What does the real estate leasing operation consist of?
Among the different options for acquiring a property, real estate leasing is considered one of the best alternatives for financing the acquisition of real estate assets.
Real estate leasing is known as a rental contract with an option to buy, whereby after a period of leasing the property, the tenant is offered the possibility of acquiring ownership of the property for a price that is usually fixed at the beginning of the operation.
The option to purchase the property can usually be exercised within a period of 5 to 20 years.
It is a financing formula with which a property can be acquired without having to apply for a mortgage.
The leasing instalments are made up of:
The requirements for real estate leasing are usually similar to those established in article 106 of the Corporate Tax Law.
The following parties are involved in the real estate transaction
- Seller of the property
- Company interested in using the property and subsequently having the option to buy it.
- Leasing or leasing company
Benefits of real estate leasing
- It can be carried out on any type of property and on any type of right over the property.
- It can be done on real estate to be built in the future
- The property may have encumbrances
- 100% of the value of the property can be financed
- The amount of the transaction is fixed from the beginning, which avoids market fluctuations.
- Leasing payments are tax deductible (both capital and interest).
- VAT payments are staggered.
- It is compatible with subsidised lines of financing such as ICO loans or loans from the European Investment Bank.
Disadvantages of property leasing
- Ownership of the property is not acquired until the end of the lease.
- Early cancellation of the contract will entail a penalty.
Comparison with other types of financing
In addition to real estate leasing, there are leasing contracts for all types of furniture, machinery, vehicles, etc.
In this sense we find operational leasing, usually used to acquire machinery and vehicles, and whose differences with real estate leasing, are
- Maintenance and repair costs are the responsibility of the owner of the asset and not of the lessee.
- The purchase price of the asset at the end of the lease does not correspond to the residual amount of the total price, but to the market price of the asset.
Another option is the sale and lease back transaction, which differs from real estate leasing:
- The transaction takes place between two parties, the seller and the buyer.
- The seller remains in possession of the property through a lease contract. The buyer receives the amount of the sale and purchase transaction plus the periodic instalments for the lease of the property, and must respect the seller’s purchase option after a number of years have elapsed.
Taxation, what taxes are involved in the real estate leasing operation?
The taxes that will be levied on the property leasing transaction are:
- Corporate income tax
- Personal income tax
- Value added tax
- Stamp duty (Impuesto de actos jurídicos documentados)
If you need help with this type of real estate investment operation, please contact us.