Sale-leaseback for business owners: cash out and stay put
By Francisco Williams, CCIM · CCIM · Executive Vice President, Williams Capital Advisors · CalDRE #01979442 · Updated
Short answer
In a sale-leaseback, a business sells its building to an investor and signs a long-term lease to stay. The business frees up equity as cash without moving; the buyer gets a property with a tenant in place. The trade-off is giving up ownership and future appreciation, and taking on rent.
Why owners consider it
To fund growth, pay down debt, buy out a partner or plan a retirement without relocating the business. The building's equity becomes working capital.
Pros and cons
The table sets it against a cash-out refinance, the most common alternative.
| Sale-leaseback | Cash-out refinance | |
|---|---|---|
| Cash available | Most of the equity | Limited by loan-to-value |
| Ownership | Sold | Kept |
| Future appreciation | Buyer's | Yours |
| Ongoing cost | Rent under a long lease | Debt service |
| Taxes on proceeds | Possible capital gains; ask a CPA | Generally none at funding |
| Flexibility to move | Lease terms decide | You own it |
General comparison; not tax or legal advice.
What buyers look at
Your business's financial strength (it's the tenant), the lease term and rent, the property's location and reuse value, and who pays taxes, insurance and maintenance (usually NNN).
Set the lease carefully
The rent you agree to sets the price buyers will pay. Higher rent means a higher price but higher occupancy cost for years. Model both sides before agreeing.
Next step
Start with a broker opinion of value, then request WCA's complimentary property review.
Frequently asked questions
What is a sale-leaseback?
Selling your property to an investor and leasing it back so your business stays.
Is a sale-leaseback better than refinancing?
It frees more cash but gives up ownership. Compare both with your CPA.
Who pays taxes after a sale-leaseback?
Usually the tenant under a NNN lease, at the new assessed value.
Sources
Reading a cap rate on a small commercial listing: adjust the NOI first
What a capitalization rate measures, how listing cap rates are built, and three questions to ask before trusting one.
Before you sell: what a commercial broker opinion of value covers
What a BOV includes, how it differs from an appraisal, and how owners use it to decide whether to sell, refinance or hold.