The Benefits of a Sale-Leaseback for Auto Dealerships

A sale-leaseback transaction offers significant advantages for automobile dealerships, allowing dealers to unlock capital tied up in real estate while maintaining full operational control.

Higher Returns on Investment

Auto dealers typically achieve greater returns by reinvesting in their core business—expanding inventory, upgrading facilities, enhancing service offerings, or acquiring additional locations—rather than holding real estate.

Maximized Equity Access

Selling the dealership property unlocks 100% of the equity for reinvestment. Traditional financing options only provide 70-80% of the equity, with added costs for refinancing every few years and the risk of balloon payments upon loan maturity.

No Loan Covenants

By eliminating mortgage debt, dealers avoid restrictive loan covenants, which can limit financial flexibility and increase risk. A sale-leaseback gives full control over financial decisions without lender-imposed restrictions.

Strategic Flexibility

At the end of the lease term, the dealership has the option to renew, relocate, or expand without the burden of selling a vacant property—an asset that often has a limited buyer pool and can be challenging to offload.

Potential Tax Advantages

Under a sale leaseback, the dealer (now tenant) can fully deduct lease payments as a business expense, compared to a mortgage where only loan interest and depreciation are deductible—both of which can have tax recapture implications.

Speed & Efficiency

Sale-leaseback transactions can be structured and closed quickly, providing dealers with immediate liquidity to reinvest or fund other strategic initiatives.

Increased Business Sale Proceeds

When selling a dealership, separating the real estate from the business transaction can yield higher overall proceeds. Investors typically pay a premium for NNN-leased dealership properties, and selling the real estate separately often results in a higher valuation for both assets.

Maximize Value with the Right Advisors

A properly structured sale-leaseback can significantly enhance a dealership’s financial position. It’s crucial to work with an experienced automotive real estate broker, along with legal and tax professionals, to ensure an optimal transaction structure.

Interested in exploring a sale-leaseback for your dealership? Contact us for a confidential analysis of your options.