.
There are a number of options, triple net leases are generally a cheaper rental amount, but you stay responsible for all maintenance or you can choose a slightly higher rental amount, handing over the maintenance responsibilities to the new landlord.
The last advantage you will want to take into consideration is whether the agreement you sign gives you the ability to buy back the property after the agreed rental period. This is something you must take into consideration and a huge benefit when the lease comes to an end.
Then there are the disadvantages. While there aren’t many, you need to weigh them up against the sale and lease back advantages to decide if it is the right choice for you before going ahead.
One of the disadvantages you may want to 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 disadvantages include that after the agreement, when it comes to signing a new rental agreement, you may not have any control over how much the rental get’s increased.
During the rental term you know what to expect, but when your years are up, you may have to consider moving to afford the rental amount.
The last disadvantage is that some agreements don’t offer the ability to buy the property back from the new landlord and this is a serious consideration, which can affect your business in the future.