What Is a Sale Leaseback

In real estate, a leaseback (formally known as sale and leaseback) is an arrangement between the seller and the buyer where the former leases the same asset back from the latter. In a sense, the seller will still be able to use the sold asset while no longer owning it. A leaseback is generally done for fixed assets, is usually for long-term, and is common in the real estate investment trust (REIT) industry.

Leaseback Process

After you purchase a property, you can enter a long-term agreement with the seller by which they can lease it back at an agreed rate for a certain period of time. This will serve as a secured investment for you as the buyer.

For the seller, this will allow them to transfer ownership while still being able to keep track of the profitability and value of the property. Also, they would still be able to raise money from it.

Commercial Real Estate

In commercial real estate, a leaseback transaction usually involves a corporation selling a corporate real estate asset to another party, which can be a REIT or an institutional investor, and then leasing it back on an acceptable term and rate. The lease terms and rates are typically based on the new investor’s financing costs, the market’s rate of return, and the lessee’s credit rating.

In a way, a leaseback arrangement is useful when corporations are looking to untie the funds they invested in an asset and use them for other investments.

 

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