Equipment Leasing

In an equipment leasing program, investors pool their monies together to purchase equipment which is then leased to companies and businesses. The equipment leasing program is designed to generate sheltered, passive (income) distributions that are fully sheltered the first six years and 30% sheltered thereafter to the investor. Since equipment is a tangible and durable asset, the investor may also generate additional distributions upon the expiration of the lease if the equipment is leased again or sold.

Hedge Against Rising Interest Rates & Inflation

When inflation and/or rising interest rates forces rise, the value of stocks and bonds tend to diminish in value whereas hard assets such as equipment and real estate increase. In times of recession, equipment leasing business tends to increase as companies opt to minimize cash outlay for the purchase of new or replacement equipment.

“[Investing in] Leasing programs should be 15% of all optimized portfolios to counteract market-driven financial assets.” --Financial Planning Magazine (April 1994)

Why Invest in Equipment Leasing?

“Thousands of businesses, startups and established, tech companies and service providers, all businesses--lease some or most of their equipment. In fact, 8 out of 10 businesses in the U.S. lease some or all of their equipment.” --Crystal Riley, EzineArticles.com, Expert Author

• Companies also have the ability to write off leasing expenses against taxes over the course of the lease whereas outright purchases have a depreciation schedule over five years.
• Within 18 months the average computer becomes obsolete, leasing allows companies to forgo the need to retool every 1.5 years and they avoid the dubious task of trying to sell off the old equipment.
• For businesses maintaining cash flow is imperative to continue operations, by leasing equipment the company saves itself from outlaying large amounts of capital to purchase equipment in it’s entirety.

Equipment Leasing Benefits:

• Fixed cash flow
• Tax sheltered returns
• Low correlation to the stock & bond market
• Hedge against rising interest rates and inflation
• Self-liquidating hard asset
• Longer-term investor objectives
• Limited investor liability
• Portfolio diversification
• An investor's liability is limited to their original contribution. There are no capital calls.

Types of Leases

"Triple-Net Lease" means the lessee pays the taxes, insurance and maintenance costs. A “Hell-and-High-Water Lease” means the lessee must pay the lease rate in any event - whether they use the equipment or not. No equipment is acquired without a signed, Triple-Net, “Hell-and-High-Water” lease in place beforehand.

A hybrid combination of all three of these Triple-Net Lease types:

• Operating Lease: Short term (i.e., 3-to-4 years) leases requiring active management and increased risk to re-lease the equipment and wherein the aggregate rental payments are less than the purchase price of the equipment. The monthly rental rate is greater for more income potential than for a full pay-out lease because the holding-period risk is less for the lessee. This is like leasing a car for 1 year vs. 3-to-5 years.
• Full Pay-Out Lease (i.e., recommended offerings): Long-term leases (10+ years) requiring rental payments greater than the cost of the equipment (but less per month than an operating lease) and not requiring active management or re-leasing of the equipment.
• High Pay-Out Lease: An operating-type lease that recovers at least 90% of the equipment’s cost.

Lease Terms

Lessee pays for COMPREHENSIVE INSURANCE (including fire, liability and extended warranty coverage) and to assume the risk of loss of the equipment, whether or not insured, including acts of God or war.

Lessees will indemnify and hold the Partnership harmless from and against any and all claims, costs, expenses, damages, losses and liability. 

Risks

• Decrease in interest rates could erode value of current leases
• Changes in tax laws
• No secondary market
• Technology advances rendering current equipment obsolete
• The use of leverage may magnify losses from a non performing asset