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2 things that derail most sale-leasebacks – Press Enterprise

You have chosen to own a location operated by your company. By the way, it’s a wonderful move! A limited liability company has been established and owns the building. Perhaps LLC members are similar to resident members.

You have agreed with the resident (your company) to pay LLC monthly for the use of your address. In effect, you are paying for yourself. That’s beautiful! LLC owners are offered tax incentives such as asset depreciation, mortgage interest depreciation, property tax and operating expenses. Over time, LLC’s investment will be appreciated.

Your occupation business pays the rent just like a landlord who does not have a stake in the company. In addition, real estate owners and operations are synonymous (if the business declines), so monthly rent is synonymous. I’m fortunate to be in this situation.

We own the building in which we mediate. Every month, Lee & Associates Orange – Residents – pays Taft Lee LLC – Owners – an amount that offers a great return on our investment. However, during our tenure, we postponed the rent increase, deposited reserves in the bank for the new roof, and maintained the rent commensurate with market conditions. We can do this because we are landlords and tenants.

In general, a business or ownership transfer makes a commercial real estate decision. As an example, if you win a competitor, does the property you own and occupy properly accommodate the marriage? Conversely, if you sell your business, do business buyers have their own place? So do you overload your assets?

Elections to move your business out of state require some time to promote and change the fairness of real estate to buy your new location. In all cases, you make a decision so that you can guess. Maintain or sell the building.

If you choose to sell, one of the strategies adopted is sale leaseback. By definition, a sale leaseback inserts an investor to replace the ownership of an LLC. The group (your company) stays in the building and pays the investors rent with a leaseback.

With that in mind, let’s discuss what drives most sale leasebacks.

The operating company cannot afford to pay the rent for the market.

Remember. One of the reasons you own a place for your business is to provide flexibility during difficult times. Perhaps the amount you are allowed to pay for your operation is well below what the equivalent rent is. This is done because the two interests of business and architecture are being met.

However, to maximize the value of your investment, you need to support that delta. Someone buying your property and relying on rent is only interested in the rewards of their money. Therefore, the price paid by an investor is based on a formula called capitalization rate or cap rate.

The cap rate is determined by dividing your net income (rent minus costs) by the purchase price. The relationship is the opposite. The lower the cap rate, the higher the price. But the higher the rent, the higher the price … of course. If the housed company cannot afford to pay the market rent, the amount paid by the investor will be of lower value.

As a seller, you want to maximize your sales revenue, but you don’t want to saddle your business with unsustainable monthly rent. A true dilemma!

What to do with profits?

Your ownership LLC with an affiliate paying you is a decent investment. Where can I recreate my earnings if I sell my property? Remember, you have to achieve a tax deferred exchange for another income property or face a tremendous tax bill.

The above three transitions (acquisition of competitors, sale of business, or out-of-state migration) can result in sale leasebacks. However, each shows complexity.

Buying a competitor is easy, especially if you need space. No leaseback required. You simply sell the smaller ones and exchange them for the larger ones. boom.

Business sales are challenging, especially if business buyers don’t need your real estate. You need to fill the vacancy by selling or leasing. The timing of out-of-state travel is ideal for sale leasebacks. Simply put, point A will be sold. The lease is created for two years. Point B will be purchased and rented in the short term while preparing to relocate the company. The lease expires at point A and the transfer to point B is complete.

These will be explained in detail later.

SIOR’s Allen C. Buchanan is a principal of Orange Lee & Associates Commercial Real Estate Services.He can reach at abuchanan@lee-associates.com Or 714.564.7104.

2 things that derail most sale-leasebacks – Press Enterprise Source link 2 things that derail most sale-leasebacks – Press Enterprise

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