Sale and Leaseback transactions (SLB) can give you more cash, less debt and allow you to continue operating your childcare company or school without interruption.
These transactions are as simple as they sound. You sell your real estate (not your business) for full market value and simultaneously lease it back from that same person or company. This action can give you less debt, less pressure and the ability to continue making money in your early education business.
The key to a successful SLB is to make sure you get two things.
ONE: A fair sales price for your real estate. The best way to determine the market value for your real estate is to hire a well-qualified, properly licensed real estate appraiser. If you’re not sure exactly how to hire the right real estate appraiser and get the best possible valuation, then see our blog post How To Get The Best Appraisal For Your Childcare Real Estate At The Best Price
TWO: The necessary lease terms to maintain or improve your profits. Like every property, every lease is different but you’ll want to scrutinize the following factors specifically:
A. Base Rent
B. Incremental increases in rent including how the increases are stated in the lease. The right wording can provide you with tax benefits.
C. Common Area Maintenance (“CAM”) charges
D. Property taxes
E. Property insurance
F. Repairs and Maintenance.
In the early education industry, “triple net” (or “NNN”) leases are the most common. In a triple net lease, the tenant pays the rent plus items D, E and F from the list above. Anything can be modified, so don’t hesitate to ask questions. For example, you might say yes to paying Repairs and Maintenance expense but exclude any costs for repairs to the roof or the heating and cooling systems. Everything is negotiable.
If you have any questions, don’t hesitate to visit us at bfsinc.net or call us at 800-467-1774.
Best to you….Brad Barnett, President BFS®
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