The Benefits

Financial Advantages

• A sale/leaseback essentially provides 100% financing to the business owner. A seller/lessee (tenant) looking to build does not have to tie up cash in the form of a down payment required by conventional banks. A seller/lessee who already owns the property can unlock the equity in the real estate and turn that equity into cash.
• If properly structured as an “operating lease,” the lease does not add short- or long-term debt or the real estate asset to the balance sheet.  Thus, certain financial ratios, such as the debt-to-equity-ratio, the current-ratio and the return-on-assets-ratio are actually improved. Because Generally Accepted Accounting Principles (GAAP) omits this transaction from the balance sheet, the borrowing capacity of the seller/lessee may be increased.

Tax Advantages

• By deducting lease payments, the lessee can write off the full cost of the real estate, including the portion that relates to land.
• The tax deduction may be accelerated because it is spread over the term of the lease rather than 39 years, the term typically used for depreciating commercial buildings.