Sale Leaseback vs. Lease Replacement Purchase: Both Benefit Businesses
Every business has a different cash flow strategy, and their real estate decisions should align with those strategies. One of the options businesses have is a sale leaseback, and the other is a lease replacement purchase. This article explains the differences between these two options and their benefits.
A sale leaseback is when a business sells their commercial property to a real estate investor and then leases the property back from the investor. This strategy can be beneficial for businesses that want to generate an influx of cash flow on their balance sheet without losing the use of the property. Sale leasebacks are common among businesses that are in the business of operating, such as gas stations, as it allows them to free up capital for expansion, reinvestment, or other purposes.
One of the benefits of sale leasebacks is that the investor becomes the landlord of a long-term, financially capable tenant. This means that the investor has a guaranteed source of rental income for the duration of the lease, which is usually a triple net lease with increasing rental income. Additionally, the tenant can continue using the property for its business operations without any disruption.
On the other hand, a lease replacement purchase is when a business purchases their current location at the end of their lease term, acquiring another asset on their balance sheet. This strategy is beneficial for businesses that want to reduce their lease payments in the long run, increase their equity through property appreciation, and have control over their property.
One of the benefits of a lease replacement purchase is that the business can reduce their lease payments by financing the purchase of the building. By purchasing the building, the business can lock in a fixed mortgage payment, which can be lower than their lease payments, providing more control over their expenses. Additionally, the business can benefit from property appreciation over time, building equity in the property and potentially benefiting from increased value in the future.
Small business owners looking to purchase a commercial building have access to a variety of lending programs, including SBA, conventional, and private lending. These programs can help free up cash flow and increase equity through property appreciation. Financing a lease replacement purchase is an effective way for businesses to reduce their monthly expenses and invest in their long-term future.
In conclusion, sale leasebacks and lease replacement purchases are two options businesses have when it comes to real estate decisions. Sale leasebacks can generate an influx of cash for businesses, while lease replacement purchases provide more control over assets and expenses in the long-term. As a businesses, it’s important to consider the cash flow strategy, short-term, and long-term goals when deciding on the best approach to occupy real estate.
Purchasing a commercial property? Loan program details are available on the Commercial Financing Solutions page.