can you explain the benefits of a commercial property land lease vs. selling outright?

The commercial property has a building on it that we will tear down, then lease the land.
In Leasing Property - Asked by Sue F. - Dec 28, 2009
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Info I.
Burr Ridge, IL

Maybe avoiding capital gains could be one benifit. Maybe by leasing to another tenant at a higher rate thus increasing the value of the land thru increasing your cash flow by the higher ground rent. Maybe selling the lease while retainging the rights to the land if it were to revert back to you after lease expiratoin. Your basis in the land would have to be considered. We don't know how much you paid, versus how much you were offered. By having more information you could do a comparison of the return on sale versus the return on the lease. Good luck

Dec 29, 2009
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M.E. C.
Pasadena, TX

It all depends on where is the property located.
Leasing the land the income stream is realized all throughout the year. Net income to will depend on what expenses as a landlord other than management for rent collection, are incurred. i.e. cleaning, lighitng, etc. Most of the time on land expenses are 0 other for rent collection.
Ground lease. Landlord collects rent no up-keep user will invest in building a structure for its use. Usually will engage in a long term lease ie. 20 yrs. If tenant defaults you have acquired the improvements.
As far as tax consequnces and benefits I would suggest you consult with your accountant or CPA.
Mollie Carreon, AASRE, Broker -713.875.8130

Dec 29, 2009
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Barry M.
Austin, TX

As with all real estate the location and the current market with-in that location are the largest contributing factors to determining lease versus selling. Elementary speaking, the future value of the land is the main contributor, is the property an infill near the central business district of Austin, TX versus Detroit MI ? Obviously Austin has a population & job growth with strong educated work force versus Detroit. Land prices near the cbd of Austin are still appreciating, I would say lease.
The other determination would be the quality of the tenant and the quality an feasibility of their development. If they build an auto part store or a restraunt that goes out of business is the building alterable with out causing a functional obsolete building for other potential users. If the tenant is a CVS, Walgreens, Chicken Express etc, national credit tenants make the difference.
You as the seller or landlord have an inert taxable circumstance as well to consider. Will the sell cause you havic on your tax burden?
You can always discount the future values of both scenarios as compared to your tax situation and personal needs.
Wishing you the best!
Barry L Marotz, CCIM

Dec 29, 2009
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Darren A.
San Juan Capistrano, CA

The most obvious is you're holding on to an asset, generating cash and avoiding capital gains tax. I would take into consideration your cash flow/debt service, if the #'s make sense hold on for another year.

Jan 1, 2010
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