Legal Definitions - cashout

A cashout refers to a financial arrangement where a seller of an asset, most commonly real estate or a business, chooses to receive the full monetary value of their ownership stake (known as equity) in cash at the time of the sale. This means the seller does not retain any ongoing financial interest in the property or business after the transaction is complete, ensuring they receive all their proceeds upfront.

• Example 1: Residential Home Sale

  Imagine a couple, the Millers, who have lived in their home for 25 years and have paid off most of their mortgage. They decide to sell their house to downsize for retirement. When they find a buyer, they ensure the sale agreement specifies that they will receive the entire amount of their home's equity in cash at the closing. They do not offer any seller financing to the buyer, nor do they retain any partial ownership or future interest in the property.

  This is a cashout because the Millers are converting their complete ownership stake (equity) in their home into immediate, liquid funds, without any deferred payments or ongoing ties to the property.

• Example 2: Small Business Acquisition

  Sarah owns a successful graphic design studio and decides it's time to pursue other interests. A larger marketing firm offers to acquire her business. Sarah negotiates a deal where she receives the full purchase price, representing her entire equity in the studio, as a lump sum cash payment upon the finalization of the sale. She does not accept a portion of future profits, nor does she retain any shares in the acquiring company.

  This transaction is a cashout for Sarah because she is fully liquidating her ownership interest in the business, receiving all her equity in cash upfront rather than maintaining any financial connection to its future performance.

• Example 3: Investment Property Sale

  An investor, Mr. Chen, owns a commercial building that he has leased out for years. The property has significantly increased in value, and he decides to sell it to diversify his portfolio. He finds a buyer who secures traditional bank financing, allowing Mr. Chen to receive all his accumulated equity from the property in cash at the closing table. He does not agree to hold a mortgage note for the buyer or retain any percentage of future rental income.

  Mr. Chen's sale is a cashout because he is converting his entire investment and accumulated equity in the commercial property into immediate cash, completely severing his financial interest in the asset.