Are you looking for passive income options but too busy or indolent to do anything about it? Asset leasing just might do the job for you. Leasing is essentially a technique wherein a person with a resource of a particular commodity that can be capitalized gives another person permission to utilize the said commodity over an agreed period of time and by continual payments. The ownership of the commodity lies with the provider themselves, and the commodity is returned to them as soon as the contract ends.
The lease agreement, signed by the two parties, protects the said asset or commodity through terms and conditions set by the provider of the asset. In case of any damage issued on the asset, the asset itself acts as collateral.
A question might arise in your mind, i.e. what can you lease as an investor or as a user? Well, you are allowed to lease any physical asset you have as an owner or need in possession as a user. Items like land, property, houses, vehicles, furniture, machines, etc. Many businesses, companies, or frequent travellers require commodities they might not need after a while or do not have the budget to buy. This is where leasing assets come in handy for people. Asset leasing is an attractive alternative investment option for retail investors other than the traditional investments of stock and bonds, which tend to give more volatile and less predictable results.
Types of Leasing
To understand asset leasing better, one must have some basic knowledge about the various kinds of leasing. Listed below are the types of leasing to help you strengthen your basics:
Much like the process of renting, operating leasing is when a business can make use of a commodity or asset without taking full ownership of the said commodity.
When a party provides an asset to the user via a contract and periodical payments, at the end of which, the user becomes the asset’s final owner.
Hire Purchase Leasing
When a user receives an asset for a given amount of time while paying the instalment, especially including an interest to cover the capital cost and the decline in quality of the asset.
When a party gives out an asset to a second party for usage purposes under a contract while receiving payments periodically towards the final payment, the asset ends up with the second party getting full ownership.
Sale and Lease Back Transaction
In this arrangement, the first party sells the asset to a second party on the condition that the second party leases the item back to the first party.
Advantages of Asset Leasing
There can be several advantages to asset leasing for growing businesses and retail investors as well. Following are some of those advantages:
For Businesses (Lessee)
Fractional Real Estate
The concept of owning a piece of land partially rather than owning the whole property is known as fractional real estate. It can be done through a timeshare agreement as well, wherein multiple owners divide the use of the property throughout different times of the year.
Operating Cost and Growth
For businesses, leasing equipment like office workspace, industry-size printers, office furniture and other machinery can effectively help to save money which can then be used for other necessities.
With asset leasing, businesses can gain access to utilizing high-quality products for less price. It reduces the need for high-level investments.
Protection against Depreciation
Leasing protects businesses from investment in commodities whose performance degrades over time. With the end of a lease contract, the users can always lease a newer version of the said asset.
For new business owners, leases provide a safe boundary for businesses that can alter the contractual agreement of a lease to suit their preferences and needs.
Businesses are able to deduct the full price of the assets from their taxable income in order to save capital.
Although it depends on the terms of the contracts, it is generally the leasing party that bargains the risk of asset damage.
Leasing allows consumers to budget their costs over the long haul and make adjustments as required.
For Investors (Lessor)
Fractional Real Estate
Fractional real estate can be beneficial for the lessor as well since it allows the investors to generate income from their investments in property. It also reduces property management burdens.
The lessor attains quick returns through lease payments compared to investments in other projects since they have a long gestation period.
Fixed Principle Repayments
Periodical payments received can cover the cost of the assent and even return profits.
Through asset leasing, lessors can gain a means of passive income on top of their permanent jobs.
The investors are allowed to claim tax benefits on accounts of maintenance costs, degradation of assets etc.
Increase in Sales
Through lease financing, manufacturers experience a hike in demand, which in turn allows the lessor to bargain a decrease in purchase cost.
The ownership of the asset lies with the lessor; therefore, in case of default in payments by the lessee, the lessor can acquire back the asset.
The lessor can acquire high profits by leasing an asset; the profits will also overtake the risks involved in the leasing of the asset.
Asset leasing is essentially a way for businesses to use assets without having to purchase those assets outrightly. The businesses, instead, pay a rental fee periodically to the asset owner, who is usually a financial investor.
Therefore, for retail investors, asset leasing is a form of alternative investment which can provide a passive income from payments by the lessee. There also exists a potential for an increase in income if the value of the assets increases over time. Asset leasing can also be an advantageous option for the business paying for the lease, as it allows them to acquire assets which would otherwise pertain a huge financial burden on the company.
There exist several options for high-profit results in asset leasing for both parties. BHive is a platform that offers readers many such modules for gaining more knowledge on asset leasing and its advantages. Visit Bhive now to learn more.