” I had the pleasure of helping Century Equities purchase a NNN property. Century Equities met or exceeded every expectation!”
- Alan Fruitman, 1031tax.com
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.
