Deriving a Cap Rate and Price
Investors usually buy sale-leaseback properties on the basis of their returns. To calculate the return on a sale-leaseback, called a capitalization rate, you divide the annual income by the price. For example, a property that has an annual rental income of $175,000 and costs $2,000,000 has an 8.75 percent cap rate. Companies looking to do sale-leasebacks can also research a common market cap rate and use it to price their asset. If they wanted to pay $250,000 a year in rent, and they determined that investors would buy their building at a 9.25 percent cap, they’d be able to sell the property for around $2,700,000, for example.