A sale-leaseback is one of the most underrated moves in commercial real estate, and most business owners have no idea it's even an option. Here's the deal: you sell the building your business operates out of, then immediately sign a lease and keep operating right where you are. You walk away with 100% of the equity in cash, and you never move a single desk.
I've watched business owners unlock hundreds of thousands of dollars in trapped equity this way without disrupting their operations for a day. In this guide I'll break down exactly how a sale-leaseback works, why a seller does one, why an investor loves buying them, how the price and rent actually get set, and when it makes sense (and when it absolutely doesn't).
- What a sale-leaseback actually is
- How a sale-leaseback works, step by step
- Why a seller does it
- Why an investor buys it
- Sale-leaseback vs. a loan or refinance
- How the price and rent get set
- The lease is almost always triple net
- When it makes sense (and when it doesn't)
- The risks to understand first
- A worked example
What a sale-leaseback actually is
A sale-leaseback (sometimes written "sale and leaseback" or just "leaseback") is a single transaction with two parts that happen at the same closing table. You sell a property you own and occupy, and you simultaneously sign a long-term lease to keep occupying it. The moment the deal closes, you go from owner to tenant, and the buyer goes from investor to your landlord.
The key thing to understand: nothing changes operationally. Your business stays in the same building, your employees show up to the same address, your customers never know anything happened. The only thing that changes is who holds the title, and the fact that you now have a pile of cash where you used to have a building.
How a sale-leaseback works, step by step
Here's how one actually comes together:
- You own real estate your business occupies. This works best when your company owns and operates out of its own building, warehouse, or facility.
- You agree on a purchase price and a lease at the same time. The two are negotiated together, because they're linked (more on that below).
- You sell the building to an investor. Usually an investor who specifically wants stable, long-term income, not someone who wants to move in.
- You sign a long-term lease, typically 10 to 20 years. This gives the buyer predictable income and gives you certainty that you're not getting kicked out.
- You get the full sale proceeds in cash. Then you pay rent going forward instead of a mortgage.
That's it. One closing, two documents, and a business owner who just converted a static asset into working capital.
Why a seller does it
For the business owner, a sale-leaseback is really a financing tool in disguise. Here's what you get:
- You unlock 100% of your equity. A bank refinance typically gets you 65-75% of the building's value. A sale-leaseback gets you the full market value in cash, because you actually sold it.
- You keep operating, uninterrupted. No move, no downtime, no disruption to your business.
- You free up capital for higher returns. Most business owners can earn more reinvesting that cash into their actual business than they earn owning the real estate. If your company grows at 20% and your building appreciates at 4%, the math is obvious.
- Rent is fully deductible. Your lease payments become a deductible operating expense.
- It can be easier than a loan. The deal is underwritten largely on the value of the real estate and the strength of your lease, not just your balance sheet.
Why an investor buys it
Now flip to the other side of the table. Why would an investor want to buy a building and immediately hand it back to you to use? Because it's one of the cleanest income streams in commercial real estate investing:
- A tenant is already in place on day one. No lease-up risk, no vacancy, no marketing. The building is 100% occupied the second they buy it.
- A long lease means predictable income. A 15-year lease is 15 years of known cash flow.
- The tenant is motivated to stay. You built your business in that location. You're not going anywhere, which makes you a reliable, sticky tenant.
- These are usually triple net (NNN) leases, so the tenant covers taxes, insurance, and maintenance, and the investor collects nearly passive income. This is why investing in triple net properties is so popular.
Sale-leaseback vs. a loan or refinance
The whole point of a sale-leaseback is to pull cash out of a building you own. A cash-out refinance does that too, so let's put them side by side:
The trade-off is simple: a sale-leaseback gets you more cash and takes debt off your books, but you give up ownership and future appreciation. A refinance keeps you as the owner but hands you less money and more debt.
How the price and rent get set
This is the part most people miss, and it's the most important thing to understand before you negotiate. In a sale-leaseback, the rent you agree to pay is what sets the building's sale price. They're two sides of the same coin, connected by the cap rate.
The formula an investor uses is:
Sale price = Annual rent ÷ Cap rate
So if you agree to pay $140,000 a year in rent and the market cap rate for your building is 7%, the investor will pay about $2,000,000 ($140,000 ÷ 0.07). Agree to a higher rent, and your sale price goes up. Agree to a lower rent, and it comes down.
Don't just chase the biggest check. A higher rent gets you a higher sale price today, but you have to actually pay that rent every month for the next 10 to 20 years. Set the rent too high ("overrent") and you've saddled your business with an occupancy cost that hurts your operations and makes the building harder to re-lease later. Price the rent at true market, and both sides win.
The lease is almost always triple net
In the vast majority of sale-leasebacks, the lease is a triple net (NNN) lease, meaning you (the tenant) pay the property taxes, insurance, and maintenance on top of your base rent. Investors want it this way because it makes their income predictable and nearly passive. If you're the seller, factor those costs into your numbers, because your all-in occupancy cost is the rent plus those three expenses. If the difference between NNN, gross, and modified gross leases is fuzzy, I break all of it down in my guide to commercial lease types.
When a sale-leaseback makes sense (and when it doesn't)
It makes sense when:
- You own the building your business operates from and have real equity in it.
- You can put that cash to work at a higher return inside your business.
- You want to grow, acquire, pay down high-interest debt, or fund an expansion.
- You're confident you'll want to stay in this location for the long haul.
It probably doesn't when:
- You believe the real estate itself is your best-appreciating asset and you want to keep that upside.
- You might need to relocate or downsize in the next few years, and a long lease would trap you.
- The rent required to hit your target sale price would strain your operations.
The risks to understand first
- You give up appreciation. If that building doubles in value over the next 15 years, that gain belongs to the buyer now, not you.
- You're locked into a long lease. A 15-year commitment is a long time. Negotiate renewal options, and think hard about your rent escalations (the annual bumps).
- Your credit matters. The stronger your business's financials, the better your pricing, because the investor is essentially betting on your ability to pay rent for the length of the lease.
- Occupancy cost is forever. A mortgage eventually gets paid off. Rent doesn't. Make sure the trade is worth it over the full lease term.
A worked example
Say your company owns its 20,000-square-foot facility free and clear, and it's worth about $2,000,000. You want capital to open a second location, but you don't want to move or take on a bank loan. You do a sale-leaseback: you agree to a 15-year triple net lease at $140,000 per year (a 7% cap rate), and an investor buys the building for $2,000,000.
At closing, your company receives $2,000,000 in cash to fund the expansion. Going forward you pay $140,000 a year in rent (plus taxes, insurance, and maintenance), all deductible. You never left the building. A refinance would have handed you maybe $1.3-1.5M and added a loan to your balance sheet; the sale-leaseback got you the full $2M and removed the real estate debt entirely. The trade you made: you gave up the future appreciation on that building.
Want to pressure-test a scenario like this? Run the rent, cap rate, and price in my free Deal Analyzer.
Key takeaways
- A sale-leaseback lets you sell your building and keep operating in it, converting trapped equity into cash without moving.
- You unlock ~100% of the value versus 65-75% with a refinance, and you take the debt off your balance sheet.
- The rent sets the price: Sale price = annual rent ÷ cap rate. Don't overrent just to chase a bigger check.
- The lease is almost always triple net, so budget taxes, insurance, and maintenance on top of rent.
- The trade-off is appreciation and flexibility: you give up future upside and lock into a long lease.
Frequently asked questions
What is a sale-leaseback in commercial real estate?
A sale-leaseback is a transaction where a company sells a property it owns and occupies, then immediately signs a long-term lease to keep operating in it. The seller becomes the tenant and the buyer becomes the landlord, all at the same closing. It lets a business owner convert the equity in their real estate into cash without disrupting operations.
How does a sale-leaseback work?
The purchase price and the lease are negotiated together and close at the same time. You sell the building to an investor for cash and simultaneously sign a long-term lease (typically 10 to 20 years, usually triple net). You receive the full sale proceeds and then pay rent going forward instead of a mortgage, while continuing to operate in the same space.
Why would a company do a sale-leaseback?
To unlock capital. A sale-leaseback frees up roughly 100% of a building's value in cash (versus 65-75% from a refinance), removes the real estate debt from the balance sheet, and lets the business reinvest that money at a higher return, all without moving or interrupting operations. The rent payments are also tax-deductible.
How is the price in a sale-leaseback determined?
The sale price is set by the rent and the cap rate: Sale price = annual rent divided by the cap rate. For example, $140,000 of annual rent at a 7% cap rate produces a $2,000,000 sale price. Agreeing to a higher rent raises the price, but it also raises your occupancy cost for the life of the lease, so market-rate rent is usually best.
What are the risks of a sale-leaseback?
You give up ownership and future appreciation of the building, you commit to a long lease (often 15+ years), and you take on rent as a permanent occupancy cost that never gets paid off the way a mortgage does. Negotiating fair renewal options and reasonable rent escalations is critical to protecting your business.
Is a sale-leaseback better than a refinance?
It depends on your goal. A sale-leaseback gets you more cash (about 100% of value) and removes debt from your balance sheet, but you give up ownership and appreciation. A cash-out refinance keeps you as the owner with the upside, but hands you less cash (65-75%) and adds debt. Choose a sale-leaseback when access to maximum capital matters more than keeping the real estate.
What type of lease is used in a sale-leaseback?
Almost always a triple net (NNN) lease, where the tenant pays property taxes, insurance, and maintenance on top of base rent. Investors prefer NNN because it makes their income predictable and nearly passive, so the seller should budget those three costs on top of the rent when calculating their true occupancy cost.
Thinking through a sale-leaseback on your building?
Run the numbers in the free Deal Analyzer, and if you want a system for structuring deals like this, join the CRE Accelerator.