SVN SALE/LEASEBACK

 The sale-leaseback is a simple real estate concept with complex ramifications. Sale-leasebacks allow a seller to liquidate their equity and eliminate debt while at the same time continuing to occupy the property. Many medical owner occupied properties utilize the sale-leaseback

EXAMPLE: You have owned and occupied an  office for several years. You are trying to get their balance sheet in order by becoming as liquid as possible and eliminate debt. The 8,000 square foot building has an appraised value of $1,500,000 and an existing mortgage balance of $700,000 payable at $9,200 per month.

 SOLUTION: Seller creates a 10 year lease with 2 five year options to renew at $14 per square foot NNN that produces $112,000 of net operating income (NOI). They sell to an investor at a cap rate of 7 ½% for $1,500,000.

 BENEFITS TO SELLER: The seller eliminates $700,000 in balance sheet debt while unlocking $800,000 in equity. They can now deduct 100% of the lease payment as operating expenses. This lease is commonly called "off balance sheet financing".

 BENEFITS TO BUYER: The buyer locks in a solid 7 ½% return on their investment and the tax benefits that come from ownership. The buyer will receive any appreciation at the end of the lease period. The investor has no management responsibilities because of the NNN.