Saturday, June 28, 2014

5 Reasons Why the Owner of a Property should Consider Taking Sale-Leaseback for their Business!

While banks are becoming more and more aggressive in providing new landing opportunities, bank credit is now relatively expensive. On the other hand a company’s investment in real estate is often overlooked. Many times, a corporate real estate is underutilized and is financed with a simple mortgage. And an effective alternative to mortgage financing is the sales leaseback that better utilizes a company’s real estate. Let us first understand what sales leaseback before moving on to its benefits for owners. 

What is a Sales Leaseback?

Many companies do not own real estate but want the utility of land to produce their services and products. A sales leaseback simply enables a company to reduce the investment and liberate the cash in exchange for paying rent or executing a lease. A real estate sales leaseback is a transaction in which the owner of the property sells his land to special purpose investor and on the same time he leases the property back from the investor on terms agreed. In simpler words, a sales leaseback agreement lets the owner sell his land and then lease it from buyer. The actual owner becomes the renter and the third party gets the final ownership of the property.

Here are 5 Reasons why an Owner should Take Sales-Leaseback!

  • Set your Own Lease Terms – The owner has significant bargaining power in deciding the property lease. Since he is also a lessee, he has the opportunity to negotiate with the investor who is acquiring the land. Typical leases are of 10-15 years. The seller who is also a tenant now can further adjust extension options after the lease expiration and also includes term for early lease termination as well. It all depends on the lessee needs.
  • Retain Control of Real Estate – The one who is taking up the property for a certain period of time will be now responsible for insurance, taxes, and other expenditures like maintenance costs because most leases are structured as triple-net leases. A long term lease gives tenant a similar control over the property. The tenant can also work with the investor and include options for future expansions.
  • Tax Savings – Generally, lessees are able to write off the total lease payment as an expense for tax purposes. For the property owner, depreciation and the interest expense are only tax deduction possible. In this way, a sales-leaseback ensures better tax savings.
  • Greater Value to Real Estate – Unlike a mortgage, sale-leaseback is mostly structured to be financed up to 100% of the appraised value of the building and company land. In this way, the sales-leaseback utilizes the company’s investment more efficiently as a financial tool. Also, since the leaseback is technically not a financial instrument, it does not have covenants on the company.
  • More Attractive Sales Offering – If you are planning to sell your property in the near future, it would attract the buyer more if there is a guaranteed major tenant than it would if the property is empty. On an average, prices are higher for sales leasebacks than traditional vacant sales.

Thursday, June 26, 2014

What is Reinsurance?

Do you know that even insurance companies need insurance? Surprising, but imagine a situation where unexpected hits and insurance companies are flooded with claims, which they have no way of paying, and eventually leads to bankruptcy. This is where reinsurance steps into the picture.

Reinsurance

Definition of Reinsurance

Reinsurance is a process where one entity (reinsurer) takes on all or a part of the risk covered under a plan issued by an insurance company in consideration of payment of premium. To put it simple, reinsurance is a process where more than one insurance company share risks by purchasing insurance from other insurers, thus, limiting the total loss experienced by the original insurer in case of unexpected or a disaster. In such a scenario, the insurance company spreads the risk and the premium paid by the insurer is generally shared by all the insurance companies involved. Since the risk is now shared by more than one insurance company, it can take clients who coverage benefit is too great for a single insurance carrier to handle alone.

Different Types of Reinsurance

There are different types of reinsurance as discussed herewith:
  1. Proportional reinsurance – Here, one or more reinsurers have a share on every insurance policy the insurer provides up to a certain percentage. This means that the reinsurer will get a certain percentage of premiums or have to pay that percentage for claims, if necessary.
  1. Non-proportional reinsurance – Also known as priority or retention, the reinsurer is only required to pay if the insurer suffers total claim more than the stated amount during a given period of time.
  1. Facultative reinsurance – In this type of coverage, the reinsurer evaluates specific risk on case-to-case basis and then decides whether to bear the risk. At the same time, the insurer is also not obliged to submit all risks to the reinsurer.
  1. Treaty reinsurance – It is a standing contract between the insurer and reinsurer, where the insurer is obligated contractually to cede and the reinsurer is obligated to consider a certain portion or form of risk insured by the ceding company.
  1. Retrocession – Here, reinsurance is purchased by reinsurers to protect financial stability, to increase their capacity, and cover their exposure to risk. The ceding reinsurer is referred as retrocedent and the reinsurer who shares the risk is referred to as retrocessionaire.

Advantages of Reinsurance

There are several advantages of reinsurance as discussed here:
  • Arbitrage – Having reinsurance coverage helps in garnering additional profits of the insurance company by purchasing policy elsewhere at lower cost than what the company collects as premium from the policyholders.
  • Risk transfer – One of the best things about reinsurance is that multiple insurance companies can share or transfer specific risks with each other. This way, a single insurer doesn’t have to be bankrupt or bear total loss in the event of a disaster or unexpected.
  • Expertise of the reinsurer – Expertise of the reinsurer helps the insurer to get proper premium and rating.
  • Solvency margins – Buying surplus relief insurance helps the insurer to accept new clients having huge coverage benefits, avoiding the need for raising additional capital.
  • Capital management – Insurance companies can avoid experiencing total loss by spreading the risk via reinsurance. This helps in freeing up additional capital.
Reinsurance services are a complex and there are several factors that need to be considered in making reinsurance services successful. It is a sort of insurance for insurance companies, protecting them from meeting total loss in case of a disaster. The risk is spread across multiple insurance companies, or reinsurers, thus, providing financing, stability, and capacity to protect them against catastrophe.

Author Bio: Ethen Hunt writes articles for MedNet Insurance a leading healthcare solution provider. Here he writes about reinsurance services and provide valuable information on reinsurance, risks and benefits.

Tuesday, June 24, 2014

Hire A Lawyer to Protect Your Assets When Filing for A Bankruptcy

If you are considering filing for bankruptcy, it might not make sense to you to hire a bankruptcy lawyer and spend money on the process. You might be planning to just hire someone for the paper work for lesser fees and do rest of the things alone. If this is what you have planned, you are going to be in a mess.

Filing for A Bankruptcy

With all due respect, this is probably not the right course of action that you should follow. It would be beneficial for you emotionally and financially if you hire a professional bankruptcy lawyer. He can help you make the necessary decisions and can propose many ways to protect your assets. Yes, you need to pay fees to the lawyer but he can make the procedure a lot more easier and also protect your rights.

What a Bankruptcy Lawyer can Do for you?

It is always a wide decision to hire a bankruptcy lawyer to protect your assets when filing for bankruptcy. Here is why:
  • When you are in debt, it is common to experience nonstop pestering from debt collectors and creditors. With the help of lawyer, you can file for bankruptcy as soon as he finishes the paper work. And after filing, the harassment will stop and creditors can no longer pester you.
  • Filing a bankruptcy petition is a complicated process and there are a number of things one needs to take care to avoid making a mistake. You may think that you can do some research and proceed on your own but a lawyer will ensure a smooth process. He will protect your rights and make sure that no important factor is overlooked that might cause your case to be thrown out of court later.
  • A lawyer will guide you better in choosing either Chapter 7 or Chapter 13 and will ensure that you are qualified for the one you choose.
  • He will also advice as to what assets are protected by law and what are at risk of being turned over for liquidation.
  • He will counsel you better on what debts are secured or unsecured and which can be discharged under the type of bankruptcy you are filing.
  • You want somebody who can help you and can be your side. Court will not help you if you fail to present your case properly.
  • Filing a bankruptcy requires precision and there is no room for any type of error. You can research and proceed on your own, but when you have a support of an experienced bankruptcy lawyer, the chances of making any type of error lessen.
  • It may sound minor but a bankruptcy lawyer can definitely save your time, money and prevent you from unwanted headaches of doing all the things yourself.

Experience Matters

Many years back, it was easier to file for bankruptcy and people often used to follow the process by themselves. Scenario changed when amendments were made in the Bankruptcy Law. Now, the process is complex and has become tougher to manage by the one who is non experienced in the field. So, you need to hire the right attorney who knows when to file, how to file, how to prepare the paperwork and how to protect your assets.