In a leaseback transaction, in which the owner of equipment or real estate sells the asset, receives cash and leases it back, how much does the lender recover in the case of a default?
While this depends upon many factors, in terms of the value of the equipment itself, some types of leaseback equipment are simply more valuable in the short term, and often hold their value better in the long term.
An example of this is construction equipment such as skid steers, dozers, ditch witches, as well as tractors for long haul trucking. Equipment which does not retain it’s value well in a leaseback transaction is computer and electronic equipment, which obsoltes extremely quickly due to new technology and has a relatively low value in a short amount of time, often bringing back as low as 10% to 30% of it’s original value after only 1 or 2 years.
Other types of equipment will lose their value more moderately, such as industrial equipment, restaurant equipment, medical equipment, and machinery.
Regardless of the equipment types, equipment clearly will not hold it’s value, while over time, real estate will, and is a stronger form of collateral, returning significantly more to the lender in the even of a default.
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Realtor.org – National Real Estate OrganizationTrade organization for real estate agents. Includes overview, code of ethics, activities, and membership information.
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