Sell vs. lease funeral home real estate calculator
Many sellers own the building as well as the business, and the buyer does not always need to buy both. This calculator compares cash from selling the property today with the present value of leasing it to the buyer and selling it later.
Sell vs. lease the real estate
Compares selling the building today with leasing it to the buyer and selling later. Assumes a net lease where the tenant pays taxes, insurance, and upkeep. Defaults are illustrative placeholders.
From a current appraisal, not a tax assessment.
The return you require for the risk of being the landlord.
Educational estimate only. Not an appraisal, valuation opinion, or loan approval.
How to use the sell vs. lease funeral home real estate calculator
- Enter today’s value. Enter the appraised property value, which is what you would receive by selling at closing.
- Describe the lease. Enter year-one market rent and the annual rent escalator.
- Set the hold and the exit. Enter how many years you would lease before selling and the exit cap rate for that later sale.
- Set your required return. Enter a discount rate, then compare the lease-then-sell value with selling today.
What the calculator does
It projects rent for each year you hold the property, rising by the escalator you enter, and discounts each year’s rent to today at your discount rate. At the end of the hold, it estimates a sale price by dividing the next year’s rent by the exit cap rate and discounts that price to today as well. The two present values together are the value of leasing, which is compared with selling at today’s value. The model assumes a net lease, where the tenant pays taxes, insurance, and upkeep, so rent is treated as the landlord’s net income. A positive difference means leasing is worth more today at your assumptions; a negative one means selling at closing comes out ahead.
How to choose the inputs
Start with a current appraisal by someone who knows special-purpose property; a funeral home is hard to value from house or office comparables, as valuing funeral home real estate explains. Market rent should be what a tenant would pay at arm’s length, not a number picked to make the deal work. The discount rate reflects the risk of depending on one tenant in a single-purpose building, so it is usually well above a bank deposit rate. The exit cap rate is your estimate of how a future buyer will price the property; setting it a little above today’s implied cap rate is the cautious choice.
How buyers, sellers, and lenders use the result
Sellers use it to see whether keeping the building is worth the landlord risk and the delay in getting their equity out; the trade-offs are laid out in selling the real estate vs. leasing it. Buyers often prefer a lease because it lowers the cash and debt needed at closing. Lenders care about the lease terms. For SBA loans, SOP 50 10 8.1 expects the lease, including renewals the buyer controls, to run at least as long as the loan, so a short lease can stall financing. A buyer may also ask for a purchase option or a right of first refusal, which limits who you can sell to later and can affect the exit price you assume.
What it leaves out
Taxes can change the answer. Selling now triggers gain, including unrecaptured section 1250 gain on past depreciation taxed at up to 25%, while holding defers it. The model leaves out vacancy if the tenant fails, selling costs, roof and system replacements a net lease may not cover, and any mortgage on the property. It also assumes the business price is the same either way. Read selling the business and the real estate and talk to your CPA before deciding. Every default here is a placeholder.
Related reading
Frequently asked questions
Is it better to sell or lease my funeral home building to the buyer?
It depends on the rent, how long you want to hold, the risk of a single tenant, and taxes. Leasing can produce more total dollars, while selling gives you cash now and no landlord duties. Run both cases with a cautious discount rate and exit cap before deciding.
What discount rate should I use?
Use the return you would want for owning a single-tenant, special-purpose building, which is usually higher than you would accept on a bond or bank deposit. Test a range. If leasing only wins at a low discount rate, the extra return may not cover the extra risk.
What is an exit cap rate?
It is the ratio of a property’s net income to its sale price, used to estimate what a future buyer would pay. Dividing the expected rent in the year after your hold by the cap rate gives the estimated sale price. A higher cap rate means a lower price.
Will a lender finance a buyer who leases my building?
Often yes, if the lease is long enough and on market terms. For SBA loans, the lease plus renewals the buyer controls generally needs to match or exceed the loan term. Short leases, below-market rent, or a landlord who can end the lease easily can all cause problems.