Real Estate Sale Lease Back:
Negatives for SellerDisadvantages of a Sale Leaseback to the Seller / User- Tax impact may be substantial if the property has been owned for a lengthy period and/or the book value is low compared to the selling value.
- Loss of flexibility to renovate or rehab the property as well as being locked into a lease at a specific location. Users may also lose the ability of retaining occupancy of the property at the end of its term as the investor may have other plans for the property. Subletting may be more difficult. Note: Most investors (buyers) in a Sale Leaseback require a minimum 10 year lease commitment.
- User can no longer include the real estate in the sale of its business and forfeits any future appreciation.
- P&L (Profit & Loss) cost typically is higher, thus impacting the earnings per share.
- EBITDA (Earnings before interest, taxes, depreciation, and amortization) may be lower since including rent in a leaseback whereas depreciation of an asset is not included in EBITDA.
- Risk factor at the end of the initial lease term similar to re-investment risk since the lease rate and term must be renegotiated.
- Possible reassessment of real estate taxes based on the sale price, which may be inflated due to the sale price. Note: In a Sale Leaseback, typically the NNN rent is directly related to the sale price.
- You can view a sample report or download a full report.
Other Topics About Real Estate Sale LeasebackWhat Is a Sale Leaseback? Advantages of a Sale Leaseback to the Seller / User Disadvantages of a Sale Leaseback to the Seller / User Strategic and Operating Considerations for the Seller / User Advantages of a Sale Leaseback to the Investor Disadvantages of a Sale Leaseback for the Investor Key Elements and Assumptions in Analyzing a Sale Leaseback Creating a Sale Leaseback Financial Analysis Sale Leaseback Accounting Bottom Line Caution
© 2007 James R. Duport, All rights
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