A sale-leaseback is an agreement between a buyer and seller that the buyer will purchase a property and then lease it back to the seller for a specified period. Sale-leasebacks are used for various reasons and have pros and cons for both parties.
Pros of Sale-Leasebacks
As the seller (who becomes the tenant), one of the main pros of a sale-leaseback is an influx of cash. You can still use the property you once owned, but the mortgage is no longer associated with your business. Additionally, any equity you achieved while you owned the property is now liquid.
As the buyer (who becomes the landlord), a sale-leaseback allows you to purchase a property knowing that you already have a tenant with a specified lease agreement. This eliminates any risk of immediate vacancy and negotiating a lease with an unknown tenant.
Cons of Sale-Leasebacks
The most obvious con of a sale-leaseback for the seller is that after the sale occurs, the seller no longer reaps the benefits of the property appreciating. Additionally, while they remain in the building as tenants, there will be certain restrictions on modifying/remodeling based on the lease agreement.
As the buyer-landlord, the main drawback is any issues that may occur with the seller-tenant. The tenant may require extra supervision as they are accustomed to treating the property as if they were the owner.
Rely on Your Broker
When in doubt, rely on your commercial real estate broker to help determine when and if a sale-leaseback is the right fit for you and your business. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.
We give out $250 gift cards for referrals that become our real estate clients.
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