Leaseback Real Estate

What is real estate leaseback? Definition of leaseback real estate:

A Real Estate Leaseback is a loan against Real Estate.   The owner of the Real Estate can be an individual or business.   The Real Estate is sold then leased back, allowing the owner to obtain capital and complete a leaseback Real Estate.

A real estate leaseback, versus equipment leaseback, is typically a better choice if the most capital possible is needed.   The leaseback real estate will usually provide the most working capital.

“Loan against Commercial Property”, also know as a “Loan on Commercial Property”, or
“Loan on Commercial Property” are considered by Investors.   Some investors refer to
this as a “Loan on Commercial Real Estate”.

Regardless, in this transaction, real estate is sold for cash, with a lump sum of cash going to the seller.   The real estate is leased back with a purchase option at the end of the term.   The seller remains on the property during the entire term of the transaction.
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Callers call in with different requests.   Callers will ask for a Real Estate Leaseback, or a loan against real estate, or a loan against commercial real estate.   They will also ask for a commercial real estate leaseback and to leaseback commercial real estate.

How to get a real estate leaseback.   Steps, direction and tips.

Research companies that have commercial real estate leaseback and residential real estate leaseback as primary programs.   Consider minimum funding amounts, rates, LTV loan to value requirements, and types of property that qualify.  Also review total processing time from application to funding.

Minimum loan amounts are usually $100,000.  Most programs are against commercial property.   Requirements often vary state by state depending on state real estate laws.  Some programs may not be available in all states.

Opt for the program that most fits your commercial or residential real estate property.

Opt for the program that most fits your commercial or residential real estate property.
You want the program that is going to be the best option for your commercial real estate.

Contact funding programs and make sure your commercial or residential property meets funding program requirements.

Contact funding programs and make sure your commercial or residential property meets funding program requirements
Make contact and discuss your commercial property. Try to assess whether your property meets funding program requirements based.

Submit an application for funding.  Include any documentation that increases your chances for approval, higher offer amounts and better terms.  This can include a recent property appraisal, tax returns and income property information such as rent rolls.

Submit an application for funding. Include any recent appraisals, tax returns and rent rolls.
Apply for funding. Provide any information that makes your request stronger.
With any real estate leaseback offer or approval, review the term sheet provided that includes conditions and closing requirements.  If satisfied, provide items required for closing and funding.  Borrowers paying for an updated appraisal and other closing costs is standard.   Complete the transaction and receive funding.

Transaction Dollar Amounts

The minimum dollar amounts on a Leaseback Real Estate is $100K with a maximum of $5,000,000.    Since the average property size is $250K and up, the funded amount on a Leaseback Real Estate will typically be $100K to $250K minimum, where as the average size loan on equipment is in the $50K range.

Loan to value, also known as LTV, will vary somewhat depending upon credit and the financial position of the seller.    The maximum loan to value is usually 75%.

The property in a Leaseback Real Estate will contain a structure in addition to the land.   The structure can be either a free standing commercial building, or affixed to part of a larger structure.  A strip shopping center is an example.   Other acceptable property types are apartment buildings, gas stations, convenience stores, office buildings, restaurants, and industrial plants.   Whether the structure is included in the transaction is at the discretion of the lender.   If the value of the structure is minimal, the lender may decide not to include it in the transaction.

Even though real estate values are still recovering since late 2008,  this form of financing still has many strengths and opportunities.   Real estate values have increased significantly in several markets in the United States.    For many market locations, values have not recovered as dramatically but this form of financing is still viable for many borrowers.

If the potential borrower in a leaseback real estate has significant equity, the strong equity position insulates them from market fluctuations.   This increases the prospects for approval for a significantly higher funding amount.   Our representatives will discuss the details of your scenario with you.    You will understand and proceed on the most viable and best form of financing based on your situation.

Why this Transaction?

This form of financing can be especially effective for businesses in need of significant funding amounts, without as many of the extensive requirements of traditional financing.    Businesses in need of working capital will obtain a greater result by using their Real Estate for their business rather than simply owning Real Estate.   Terms will be significantly shorter than traditional Real Estate Financing.   Terms are usually 5 – 10 years.    This will allow the Seller to fully re-acquire ownership of the Real Estate.  At that point, they can retain full equity, or consider another Leaseback Real Estate for additional working capital for their business.

Our experienced industry professionals, experienced in both Leaseback Real Estate and a Leaseback using Equipment will quickly guide you through the process.   

Leasebacks involving equipment or vehicles bring in revenue into the business.   However, using real estate will bring in the most capital into the business by far.  The borrower can expect an environmental survey to be required.    The cost of the survey will normally be $500 to $1,000.

leaseback real estate
The leaseback real estate option

A real estate leaseback can bring in millions of dollars in comparison to an equipment leaseback.   An equipment leaseback usually generates only tens of thousands of dollars.   Corporations that have over $10,000,000 in sales per year or higher should first review their real estate holdings to determine which financing type would be better suited for their needs.

Exceptions

There are some exceptions to the general rule that a leaseback against Real Estate will bring in more revenue than a leaseback against equipment.  In recent years, some airlines completed a sale leaseback against Jumbo jet airplanes for amounts in the tens of millions of dollars.   On January 18th, 2013, Air India put all it’s newly acquired Boeing 787-8 Dreamliner planes up for a Sale Leaseback and invited lenders to bid for a sale leaseback on the planes, even while they were still grounded worldwide.

Frequently asked questions:

Question:  Is there a minimum amount the property has to be worth
before you will consider a loan against it?
Answer:  The minimum loan amount is $250,000 on commercial property.
In order to do a loan, the property has to be worth at least $500,000.
There may be room for some exceptions, although in most cases, the
$250,000 minimum is the least that will be considered.
Question:  How long does this transaction take?  We only have about
six weeks at the most to consider this leaseback real estate transaction
otherwise we will lost an income opportunity.
Answer:  In most cases, the entire process takes four to six weeks.   In some
cases it may take longer due to deed and title issues, flood plain problems, the
need for a more involved environmental surveys, and other reasons.

Thank you for visiting our Leaseback Real Estate Resources page!