While leaseback transactions have long been popular thanks to the potential benefits for both buyers and sellers, this type of sale is surprisingly on the rise.
On paper, selling a property and immediately leasing it back in your name doesn’t make a lot of sense. Although the term ‘leaseback’ can be applied to just about any asset sale, in the world of real estate, it’s becoming increasingly common given the current state of our nation’s hot property market. When properly managed and executed, a leaseback transaction may offer benefits to both the buyer and the seller – but why exactly is this the case, and what are the potential perks that are linked to the practice?
Understanding Leaseback Property Transactions
A sale and leaseback transaction, which is otherwise known as a sale leaseback or even just a leaseback, is a financial transaction when an owner of an asset sells it, before proceeding to lease it back from the new owner. In the world of real estate, a leaseback allows the owner occupier of a property to sell it to an investor – and future landlord – while continuing to live on the property.
For this type of transaction to work, there are generally two types of agreements linked to the contract of sale. Firstly, the property’s existing owner agrees to sell the dwelling in question to an investor at a fixed price – pretty standard stuff. However, the major stipulation in any leaseback arrangement is that the property’s new owner also agrees to lease their new acquisition back to the existing occupant under a leaseback agreement. Although the exact length of the lease is flexible, it’s usually for a substantial amount of time.
As such, it’s relatively easy to see the appeal of a leaseback agreement if the arrangement suits all parties involved. In the event that the existing owner needed an influx of cash to reduce debt or for whatever reason, selling their property can provide such a result, but a leaseback transaction allows them to still keep the literal roof over their head. In comparison, the new owner has not only expanded their property portfolio as an investor, but the acquisition also comes with a ready made long term tenant, providing both security and income at the same time.
Leaseback transactions are less common for residential properties, and are more so used for commercial assets. As such, it’s a process that’s used regularly for investors linked to real estate investment trusts, known as REITs. As they are generally classed as a company that owns – and in most cases operates – income-producing real estate, REITs own many types of commercial real estate, such as office and apartment buildings, warehouses, hospitals, shopping centres, hotels and even commercial forests. While leaseback agreements with REITs allows owner occupiers to free up their capital tied up in the property in question, the REIT is then able to add another structure or dwelling to what is usually a diverse portfolio of assets.
However, in residential settings, leaseback transactions are also a great way to help family members transition to the next phase of their life. For aging parents, selling the family home to the next generation under a leaseback agreement can be a sentimental affair, but it can also be a practical one. Depending on your stage of life, a leaseback agreement can help to organise a family’s financial affairs without the significant upheaval of moving house if you’re not quite ready to yet.
Should you be looking to sell your home or purchase one under a leaseback agreement, enlisting the services of a free property advisor like ESPA can often be a game changer for vendors. As an example, your advisor would likely research the property, local agents, check the zoning, evaluate market conditions, and communicate clearly with you regarding all of your options – but where do you find one?
Take The Stress Out Of Selling Property
As a completely free service, Emergency Services Property Advisors provide property advisor services to Police, Fire, Ambulance and S.E.S personnel and their families right across Victoria.
Luke and the team at ESPA are passionate about providing support to some of Australia’s most valued public servants. Along with key industry insights, ESPA also works with a broad range of service providers linked to the real estate industry such as conveyancers, trades, legal practitioners and mortgage brokers.
If you are an emergency services worker looking to potentially buy or sell property in the future, please get in touch with Emergency Services Property Advisors today to discuss how we can turn your real estate dreams into reality, or call Luke directly on 0414 757 705.
