How to Calculate Sale Leasebacks

How to Calculate Sale Leasebacks
Companies release cash by selling property and leasing it back.

Step 1

Assess the value of the property. If possible, get an independent appraisal to ensure the value is accurate and to avoid disputes between the buyer and seller.

Step 2

Determine an appropriate capitalization rate, or 'cap rate'. The cap rate is the annualized rental income that a property generates divided by the value of the property. Research average cap rates in your region to get an idea of current market levels. Consider the type of business that will be leasing the property. For businesses with strong credit ratings, such as banks, it may be appropriate for cap rates to be slightly lower than average. For businesses with volatile earnings or lower credit profiles, a higher than average cap rate may be appropriate.

Step 3

Calculate the rental rate. Multiply the capitalization rate by the value of the property to determine the annual rental rate. Divide this figure by 12 to calculate the monthly rental rate. Compare the rental rate with average rates in the same region to ensure it’s in line with the market. Specify the annual rate by which the rent will increase to account for inflation.

Step 4

Calculate taxes and expenses. Sale-leaseback arrangements usually involve triple net leases, which require the company leasing the property to pay for all taxes and expenses associated with the occupancy of the property, such as insurance, utilities and maintenance. To calculate the total monthly payments to be carried by the lessee of the property under the sale-leaseback arrangement, add the total amount of monthly taxes and expenses to the monthly rental rate.